Q4 2023 Carvana Co Earnings Call

Operator: And welcome to the Carvana 4th Quarter 2023 Earnings Conference. All participants will be..., please signal a comp by pressing the star key, followed by, after today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone.

Okay.

Speaker Change: Good day and welcome to the Carvana fourth quarter 2023 earnings Conference call.

Speaker Change: All participants will be in a listen only mode and should you need any assistance. Please signal conference specialist by pressing the star key followed by zero.

Speaker Change: After todays presentation, there will be an opportunity to ask questions to.

Speaker Change: To ask a question you May press Star then one on your telephone keypad.

Operator: If you would like to withdraw your question, please press star. Please also note that in this event, I would now like to turn the call over to Keehan.

And if you would like to withdraw your question. Please press Star then two.

Please also note that this event is being recorded today.

Speaker Change: I would now like to turn the conference over to Maggie <unk> with Investor Relations. Please go ahead.

Operator: Please. Thanks, Joe. Good afternoon, ladies and gentlemen, and thank you for joining us on Carvana's fourth quarter and full year 2023 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.com. The fourth quarter shareholder letter is also posted on the IR website.

Maggie: Thanks, Joe Good afternoon, ladies and gentlemen, and thank you for joining us on Carvana fourth quarter and full year 2023 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 and dotcom.

Maggie: The fourth quarter shareholder letter is also posted on the IR website. Additionally, we closed a set of supplemental financial tables for Q4, which can be found on the events and presentations page of our IR website joined.

Operator: Additionally, we post a set of supplemental financial tables for Q4, which can be found on the events and presentations page of our IR website. Joining me on the call today are Ernie Garcia, Chief Executive Officer, and Mark Jenkins, Chief Financial Officer. Before we start, I would like to remind you that the following discussions contain forward-looking statements within the meaning of the federal securities laws, including, but not limited to, Carvana's market opportunities and future financial results that involve risks and uncertainties that may cause actual results to differ materially from those discussed here. A detailed discussion of the material factors that could cause actual results to differ from forward-looking statements can be found in the Risk Factors section of Carvana's most recent Form 10-K.

Speaker Change: Joining me on the call today are Ernie Garcia, Chief Executive Officer, and Mark Jenkins, Chief Financial Officer before we start I would like to remind you that the following discussion contains forward looking statements within the meaning of the federal securities laws, including but not limited to carvana as market opportunities and future financial results that involve risks and uncertainties that may cause actual results differ materially.

Speaker Change: From those discussed here.

Speaker Change: A detailed discussion of the material factors that cause actual results to differ from forward looking statements can be found in the risk factors section I've come on its most recent Form 10-K.

Ernie Garcia III: The forward-looking statements and risks in this conference call are based upon current expectations as of today, and Carvana assumes no obligation to update or revise them, whether as a result of new developments or otherwise. Our commentary today will include non-GAAP financial metrics. Unless otherwise specified, all references to GPU and SG&A will be to non-GAAP metrics, and all references to EBITDA will be to adjusted EBITDA. Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our shareholder letter issued today, a copy of which can be found on our IR website. And with that said, I'd like to turn the call over to Ernie Garcia. Okay, Ernie?

Speaker Change: The forward looking statements and risks in this conference call are based upon current expectations as of today and Carvana assumes no obligation to update or revise them, whether as a result of new developments or otherwise.

Speaker Change: Our commentary today will include non-GAAP financial metrics, unless otherwise specified all references to GPU and SG&A will be to the non-GAAP metrics and all references to EBITDA will be to adjusted EBITA Bracken.

Speaker Change: Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our shareholder letter issued today, a copy of which can be found on our IR website.

Speaker Change: And with that said I'd like to turn the call over to Ernie Garcia Ernie.

Ernie Garcia III: Thanks, Meg, and thanks, everyone, for joining the call. 2023 was an exceptional year for Carvana. It was our best year from a financial perspective by a long way. For the full year, GPU was nearly $1,000 better than our previous best in 2021. Our full-year adjusted EBITDA per unit was over $900 higher than our previous best, and we have clear visibility to further improvements, as you can see in our outlook. The last two years have been initially characterized as negative for Carvana. In early 22, we took a quick trip from a company that was perceived to be able to do little wrong to one that was perceived to be able to do little right. That wasn't a fun transition for anyone.

Ernie Garcia III: Thanks, Meg and thanks, everyone for joining the call.

Ernie Garcia III: 2023 was an exceptional year for Carvana.

Ernie Garcia III: Our best year from a financial perspective by a long way full year GPU was 1000, nearly $1000 better than our previous passed in 2021, our full year adjusted EBITDA per unit was over $900 higher than our previous best and we have clear visibility to further improvements as you can see in our outlook.

Ernie Garcia III: The last two years have been initially characterized as negative for carvana.

Ernie Garcia III: In early 'twenty, two we took a quick trip for a company that was perceived to be able to do little wrong to one that was perceived to be able to do little right that wasn't upon transition for anyone in each of our letters. Since we went public in 2017, we have signed off with the marks continues. The reason is because we believe this statement is a simple reduction of a massively important and generally underappreciated principle.

Ernie Garcia III: In each of our letters since we went public in 2017, we have signed off with, "the march continues." The reason is that we believe this statement is a simple rephrase of a massively important and generally underappreciated principle. Getting up again and again and relentlessly pushing forward is part of every success story. But that tenacity is easy to claim and hard to achieve. It's hard because the moments when you have to get back up again feel very different in the moment than when they are imagined.

Ernie Garcia III: Getting up again, and again and relentlessly pushing forward as part of every success story, but that's an asset he is easy to claim and hard to achieve it's hard because the moments when you have to get back up again feel very different at the moment than when they are imagined they feel different for every stakeholder and most importantly, they feel different for every member of the team.

Ernie Garcia III: They feel different for every stakeholder, and, most importantly, they feel different for every member of the team. I will never know exactly who did it right to attract the team that we have, but that combination of things, which undoubtedly includes elements of luck, is almost certainly the most important thing we have ever done as a company. It's very hard for a group to go through a period like the last two years and not disintegrate under the pressure. But we didn't disintegrate.

Ernie Garcia III: I will never know exactly we did write to attract the team that we have but that combination of things, which undoubtedly includes elements of luck is almost certainly the most important thing we've ever done as a company.

Ernie Garcia III: It's very hard for group to go through a period like the last few years and not disintegrate under the pressure we didn't disintegrate. We thought we came together and we got better.

Ernie Garcia III: We fought, we came together, and we got better. The fact that we got better creates room for the last two years to be re-characterized in the future. Time will ultimately pass judgment on the impact of the last two years on the Carvana story.

Ernie Garcia III: The fact that we got better creates room for the last two years to be re characterized in the future time, we ultimately pass judgment on the impact of the last few years on the Carvana story, but my personal take is that it has been our proudest period and then when the stories written this period and our team's response will be viewed very favorably.

Ernie Garcia III: But my personal take is that this has been our proudest period and that when the story is written, this period and our team's response will be viewed very favorably. To the Carvana team, there is nothing we can say in words that will convey the gratitude we have for the fight you have always put up. But I hope you know it's real.

Ernie Garcia III: So the Carvana team Theres nothing we can say in words that will convey the gratitude we have for the fight you've always put up but I hope you know what's real thank you.

Ernie Garcia III: Thank you. While the success of 23 deserves a moment of reflection, the truth is, we still have a lot of marching to do. Our goals are big. From here, the key questions are this: Where are we, where are we going, and how are we going to get there? First, where are we? Today, Carvana sits in the strongest position we have ever been in for five reasons. I would ask that you come back to this and evaluate each element for yourself.

Ernie Garcia III: While the success of twenty-three deserves a moment of reflection. The truth is we still have a lot of marching to do our goals are big from here. The key questions are this where are we where are we going and how are we going to get there first where are we.

Ernie Garcia III: Today Carvana sits in the strongest position we've ever been in for five reasons I would ask that you come back to this and evaluate each element for yourself number one our customers love the experiences we deliver and as we execute these experiences are getting even better.

Ernie Garcia III: Number one, our customers love the experiences we deliver, and as we execute, these experiences are getting even better. Number two, the financial power of our business model is becoming clearer every quarter and is highly differentiated. Across every line item of our income statement, there remain many significant opportunities for additional improvement. We plan to make them. 3. Our infrastructure is simply unmatched.

Ernie Garcia III: Number two the financial power of our business model is becoming clearer every quarter and it's highly differentiated across every line item of our income statement. There remain many significant opportunities for additional improvement we plan to get them.

Ernie Garcia III: Number three our infrastructure is simply unmatched we have built a vertically integrated machine with 6500 acres of land and over 500000 parking spots, it's scalable and cost effectively gets cars from one customer to another more efficiently than any other machine that serves the same purpose.

Ernie Garcia III: We have built a vertically integrated machine with 6,500 acres of land and over 500,000 parking spots that scalably and cost-effectively gets cars from one customer to another more efficiently than any other machine that serves the same purpose. Competitively, we have never had more separation. As we continue to execute, that gap is getting bigger. And number five, we compete in a trillion-dollar market, and we currently have approximately 1% of the market share. The potential is obvious. So where are we going? From the early days of Carvana, we have never flinched from our goals.

Ernie Garcia III: Number four competitively we have never had more separation as we continue to execute that gap is getting bigger.

Ernie Garcia III: And number five we compete in a trillion dollar market and we currently have approximately 1% market share the potential is obvious so where are we going.

Ernie Garcia III: From the early days of Carvana, we've never flinched at our goals they have been and remain to become the largest and most profitable automotive retailer and to buy and sell millions of cars per year and finally, how are we going to get there.

Ernie Garcia III: And finally, how are we going to get there? We're going to continue to march. We are still an ambitious group with big dreams and hustle. We will keep sprinting at our goals to drive as much positive change as we can as quickly as possible, as we always have. We are also a group that is constantly learning. Every stage in Carvana's journey teaches us new lessons and adds to our toolkit. As long as that is true, and as long as we always get back up, our best day is always today. The march continues. March. Thank you, Ernie.

Ernie Garcia III: We're going to continue to March we are still an ambitious group with big Dreams and hustle.

Ernie Garcia III: We will keep sprinting at our goal is to drive as much positive changes as we can as quickly as possible as we always have we are also a group that is constantly learning every stage and Carvana journey teach this new lessons and adds to our toolkit as long as that is true and as long as we always get back up our best day is always today. The March continues mark.

Speaker Change: Thank you Mary and thank you all for joining us today.

Mark Jenkins: And thank you all for joining us today. Our fourth quarter highlighted the significant and sustainable progress we have made on our path to profitability. We set company records for fourth quarter and full year total GPU in Adjusted EBITDA, completing a year in which we improved Adjusted EBITDA by nearly $1.4 billion and positioning us well for further Adjusted EBITDA growth in 2024. As part of our earnings materials this quarter, we provide a detailed look at our fourth quarter and full year results. I'll start by summarizing three key takeaways. First,

Ernie Garcia III: Our fourth quarter highlighted the significant and sustainable progress we have made on our path to profitability.

Speaker Change: We set company records for fourth quarter, and full year total GPU and adjusted EBITDA, completing a year in which we improved adjusted EBITDA by nearly $1.4 billion and positioning us well for further adjusted EBITDA growth in 2024.

Speaker Change: As part of our earnings materials. This quarter, we provide a detailed look at our fourth quarter and full year results.

Speaker Change: I'll start by summarizing three key takeaways.

Speaker Change: First our FY 2023 results and Q1, 'twenty 'twenty four outlook resoundingly demonstrate the ability of our online sales model to generate significant adjusted EBITDA base.

Mark Jenkins: Our FY 2023 results and Q1 2024 outlook resoundingly demonstrate the ability of our online sales model to generate significant adjusted EBITDA. Based on our Q1 outlook, we expect to generate significantly above $100 million of adjusted EBITDA, equating to significantly above $1,200 per retail unit sold, despite declining used vehicle prices, industry volumes that remain below pre-pandemic levels, and sizable costs of carrying capacity for future growth. Second, we are now beginning to demonstrate record adjusted EBITDA profitability while also showing early signs of growth. Based on industry data sources, we gained market share on a sequential basis in Q4, and our outlook calls for retail unit growth, not only on a sequential basis but also on a year-over-year basis in Q1 and in full year 2024. Third, we have a unique and powerful infrastructure for significantly and efficiently scaling retail unit volume, with excess capacity in our existing footprint to support multiples of profitable growth.

Speaker Change: Based on our Q1 outlook, we expect to generate significantly above $100 million of adjusted EBITDA equating to significantly above $200 per retail unit sold despite declining used vehicle prices industry volumes that remain below pre pandemic levels and sizable cost of carrying capacity for future growth.

Speaker Change: Both.

Speaker Change: Second we are now beginning to demonstrate record adjusted EBITDA profitability, while also showing early signs of growth.

Speaker Change: Based on industry data sources, we gained market share on a sequential basis in Q4, and our outlook calls for retail unit growth not only on a sequential basis, but also on a year over year basis in Q1 and in full year 2024.

Speaker Change: Third we have a unique and powerful infrastructure for significantly and efficiently scaling retail unit volume with excess capacity in our existing footprint to support multiples of profitable growth. We expect this growth to be paired with significant operating leverage as we leverage our underutilized overhead costs.

Mark Jenkins: We expect this growth to be paired with significant operating leverage as we leverage our underutilized overhead costs. Moving now to our fourth quarter results. As we previously discussed, our long-term financial goal is to generate significant gap net income and free cash flow. In service of this goal, our management team remains focused on driving progress on a set of key non-GAAP financial metrics that are inputs into this long-term goal, including non-GAAP gross profit, non-GAAP SG&A expense, and adjusted EBITDA. Due to the dynamic nature of the current environment, we will focus our remaining remarks on sequential changes in these metrics. Retail units sold declined by 6% sequentially, in line with our outlook and better than the industry on a sequential basis. Total revenue was $2.424 billion, a decrease of 13% sequentially.

Speaker Change: Moving now to our fourth quarter results as.

Speaker Change: As we previously discussed our long term financial goal is to generate significant GAAP net income and free cash flow.

Speaker Change: In service of this goal our management team remains focused on driving progress on a set of key non-GAAP financial metrics that are inputs into this long term goal, including non-GAAP gross profit non-GAAP SG&A expense and adjusted EBITDA.

Speaker Change: Due to the dynamic nature of the current environment, we will focus our remaining remarks on sequential changes in these metrics.

Speaker Change: Retail units sold declined by 6% sequentially in line with our outlook and better than the industry on a sequential basis.

Speaker Change: Total revenue was 2.424 billion a decrease of 13% sequentially.

Mark Jenkins: In the fourth quarter, non-GAAP total GPU was 5730, a sequential decrease of $666, driven primarily by the absence of non-recurring benefits, which positively impacted Q3, and seasonality. Non-GAAP Retail GPU was $29.70 in Q4 versus 2877 in Q3, a new company record. Our strength in retail GPU came despite higher-than-normal fourth-quarter depreciation and continues to be driven by fundamental gains in non-vehicle cost of sales, customer sourcing, inventory turn times, and revenues from additional services, highlighting the value of our vertically integrated business model. We expect non-gap retail GPU in Q1 to be similar to Q4 with the potential for upside. Non-GAAP Wholesale GPU was $881 in Q4 versus $951 in Q3.

Speaker Change: In the fourth quarter non-GAAP total GPU was 50 730, a sequential decrease of $666 driven primarily by the absence of nonrecurring benefits, which positively impacted Q3 and seasonality.

Speaker Change: non-GAAP retail GPU was 29 70.

Speaker Change: In Q4 versus 28 77 in Q3, a new company record.

Speaker Change: Our strength in retail GPU came despite higher than normal fourth quarter depreciation and continues to be driven by fundamental gains and non vehicle cost of sales customer sourcing inventory turn times and revenues from additional services highlighting the value of our vertically integrated business model.

Speaker Change: We expect non-GAAP retail GPU in Q1 to be similar to Q4 with the potential for upside.

Speaker Change: non-GAAP wholesale GPU was $881 in Q4 versus $951 in Q3.

Mark Jenkins: Sequential changes in wholesale GPU were primarily driven by fourth quarter seasonality. We expect a sequential increase in wholesale GPU in Q1. Non-Gap Other GPU was 1879 in Q4 versus 2568 in Q3.

Speaker Change: Sequential changes in wholesale GPU were primarily driven by fourth quarter seasonality.

Speaker Change: We expect a sequential increase in wholesale GPU in Q1.

Speaker Change: non-GAAP other GPU was 18 79 in Q4 versus $25 68 in Q3 sequential.

Mark Jenkins: Sequential changes in other GPU were primarily driven by selling a lower volume of loans in Q4 relative to retail units sold than in Q3, as well as a lower premium on loan sales resulting from higher industry-wide loss expectations that we have since passed through to our pricing. We expect a sequential increase in other GPU in Q1. Non-GAAP SG&A expense was $376 million in Q4 versus $370 million in Q3.

Speaker Change: Sequential changes in other GPU were primarily driven by selling a lower volume of loans in Q4 relative to retail units sold that in Q3 as well as low lower premium on loan sales, resulting from higher industry wide loss expectations that we have since pass through to our pricing.

Speaker Change: We expect a sequential increase in other GPU in Q1.

Speaker Change: non-GAAP SG&A expense was $376 million in Q4 versus $370 million in Q3.

Mark Jenkins: Sequential changes in non-GAAP SG&A expense were primarily driven by the absence of a small non-recurring benefit that impacted Q3 and small incremental expenses in Q4. Finally, Adjusted EBITDA was $60 million in Q4, a new fourth-quarter company record. I'll turn now to our first quarter outlook. While the macroeconomic and industry environment continues to be uncertain, looking toward the first quarter of 2024, we expect the following as long as the environment remains stable. 1.

Speaker Change: Sequential changes in non-GAAP SG&A expense were primarily driven by the absence of a small nonrecurring benefit that impacted Q3 and small incremental expenses in Q4.

Speaker Change: Finally, adjusted EBITDA was $60 million in Q4, a new fourth quarter company record.

Speaker Change: I'll turn now to our first quarter outlook.

Speaker Change: While the macroeconomic and industry environment continues to be uncertain looking toward the first quarter of 'twenty 'twenty four we expect the following as long as the environment remains stable.

Speaker Change: One we expect retail units sold slightly up on a year over year basis, and two we expect adjusted EBITDA significantly above $100 million.

Mark Jenkins: We expect retail units sold to be slightly up on a year-over-year basis, and 2. We expect adjusted EBITDA to be significantly above $100 million. Our confidence about driving significantly above $100 million of adjusted EBITDA is driven by our results so far this quarter. This outlook does not anticipate any material one-time benefits or costs in Q1.

Speaker Change: Our confidence about driving significantly above $100 million of adjusted EBITDA is driven by our results so far this quarter.

Speaker Change: This outlook does not anticipate any material onetime benefits or cost in Q1.

Mark Jenkins: For FY 2024, we expect to grow retail units sold and adjusted EBITDA compared to FY 2023. We are excited about the path we are on, and we look forward to making continued progress toward our goal of becoming the largest and most profitable auto retailer. Thank you.

Speaker Change: For FY 'twenty 'twenty four we expect to grow retail units sold and adjusted EBITDA compared to FY 2023.

Speaker Change: We are excited about the path, we're on and we look forward to making continued progress toward our goal of becoming the largest and most profitable auto retailer. Thank you for your attention, we'll now take questions.

Speaker Change: We will now begin the question and answer session before we begin we ask that you limit yourself to one question on today's call you may reenter the queue. If you have additional questions.

Operator: We'll now take questions. We will now begin the question... Before we begin, we ask that you limit yourself to one question on, re-enter the queue if you have a, To ask a question, you may press star on your telephone. If you are using a speakerphone, please pick up your handset before pressing the button, and if at any time your question has been addressed.

Speaker Change: And again to ask a question you May Press Star then one on your telephone keypad.

Speaker Change: If youre using a speakerphone please pick up your handset before pressing the keys.

Speaker Change: Anytime Youre question has been addressed and you would like to withdraw your question. Please press Star then two.

Sharon Zackfia: To ask your question, please press star. Thank you for your time. We will take our first question now. Sharon Zack, Hey, good afternoon.

Speaker Change: At this time, we will take our first question, which will come from Sharon Zackfia with William Blair. Please go ahead.

Ernie Garcia III: I guess a couple of questions. As you think about, I mean, I want to ask a question about the quarter and then something longer term, but on the quarter itself, when you're coming up with that slightly, you know, about year-over-year units sold, what are you kind of assuming for tax refund season? Because you've got the bulk of the quarter ahead of you, and I'm curious as well about the credit tightening that you did and the rate increases when that happened and kind of how you're factoring that into any kind of curtailment that we might see in trends from here. So, I don't think we're making any unique assumptions about tax season. I think most of the information out there, if you read it, is that tax season probably started a little slower, and less money went out as a result of the timing of the holidays.

Sharon Zackfia: Hey, good afternoon, I guess the shareholder questions. As you think about I mean, I'm going to ask a question about the quarter and then something else something longer term, but on the quarter itself when youre coming up with a slightly yeah.

Sharon Zackfia: Year over year, Yeah. So why don't you kind of assuming for tax refund season, you've got the bulk of the quarter ahead of you and I'm curious as well kind of the credit tightening that you get an a rating.

Sharon Zackfia: When that happened and kind of a higher factoring that into all of that kind of curtailments that we might see in terms from here.

Speaker Change: Sure. So I was I don't think we're making any unique assumptions about tax season, I think most of the information is out there. If you if you read it as the taxi can probably started a little slower less money went out.

Speaker Change: As a result of the timing of the holidays, but I think there is an expectation that.

Ernie Garcia III: But I think there's an expectation that tax season will probably be pretty strong this year and average refunds will probably be a bit larger. Really, kind of the first chunk of significant money we believe hit yesterday and last night. And I think, you know, our assumptions driving kind of our outlook for Q1 are just anything roughly normal. I don't think we're making super aggressive assumptions there. So, I don't think there's anything super notable to discuss.

Speaker Change: They'd probably tax season will be pretty strong this year and an average refunds will probably be a bit larger are really kind of the the first chunk of of significant money. We believe hit yesterday and last night and I think our assumptions driving kind of our outlook for Q1 is it's just anything roughly normal I don't think we're making a super aggressive assumptions.

Speaker Change: So I don't think there's anything super notable to discuss.

Ernie Garcia III: And then, as it relates to credit tightening, I think we have rolled a lot of that out over the last six months. We've rolled more of that out even more recently. And so I think that's largely, or that is completely taken into account in our outlook as well. And then Ernie, you're kind of nicely within your long-term gross margin target. I know you're going to say there's more you can do on gross profit per car, but is this a point where, you know, if we look at the next three to five years, we're looking at more of the SG&A leverage as the driver of margin, or do you think that 15 to 19% gross margin target is now potentially different than what you thought a few years ago? I think you know what I'm going to say, but I'm going to say it anyway.

Speaker Change: And then as it relates to credit tightening.

Speaker Change: I think we rolled a lot of that out over the last six months. We've rolled you know more of that out yeah, even more recently and so I think that that's largely a or that is completely taken into account in our in our outlook as well.

Speaker Change: Okay, and then Ernie you're you're kind of nicely within your long term gross margin target.

Speaker Change: I know youre going to say, there's more you can do on gross profit per car, but is this a point where you know if we look at the next three to five years, we're looking at more the SG&A leverage as the driver of margin or do you think that 15% to 19% gross margin target is now potentially different than what you thought a few years.

Speaker Change: Yeah.

Speaker Change: I, yet I think you know what I'm going to say, but I'm I'm going to say it anyway. I think you know our view is there's opportunity everywhere I think a useful way to break. It down is is kind of variable expenses and fixed expenses I think fixed expenses you know roughly the way we're managing that today is holding that in a range and we expect that to lever.

Ernie Garcia III: I think, you know, our view is that there's opportunity everywhere. I think a useful way to break it down is by kind of, you know, variable expenses and fixed expenses. I think fixed expenses, you know, roughly the way we're managing that today is holding that in a range, and we expect that to lever, you know, as we turn to growth. And then I think, you know, in variable expenses, we still absolutely believe that there are gains to be had. I think the teams have been doing an incredible job. I think if you look at the trajectory of those numbers, it's very strong.

Speaker Change: You know as we turned to growth.

Speaker Change: And then I think you know in in variable expenses, we still absolutely believe that there are gains to be had I think the teams have been doing an incredible job I think if you look at the trajectory of those numbers.

Speaker Change: It's very strong and I think we're excited about a lot of initiatives that we still have left I think in many of those areas Youll prioritizing those initiatives is it is still one of our one of our bigger issues internally and just making sure that we're doing one thing at a time not trying to take on too much at any given time I think from a gross profit per unit perspective, there's also opportunity there and I think that is true.

Ernie Garcia III: And I think we're excited about a lot of initiatives that we still have left. I think in many of those areas, prioritizing those initiatives is still one of our bigger issues internally, and just making sure that we're doing one thing at a time and not trying to take on too much at any given time. I think from a gross profit per unit perspective, there's also an opportunity there. And I think that's true in basically every line item. I would, I would kind of, you know, probably characterize those as fundamental opportunities, meaning regardless of where we choose to price things like rates or the vehicle. We believe we can be more efficient in all those areas, and I think that that can take the form of continued enhancement in credit scoring and credit pricing, credit structuring, and innovations that we've recently been rolling out internally that allow us to more precisely connect our credit pricing structuring and risk assessment to individual loans. It can take the form of getting smarter about how we're buying cars, the data that we're using to evaluate the value of those cars, and a number of things that we're doing at the point of receipt of the cars to make sure that we're cutting out the biggest losers.

Speaker Change: And basically every line item I would I would probably characterize those as fundamental opportunities meeting regardless of where we choose to price things like rates are the vehicle.

Speaker Change: We believe we can be more efficient in all those areas and I think that those that can take the form of a continued enhancement and credit scoring and credit pricing credit structuring in innovations that we've been recently rolling out internally that allow us to to more a.

Speaker Change: Precisely kind of connect our credit pricing structuring and risk assessments to individual loans. It could take the form of getting smarter about how we're buying cars. The data that we're taking to evaluate the value of those cars.

Speaker Change: A number of things that we're doing at the point of receipt of the cars to make sure that we're cutting out the biggest losers. So I think theres a number of initiatives there as well that are pretty exciting.

Ernie Garcia III: So I think there's a number of initiatives there as well that are pretty exciting. And then I think, you know, we remain in this period of trying to make sure that we're driving efficiencies. And I think, you know, despite that, we're obviously looking forward to a very strong Q1 from both the financial perspective and from showing a little bit of growth for the first time in a while. So overall, I think we are just very excited about the way the team has responded over the last couple of years. I think it was pretty hard to imagine from the perspective of two years ago where we're sitting today.

Speaker Change: And then I think you know we we remain in this period of trying to make sure that we're driving efficiencies.

Speaker Change: And I think you know despite that we're obviously looking forward to a very strong Q1 from both a financial perspective, and our you know.

Speaker Change: From from showing a little bit of growth for the first time in a while so overall I think we are just very excited about the way. The team has responded to the last couple of years I think it.

Speaker Change: It was pretty hard to imagine from the perspective of two years ago, where we're sitting today I think it was hard to imagine a irrespective of a year ago, where we're sitting today and I think that we feel like we've got a lot of room to continue to make improvements and we look forward to continuing to make those improvements. So I think across the board you know we're looking for fundamental games.

Ernie Garcia III: I think it was hard to imagine from the perspective of a year ago where we are sitting today. And I think that, you know, we feel like we've got a lot of room to continue to make improvements. And we look forward to continuing to make those improvements. So I think across the board, you know, we're looking for fundamental gains. Alright, thanks, and congrats on a great 2023. Thank you. And our next question will come from Adam. Thanks, everybody.

Speaker Change: Great. Thanks, and congrats on a great 2023. Thank.

Speaker Change: Thank you.

Speaker Change: And our next question will come from Adam Jonas with Morgan Stanley. Please go ahead.

Adam Michael Jonas: All right. Thanks, everybody.

Adam Michael Jonas: So, you're guiding to substantially above a hundred... This is the first quarter, obviously, and that compares to a small loss, million EBITDA on your definition of loss from the prior year, so I'm just, I'm not asking you guys specifically for the rest of the year, but your comment of growing your EBITDA fully. I mean, you're already at $120 or $130 million kind of ahead of that statement, with already what you see in the first quarter. So my question is, Could you express confidence that for the remainder of the year you could at least grow Ibada from Q2 to Q4? If you don't have to answer the question, I just wanted to see if you were willing to go there.

Adam Michael Jonas: So you're guiding to a substantially above $100 million.

Adam Michael Jonas: For the first quarter.

Adam Michael Jonas: That compares to a small loss.

Speaker Change: Yeah.

Speaker Change: Million EBITDA.

Speaker Change: The notional loss prior years, so I'm just.

Speaker Change: I'm not asking you to guide specifically to the rest of the year, but your comment of growing full year EBITDA I mean, you're already at 120 130 million kind of ahead of that statement.

Speaker Change: With already what you see in the first quarter. So my question is could.

Speaker Change: Could you express confidence that the remainder of the year you could at least grow EBITDA from Q2 to Q4.

Speaker Change: Of course, you don't have to answer the question I'm just I just wanted to see if.

Speaker Change: If you were willing to go there yet.

Ernie Garcia III: Yeah, no, we'll appreciate the question and appreciate you handing us the answer at the end of it. But I think we have got to stick with our guidance. We want to make sure that we stay disciplined on that. We are extremely excited about where we are. I think the trends in the business are very, very strong. You know, I think we obviously had a great 23 from an EBOP perspective, but the trends that kind of underlie the sum of the year were also very positive. And those trends remain.

Speaker Change: Yeah No I appreciate the question I appreciate you hanging out at the end of it but I I think we got to stick with our guidance, we want to make sure that we stay disciplined on that we are extremely excited about where we are I think the trends in the business are very very strong you know I think we obviously had a great 23 from an EBITDA perspective, but the trends are they kind of underlying some of the.

Speaker Change: Year. We're also very positive in those trends remain in that that's what we see heading into Q1 and I think you know now the balls in our hand, and we just got to go execute and if we keep executing I think there's pretty exciting things in front of us, but we gotta go you'll make those things happen and we will continue to update you every quarter.

Ernie Garcia III: And that's what we see heading into Q1. And I think, you know, now the ball's in our hand, and we just have to go execute. And if we keep executing, I think there are pretty exciting things in front of us, but we have to go make those things happen. And we'll continue to update you every quarter. Okay, well, Ernie, I appreciate that. I'll interpret that as you're not giving me, You're not calling out any reason why you wouldn't be able to grow a bed during the remainder of the year, even though, even though you're not giving me a formal guide. That's just my interpretation of that. You would call something out if you felt there was something beyond the quarter that you felt was prudent to call out as a head. This is my interpretation.

Speaker Change: Okay, well I appreciate that I'll interpret that as you're not you're not giving me any you're not calling out any reason why you wouldn't be able to grow EBITDA in the remainder of the year, even though.

Speaker Change: Even though you're not giving formal guidance, but that's just my interpretation of that what you would call something out of you felt there was something beyond them beyond the quarter that you felt it was prudent to call out as a headwind.

Speaker Change: Just my interpretation.

Speaker Change: Well, if if we comment on your interpretation and then it starts to get really really fast.

Speaker Change: Yeah, you got your interpretation or we're going to keep marching we're excited.

Adam Michael Jonas: Well, if we comment on your interpretation, then, I mean, this starts to get, like, really meta really fast. So, yeah, you got your interpretation. We're gonna keep marching. We're excited. Thanks, Ernie.

Speaker Change: Thanks.

Speaker Change: Thank you.

Speaker Change: And our next question will come from John Healy with Northcoast Research. Please go ahead.

John Healy: Thank you Ernie I was hoping you could talk to us a little bit about affordability.

Ernie Garcia III: And our next question will come from John. Thank you.

John Healy: Would love to get your thoughts on where affordability today for your customer and the monthly payment that theyre looking at and you know theoretically if we do get with them.

John: Ernie, I was hoping you could talk just a little bit about affordability. Would love to get your thoughts on where affordability sits today for your customer in the month, and you know, theoretically, if we do get it cut by the feds. What would be the sweet spot for you guys? Is there a monthly payment you'd like to see where you are?

Speaker Change: The couple of cuts by the fed.

Speaker Change: What would be the sweet spot for you guys is there a monthly payment you'd like to see where you would say you know that would be.

Ernie Garcia III: that would be. Note: the real sweet spot for us to be is growing theme store sales and showing a good margin. I just would love for you to kind of comment on the interest rate environment and what would be, Sure, well, maybe we'll start with a couple sort of data points. So I think, you know, roughly speaking, if you like inflation, adjust car prices against all other goods, just using CPI, car prices themselves are probably still on the order of, you know, give or take 10% higher than other goods in the economy. So I think that suggests, at a price level, there's potentially room for that to continue to moderate over time. I think if you look at monthly payments, which compounded that and the moves in interest rates, you know, again, like high-level swag, monthly payments are probably on the order of, you know, more like 20% higher, you know, relative to other goods than they were pre-pandemic. So I think that also kind of points a little bit in the direction of room for moderation. But, you know, we'll see.

Speaker Change: No.

Speaker Change: The real sweet spot for us to be able to grow same store sales and show good margin as well.

Speaker Change: For you to kind of comment on the interest rate environment, and what would be ideal for you guys.

Speaker Change: Sure well, maybe we'll start with a couple of sort of data points. So I think you know roughly speaking if you like inflation adjust car prices against all other goods just using CPI car prices themselves are probably still on the order of you'll give or take 10% higher than than other goods.

Speaker Change: Economy, So I think that that suggest on a price level that there's potentially room for that to continue to moderate over time I think if you look at monthly payments.

Speaker Change: Compound that and the moves in interest rates.

Speaker Change: Again like high level Swag monthly payments are probably on the order of more like 20% higher relative to other goods than they were pre pandemic. So I think that also kind of point a little bit in the direction of of room for moderation.

Speaker Change: But we'll see I think so far that.

Ernie Garcia III: I think so far that the model of, you know, post-shortage, there's usually a glut, and car prices should probably normalize relative to other goods. So far, that's been pretty predictive for the last two years. You know, speed is always hard, but that's at least kind of predicting the direction. I think that we're seeing a lot more new car incentives and aggressiveness right now, which probably points a little bit to more support for that kind of direction in the future. But, you know, that's a hard thing to get exactly right.

Speaker Change: That model of post shortage, there's usually a glut and and you know car prices should probably normalize relative to other goods. So far that's been pretty predictive for the last two years you know the speed is always hard, but that's at least kind of predicting the direction.

Speaker Change: I think that we're seeing a lot more new car incentives and aggressiveness right, now, which probably point a little bit to more support for that kind of direction.

Speaker Change: In the future, but you know that that's a hard thing to get exactly right. I think generally speaking you know for us probably lower is better I'm not sure that there's a a level that we're trying to get to I think it makes cars more affordable for customers. It pulls more people back into the market.

Ernie Garcia III: I think, generally speaking, for us, probably lower is better. I'm not sure that there's a level that we're trying to get to. I think it makes cars more affordable for customers. It pulls more people back into the market. And, you know, generally speaking, as we've discussed in the past, I think, you know, we do exist.

Speaker Change: And you know generally speaking is as we've discussed in the past I think you know we do exist and our business is sitting between the wholesale market in the retail market and so what really matters for us is that spread.

Speaker Change: And we have kind of over the last few years. We've had you know kind of the expected case scenario I would say, but also probably the best case scenario, where you've seen depreciation which made cars more affordable, but you also saw the wholesale market anticipate that depreciation so margins have been pretty stable I think if you look at our retail margins.

Ernie Garcia III: Our business is sitting between the wholesale market and the retail market, and so what really matters for us is that spread. And, you know, over the last two years, we've had kind of the expected case scenario, I would say, but also probably the best case scenario where you've seen depreciation, which made cars more affordable, but you also saw, you know, the wholesale market anticipate that depreciation. And so margins have been pretty stable.

Speaker Change: Ben.

Speaker Change: Near a you know in the 2800 plus area for the last three quarters and we expect it to be in a similar spot to maybe even having upside in Q1.

Speaker Change: So I think that that suggests that despite the fact that this depreciation has been occurring in making cars more affordable for our customers. Our margins have held in there had been pretty steady and so you know overall I think that's playing out the way that we would like four two and probably the way that we should have expected it to.

Ernie Garcia III: I think if you look at our, you know, retail margins, we've been, you know, near, you know, in the 2800 plus area for the last three quarters, and we expect it to be in a similar spot to maybe even have upside in Q1. And so, you know, I think that that suggests that, despite the fact that this depreciation has been occurring and making cars more affordable for our customers, our margins have held in there and been pretty steady. And so, you know, overall, I think that it's playing out the way that we would like for it to and probably the way that we should have expected it to. Got it, that's helpful.

Speaker Change: Got it that's helpful. And then just one follow up there's been some market chatter out there about you guys I'm playing an active role in helping one of your former competitors liquidate it.

Speaker Change: Can you talk about what that might mean for the business in Q1 or really how the economics of those units being moved might flow through the P&L for you guys.

Speaker Change: Sure I can take that one the simple answer is we don't expect any material impacts from acquiring units.

Mark Jenkins: And then just one follow-up. There's been some market chatter out there about you guys playing an active role and helping one of your former competitors liquidate. Can you talk about what that might mean for the business in Q1 or really how the economics of those units being moved might flow through the P&L for you guys? Sure, I can take that one.

Speaker Change: And bulk from competitors, we did acquire a portfolio of about two.

Speaker Change: 2800 units in January from <unk>.

Speaker Change: Industry player that was selling their units and so you know that.

Speaker Change: Those 2800 units you know I'd I'd expect us to sell them over the next couple of quarters. We did acquire the units at both of those will be retail units sold when they sell there'll be.

Mark Jenkins: The simple answer is we don't expect any material impacts from acquiring units, you know, in bulk from competitors. We did acquire a portfolio of about 2,800 units in January from an industry player that was selling their units. And so, you know, those 2,800 units, you know, I'd expect us to sell them over the next couple of quarters. We did acquire the units in full, so, you know, those will be retail units sold when they sell; they'll generate retail gross revenue and generate retail gross profit when they sell. But, you know, given the small size of the portfolio that we acquired, I would not expect it to have a material impact on either retail units sold over the combination of the next couple quarters, including Q1, or on retail GPU sales in either of those quarters.

Speaker Change: Gross revenue and generate retail gross profit when they sell but you know given the small size of the portfolio that we acquired would not expect it to have a material impact on either retail units sold over the combination of the next couple of quarters.

Speaker Change: Including Q1 or.

Speaker Change: Or on retail GPU in either of those quarters.

Speaker Change: Got it thank you guys.

Speaker Change: Yeah.

Speaker Change: And our next question will come from Nick Jones with citizens. Please go ahead.

Nicholas Jones: Great. Thanks for taking the questions two if I can one as we think about you know the blending of phase two and three and maybe the algorithm for growth from here is there a level of unit economics.

Mark Jenkins: Thank you guys. You. And our next question, we'll, Great, thanks for taking the questions. Two, if I can.

Nicholas Jones: He started to hold and focus more topline growth or is the goal really to you know consistently.

Nicholas Jones: Consistently drunk drive kind of top line growth and unit economics as you kind of approach your long term targets.

Ernie Garcia III: One, as we think about, you know, the blending of phase two and three and maybe the algorithm for growth from here, is there a level of unit economics where you maybe start to hold and focus more on top line growth? Or is the goal really to consistently drive kind of top line growth and unit economics as you kind of approach a long-term target? Oh, I think, you know, the goal is to continually get better everywhere. I think, you know, we've benefited a bit in a way over the last two years from being able to kind of simplify our goals and focus, you know, just on improving efficiency throughout the business. And I think the primary form that benefit takes is that it just kind of has simplified the number of moving pieces in the business and has allowed us to make a lot of progress really fast.

Nicholas Jones: Oh I think the goal is to continually get better everywhere I think you know we've benefited a bit in a way over the last two years from being able to kind of simplify our goals and focus just on improving efficiency throughout the business and I think the primary form that benefit is taken.

Nicholas Jones: Is it just kind of has simplified the number of moving pieces in the business and has allowed us to make a lot of progress really fast.

Nicholas Jones: That said I do think that there remains a lot of room for improvement and as we said earlier I think one of the biggest issues. We deal with internally is just trying to make sure that we're not trying to bite off kind of too many projects because there's still a lot of projects that are pretty exciting. So I think we will continue absolutely to work on projects that we expect to drive efficiency across both variables.

Ernie Garcia III: You know, that said, I do think that there remains a lot of room for improvement. And as we said earlier, I think one of the biggest issues we deal with internally is just trying to make sure that we're not trying to bite off kind of too many projects because there are still a lot of projects that are pretty exciting. So I think we will continue to work on projects that we expect to drive efficiency across both variable costs and gross profit. We also do expect, as we kind of head into that transition, to start to focus a little bit more on projects that are supportive of growth, and that's obviously exciting. I think given where the business model is, it's very clear how powerful that is to the financial model of the business, and we think we're incredibly well positioned for that. We think that the business is in the strongest place it's ever been.

Nicholas Jones: And gross profit. We also do expect you know as we kind of head into that transition.

Nicholas Jones: To start to focus a little bit more on projects that are that are supportive of growth and that's obviously exciting I think given where the business model is you know, it's it's very clear how powerful that is to the financial model of the business.

Nicholas Jones: And we think we're incredibly well positioned for that we think that the business is in the strongest place it's ever been and we think our customer offering is stronger than it's ever been and we think our infrastructure is ready to support this growth. We think the work that it takes to grow is meaningfully less than it's been in the past I mean, just even a throw some stats out there today, where we're moving cars inbound.

Nicholas Jones: Our inspection centers.

Nicholas Jones: Approximately 20% fewer miles than we were a year ago outbound, we're moving hard 30% fewer miles that's because we've got more of these facilities and we've integrated it intelligently into our scheduling systems to make better choices there.

Ernie Garcia III: We think our customer offering is stronger than it's ever been. We think our infrastructure is ready to support this growth. We think the work that it takes to grow is meaningfully less than it has been in the past. I mean, just even to throw some stats out there. Today, we're moving cars inbound to our inspection centers approximately 20% fewer miles than we were a year ago. And outbound, we're moving cars 30% fewer miles.

Nicholas Jones: An in market ops, we're now pairing almost 50% of activities, which means I'm you know when we deliver a car to a customer you're on the way back we are picking up another car to get more efficient I think that's up 75% year over year is as we put time and effort into building those systems to make them smarter and and building the the scheduling systems to me.

Ernie Garcia III: That's because we've got more of these facilities and we've integrated intelligently into our scheduling systems to make better choices there. In market operations, we're now pairing almost 50% of activities, which means when we deliver a car to a customer on the way back, we are picking up another car to be more efficient. I think that's up 75% year over year as we put time and effort into building those systems to make them smarter and building the scheduling systems to make it more likely that we see overlap. That gets better as we get more density in the network, and there's still a lot of room to improve there. Across customer care, our advocates are roughly twice as efficient as they were in the past in terms of the number of sales per advocate per period. The same is true at time of registration, with better performance metrics in that group that are now extremely high quality.

Nicholas Jones: It more likely that we see overlap that gets better as we get more density in the network and there's still a lot of room to improve there.

Nicholas Jones: Across customer care are advocates are roughly twice as efficient.

Nicholas Jones: As they were in the past in terms of number of sales per advocate per period. The same is true in tightened registration with with better performance.

Nicholas Jones: Performance metrics in that group that are that are now extremely high quality.

Nicholas Jones: So I think we're really well positioned to head into growth when it's time and I think what we've got as you know as a company is we've got to figure out you know just how effectively we can we can manage that transition how good of a job. We can do maintaining the accountability that we had over the last couple of years by keeping things simple.

Nicholas Jones: As we do head into a more complex optimization equation of of both growth and efficiency, but the opportunities everywhere. The question is how well we execute the question is not where we're going we have every intention of selling millions of cars, we have never been better positioned for it and that is absolutely what we intend to do but how we got to figure out how quickly we can do it and how efficient we can be along the way.

Ernie Garcia III: So I think we're really well-positioned to head into growth when it's time. And I think what we've got to do now as a company is figure out just how effectively we can manage that transition, how good of a job we can do maintaining the accountability that we had over the last couple of years by keeping things simple as we do head into a more complex optimization equation of both growth and efficiency. But the opportunity is everywhere.

Speaker Change: And maybe just a follow up on that I think you've listed off kind of the four buckets you highlighted in your vertically integrated technology driven platform from the shareholder letter of the customer sourcing inbound transport inspection and reconditioning or dessert delivery or do one of those stand out as one of the biggest drivers and are there any of those where there was kind of more wood to chop that others in terms of driving.

Ernie Garcia III: The question is how well we execute. The question is not where we're going. We have every intention of selling millions of cars. We've never been better positioned for it.

Speaker Change: Fishing fee.

Speaker Change: I can take that one so I think I actually think there is opportunities.

Speaker Change: And all of those areas I don't think we feel like we're done with any of those I think we've had on these types of things at various points, but no clear opportunities in inbound transport as we expand the number of sites that where we're doing reconditioning, which brings down our inbound costs and about days.

Ernie Garcia III: And that is absolutely what we intend to do. But now we've got to figure out how quickly we can do it and how efficient we can be along the way. And maybe just to follow up on that, I think you listed off kind of the four buckets you highlighted in your vertically integrated technology-driven platform from the shareholder letter: customer sourcing, inbound transport, inspection, reconditioning, logistics, and delivery. Do any of those stand out as one of the biggest drivers? And are there any of those where there's kind of more wood to chop than others in terms of driving efficiency? I can take that one.

Speaker Change: The inbound transports side I think in the reconditioning centers, they've made tremendous gains implementing new.

Speaker Change: New technology, new processes standardizing processes across locations rolling out our proprietary <unk> system across our nationwide infrastructure, but that team has not got that team still sees meaningful opportunity to further develop our technology refine our processes and standardize and drive execution across our nation wide set of locations.

Mark Jenkins: So I actually think there's opportunities in all of those areas. I don't think we feel like we're done with any of those. You know, I think we've hit on these types of things at various points. But you know, clear opportunities in inbound transport as we expand the number of sites that we have where we're doing reconditioning, which brings down, you know, inbound costs and inbound days on the inbound transport side. I think in the reconditioning centers, they've made tremendous gains, you know, implementing new technology, new processes, standardizing processes across locations, rolling out our proprietary Carly system across our nationwide infrastructure. But that team is not done.

Speaker Change: In in outbound.

Speaker Change: Outbound transport just like the others. It's the same story pairing technology with.

Speaker Change: Process excellence, that's the area, where the teams have been focused up to this point made tremendous gains that I think they're also looking at their business today, and saying yeah, we still see further opportunity to make games and then on the sourcing side just like every other area. We've got teams that are working to everyday pulling more data sources everyday refine our al.

Speaker Change: Rhythms for putting the optimal valuation on every single car that we look at and that's you.

Mark Jenkins: That team still, you know, sees meaningful opportunities to further develop our technology, refine our processes, and standardize and drive execution across our nationwide set of locations. You know, I think in outbound transport, just like the others, it's the same story, you know, pairing technology with process excellence, that's the area where the teams have been focused up to this point and made tremendous gains. And I think they're also looking at their business today and saying, yeah, we still see further opportunity to make gains. And then, you know, on the sourcing side, you know, just like every other area, we've got teams that are working to, you know, every day, pull in more data sources every day, refine our algorithms for, you know, putting the optimal valuation on every single car that we look at.

Speaker Change: You know I think you know millions of cars.

Speaker Change: That we see.

Speaker Change: And you know we're collecting data on every single day so.

Speaker Change: I think of you know I think the main takeaway. There is we've made tremendous gains but the teams that are working on each of those areas see opportunities for meaningful gains from here.

Speaker Change: Hey, Katy Thanks, Mark.

Speaker Change: Yeah.

Speaker Change: And our next question will come from John <unk> with Jefferies. Please go ahead.

John Healy: Great. Thanks for taking my questions.

John Healy: First one on retail GPU Mark mentioned, our revenue from additional services as one of the drivers of our strong GPU in the quarter can you just detail what those additional services are and how much they're contributing to <unk> GPU and to the extent you could sort of comment on this.

John Healy: Staying ability of those additional services and in second.

John Healy: I've noticed a sort of you've recently started incorporating EBITDA per unit in <unk> public documents.

Mark Jenkins: And that's, you know, you know, I think, you know, millions of cars that we see and, you know, are collecting data on every single day. So, I think, you know, I think the main takeaway there is, you know, we've made tremendous gains, but the teams that are, you know, working on each of those areas see, you know, opportunities for meaningful gains from here. www.cdc.gov.au and Great. Thanks for taking my questions.

John Healy: I'm curious if that's just a reflection of your greater operational focus on profitability or if that's sort of moderating people externally to start assessing the business on that keep that kpis more thanks.

Speaker Change: Sure Yeah, I can take both of those so let me start with the retail GPU.

Speaker Change: So here I think that the main idea is we have a unique business model that allows us to take cars that are we.

Speaker Change: Reconditioned acquired and stored around the country and make them available to customers.

Mark Jenkins: First one on retail GPUs, Mark mentioned revenue from additional services as one of the drivers of strong GPU revenue in the quarter. Can you just detail what those additional services are and how much they're contributing to 4Q and 1Q GPU revenue? And, second, I've noticed you've recently started incorporating EBITDA per unit into your public documents. I'm curious if that's just a reflection of your greater operational focus on profitability, or if that's sort of nudging people externally to start assessing the business more on that KPI. Thanks. Sure, yeah, I can take both of those.

Speaker Change: Our 300 markets plus nationwide.

Speaker Change: So for a shorter distance.

Speaker Change: Shipments were customer.

Speaker Change: Customer find the car that's perfect for them that's nearby to them.

Speaker Change: We have free shipping in most of the markets. We operate based on our data we have the largest availability of free shipping inventory in those markets. The ones that we that we have looked at Howard for longer shipments we've been.

Speaker Change: We do.

Speaker Change: Use the opportunity of making that selection available to also generate additional revenue.

Speaker Change: Just from long distance.

Mark Jenkins: So let me start with the retail GPU. So here, I think the main idea is, you know, we have a unique business model that allows us to take cars that are, you know, reconditioned, acquired, and stored around the country and make them available to customers in, you know, our 300 markets plus nationwide. And so, you know, for shorter-distance shipments, where, you know, a customer finds a car that's perfect for them, that's nearby, we have free shipping, and in most of the markets we operate, based on our data, we have the largest availability of free shipping inventory in those markets, the ones that we have looked at. However, for longer shipments, we've been, you know, we do use the opportunity of making that selection available to also generate additional revenue just from long-distance shipping services provided to customers.

Speaker Change: The shipping services provided to customers and so I think that's where the additional revenue from additional services comes from it's really from our ability to move cars long distances efficiently around the country and make a much wider selection available to customers as a result of that now in terms of how it flows through to retail GPU, that's actually been fairly steady.

Speaker Change: Say over the last three or four quarters, it really hasn't been moving around.

Speaker Change: Much sequentially, maybe up or down a little bit, but nothing that's worth calling out I think it's more when you compare to <unk>.

Speaker Change: You know sort of our pre pandemic model, we werent generating as much revenue from having that nationwide logistics network as we are today. So that's the.

Speaker Change: To answer a question one on question two.

Speaker Change: So in my prepared.

Speaker Change: Remarks, I I've mentioned.

Speaker Change: The idea of being significantly above adjusted EBITDA per unit in Q Q1, and I think the.

Mark Jenkins: And so I think that's where the additional revenue from additional services comes from. It's really from our ability to move cars long distances efficiently around the country and make a much wider selection available to customers as a result of that. Now, in terms of how it flows through to retail GPUs, that's actually been fairly steady. I would say over the last three or four quarters, it really hasn't been moving around much sequentially, maybe, you know, up or down a little bit, but nothing that's worth calling out. I think it's more when you compare to, you know, sort of our pre-pandemic model; we weren't generating as much revenue from having that nationwide logistics network as we are today. So that's the answer to question one. On question two.

Speaker Change: You know I think that my motivation for mentioning that was you know.

Speaker Change: People for a long time you know.

Speaker Change: Didn't.

Speaker Change: They didnt believe just to say it candidly that the you know a vertically integrated e-commerce online sales model.

Speaker Change: You know could work and now we're sitting here you know in the first quarter of 2024, and you know I think we're very confidently, saying, we expect to drive significantly more than 100 billion of adjusted EBITDA were significantly more than $1200 per unit of adjusted EBITDA in the first quarter.

Mark Jenkins: So, you know, in my prepared remarks, I mentioned the idea of being significantly above adjusted EBITDA per unit in Q1. And I think the, you know, my motivation for mentioning that was, you know, people for a long time didn't, they didn't believe, just to say it candidly, that the, you know, a vertically integrated e-commerce online sales model could work. And now we're sitting here, you know, in the first quarter of 2024.

Speaker Change: And we're also doing that in an environment where rates are at multi decade highs.

Speaker Change: Which you know.

Speaker Change: Ah I think makes it easy.

Speaker Change: Even a bit more impressive we're doing it in an environment, where they used vehicle industry as a whole is still.

Speaker Change: Noticeably down relative to pre pandemic levels.

Speaker Change: Which I think we you know makes that our adjusted EBITDA generation, even more impressive. Moreover, we're doing it while also carrying significant cost of excess capacity.

Mark Jenkins: And, you know, I think we're very confidently saying we expect to drive significantly more than $100 million of adjusted EBITDA or significantly more than $1,200 per unit of adjusted EBITDA in the first quarter. And, you know, we're also doing that in an environment where rates are at multi-decade highs, which, you know, I think makes it even a bit more impressive. We're doing it in an environment where the used vehicle industry as a whole is still noticeably down relative to pre-pandemic levels, which I think makes that adjusted EBITDA generation even more impressive. Moreover, we're doing it while also carrying significant costs of excess capacity that, you know, we view as a huge benefit for us as we look forward because we're generating a lot of adjusted EBITDA now at a volume that is far below, you know, what our capacity can support from an overhead cost and fixed infrastructure perspective.

Speaker Change: And that we view as a huge benefit for us as we look forward because we're generating a lot of adjusted EBITDA now at a volume that is far below.

Speaker Change: What our capacity can support from an overhead costs and fixed infrastructure perspective, and so I just think when you start layering all of those things on top of each other.

Speaker Change: It gets us very excited about where the model can go I think it resoundingly answers the questions about whether or not this is a long term profitable business model, whether or not this is a long term sustainable business model I you know I.

Mark Jenkins: And so I just think when you start layering all of those things on top of each other, you know, it gets us very excited about where the model can go. I think it resoundingly answers the questions about whether or not this is a long-term profitable business model, whether or not this is a long-term sustainable business model. I, you know, I think the, you know, I think. That's one of the things, as I mentioned, that I think we're just feeling really good about and why I called out that one data point in my prepared remark. Who doesn't love when Professor Jenkins takes the mic?

Speaker Change: I think the.

Speaker Change: No I think.

Speaker Change: That's one of the things as I as I mentioned that I think we're just we're feeling really good about and why I called out that one data point in my prepared remarks.

Speaker Change: Kudos on the level of Professor Jenkins takes them, Mike everyone Carvana celebrating right now.

Speaker Change: Yeah.

Speaker Change: Yes.

Speaker Change: And our next question here will come from Seth Basham with Wedbush Securities. Please go ahead.

Seth Basham: Thanks, just want to follow up on an earlier question just thinking about the framework for retail GPU moving forward. So obviously as you start to grow there will be some costs associated with that growth and very limited growth you're signaling for the first quarter in terms of retail, but beyond that if you really ramp up.

Mark Jenkins: Everyone in Carvana is celebrating right now, and our next question here will come from a... Please. Thanks, I just want to follow up on an earlier question; I'm just thinking about the framework for retail GPUs moving forward. So obviously, as you start to grow, there will be some costs associated with that growth, very limited growth, you're signaling for the first quarter in terms of retail units. But beyond that, as you really ramp up, will the cost of growth outweigh all the efficiencies you continue to expect to get in 2024 within the retail GPU line? Yeah, so let's focus in on the incremental costs associated with growth in retail cost of sales. So I do think there are some costs associated with higher growth rates and retail cost of sales. I think some of them take the form of just, you know, direct hiring and training expenses.

Speaker Change: The cost of growth outweigh all of the efficiencies you continue to expect to get in 2024 within the retail GPU line.

Speaker Change: Yeah, So, let's let's focus in on.

Speaker Change: Incremental costs associated with growth in AR.

Speaker Change: Retail cost of sale. So I do think there are some costs.

Speaker Change: Costs associated with higher growth rates in retail cost of sales I think some of them take the form of just direct hiring and training expenses as Youre building up staffing you're spending money on.

Speaker Change: You know hiring training new employees, I think a little bit of it takes the form of.

Speaker Change: Newer employees typically.

Mark Jenkins: As you're building up staffing, you're spending money on, you know, hiring and training new employees. I think a little bit of it takes the form of, you know, newer employees typically take a little time to get up to speed and become as efficient as more tenured employees. And so I think that can have a small impact. I think another dynamic is, you know, you, you, you may, you may outsource more services for a period of time, as you're ramping up. Now, in our case, looking forward, I would not expect outsourcing more services to take the form of full car reconditioning by partners, which is something we did in 2021. I don't anticipate that.

Speaker Change: Take a little time to get up to speed and become as efficient as more tenured employees and so I think that could have a small impact I think another dynamic is you know you you you may you.

Speaker Change: You may outsource more services for a period of time as you're ramping up now in in.

Speaker Change: Our case looking forward I would not expect outsourcing more services to take the form of full car reconditioning by partners, which is something we did in 2021 and don't anticipate that but on smaller services.

Speaker Change: Select basis I see biopsy.

Speaker Change: You could do that.

Mark Jenkins: But on smaller services, you know, on a select basis, IC by IC, you could do that. So I give that detailed list, just so you know what we view as, you know, the some of the incremental costs associated with ramping, and it's really those three buckets. Now, let's talk a little bit about sizing.

Speaker Change: So I give that detail list just so you know.

Speaker Change: You have a clear view of what we view as.

Speaker Change: Some of the incremental costs associated with.

Speaker Change: Ramping and it's really those those three buckets now, let's talk a little bit about sizing putting all those together, we do not view those as being a particularly significant part of the overall retail GPU story. There are some offsets for example, getting leverage on fixed facilities expenses and inspect.

Mark Jenkins: Putting all those together, we do not view those as being a particularly significant part of the overall retail GPU story. There are some offsets, for example, getting leverage on, you know, fixed facility expenses and inspection and reconditioning centers, and other fixed expenses in those centers. So that's a partial offset to some of the things that I mentioned. And so I think that the main takeaway is that there are some frictions. However, we, you know, do not expect them to be of a particularly large size just based on the progress that we've made in improving our technology, improving our processes, and having a broad base of existing inspection and reconditioning centers from which to build. And so, you know, that would be my full set of thoughts on that specific question. Yeah, that's helpful. And as you work to acquire more inventory without wholesale from front competitors, what do you expect here? You know, the pure metal margin to improve going forward. So I'm not, I'm not sure I caught that question.

Speaker Change: And and reconditioning centers.

Speaker Change: Other fixed expenses in those centers so that's a.

Speaker Change: Partial offset to some of the things that I mentioned and so.

Speaker Change: I think the main takeaway is there are some frictions. However, we do.

Speaker Change: Do not expect them to be of a particularly large size just based on the progress that we've made in.

Speaker Change: In improving our technology, improving our processes, having a broad base of existing inspection and reconditioning centers from which to build and so you know that that would be my full set of thoughts on that specific question.

Speaker Change: Okay. That's helpful. And then as you work to acquire more inventory without wholesale purchases from foreign competitors. What do you expect here yeah per pair of metal margin to improve going forward.

Speaker Change: So I'm not I'm not sure I caught that question.

Mark Jenkins: Just think about the other component within retail GPU, just your spread between what you're selling cards for and what you're buying them for. You're probably getting a nice benefit from some of the inventory you're acquiring at sweetheart prices in the near term. But beyond the near term, would you expect continued expansion there?

Speaker Change: Just thinking about the other component within retail GPU, because your spread between what you're selling card square and you're buying them for probably getting a nice benefit from some of the inventory you're acquiring a sweetheart prices in the near term beyond the near term how would you expect continued expansion there.

Mark Jenkins: Yeah, so I hit the, We made a bulk purchase of vehicles from a competitor in January. We purchased about 2,800 units that we expect to sell the majority of over the next couple of quarters. We do not expect a material retail GPU impact from that. There could be some small impact, but just given the size of the portfolio, we do not expect a meaningful impact from that. On the question about... the metal margin more generally. I mean, Ernie called us out early in the call.

Speaker Change: Got it yeah. So so.

Speaker Change: I hit that.

Speaker Change: Point about.

Speaker Change: But the bulk part we made a bulk purchase of vehicle vehicles from a competitor in January we purchased about 2800 units.

Speaker Change: We expect to sell the majority of over the next couple of quarters, we do not expect a material retail GPU impact.

Speaker Change: From that there could be some small impact, but just given the size of the portfolio.

Speaker Change: We do not expect a meaningful impact for that.

Speaker Change: Then the Oh on the question about.

Speaker Change: Metal margin more generally.

Speaker Change: I mean Ernie called this out early in the call, but with our outlook.

Mark Jenkins: But, you know, with our outlook of, you know, being, you know, close to, Q4 levels with upside, or the potential for upside, in Q1, that's gonna be four consecutive quarters at a pretty substantial retail GPU level. So obviously, with four full quarters at a very strong level, we're feeling really good about the way that we're executing from a retail GPU perspective. We talked about a lot of the fundamentals that are driving that. You know, obviously, all the progress in the reconditioning centers, we're doing a great job sourcing cars for customers, we've really, you know, normalized inventory turn times, we're generating, you know, revenue from additional services, taking advantage of our national logistics network. And so I think we obviously have established a very strong track record on retail GPU, you know, with our three final quarters of 2023 and our outlook for Absolutely. Thank you. Thank you. In our next question, Great. Thanks for taking the questions. I'll take a couple as well.

Speaker Change: Of of being close to Q.

Speaker Change: Q4 levels with upside.

Speaker Change: Or the potential for upside in in Q1, that's going to be four consecutive quarters at a pretty.

Speaker Change: Pretty substantial retail GPU level. So obviously, you know with with four full quarters at a very strong level. We're feeling really good about the way that we're executing from a retail GPU perspective, we talked about a lot of the fundamentals that are driving that we talked about.

Speaker Change: Hum.

Speaker Change: Obviously, all the progress on the reconditioning centers.

Speaker Change: We're doing a great job sourcing cars for customers with really.

Speaker Change: Normalized inventory turn times were generating revenue from additional services, taking advantage of our national Logistics network.

Speaker Change: I think the.

Speaker Change: Think we obviously have established a very strong track record on retail GPU.

Speaker Change: With our three final quarters of 2023, and our outlook for Q1.

Speaker Change: Absolutely. Thank you.

Speaker Change: Thank you.

Speaker Change: Okay.

Speaker Change: And our next question will come from Rajat Gupta with JP Morgan. Please go ahead.

Rajat Gupta: Oh, great. Thanks for taking the question.

Mark Jenkins: Just to follow up on a couple of previous questions around growth, it looks like you've obviously right-sized your cost structure to a large degree. You've comfortably exceeded your long-term model, at least on a gross profit per unit basis. Obviously, the margins look low because of where prices are.

Rajat Gupta: Couple of as well.

Rajat Gupta: Just to follow up on a.

Rajat Gupta: A couple of the previous questions around growth.

Rajat Gupta: It looks like you've obviously you right size your cost structure to a large degree you're comfortably exceeded.

Rajat Gupta: Our long term model at least on a gross profit per unit.

Rajat Gupta: Obviously, the margins looked a little because it's.

Rajat Gupta: Prices are.

Mark Jenkins: So, why wouldn't the company press the pedal on growth here a little more meaningfully? Even if GPUs do come back somewhat, and you're able to leverage fixed costs from your industry background that's a factor in that decision, or in your considerations, are you just willing to go a little slowly and keep testing how the business is responding? I'm just curious about the thought process there, and I'll have a quick follow-up. Sure, well, I think the first thing we want to do is we want to kind of, you know, complete the projects that we've got underway today. And I think we have a number of projects underway today that we expect to continue to drive efficiency, so I think we want to see that through.

Rajat Gupta: Hum.

Rajat Gupta: Why wouldn't.

Rajat Gupta: Company press the pedal on growth, you're a little more meaningfully.

Rajat Gupta: Even if gpus do come back somewhat.

Rajat Gupta: And you were able to leverage fixed costs from Europe.

Rajat Gupta: In the industrial backdrop, that's a factor in court decision.

Rajat Gupta: Or integrations are you just willing to go a little slowly and keep testing how the business is responding just curious on the thought process, there and I have a quick follow up on the financing.

Rajat Gupta: Yeah.

Speaker Change: Sure well I think the first thing we want to do is we want to kind of complete the projects that we've got underway today and I think we have a number of projects underway today that we expect to continue to drive efficiency. So I think we want to see that through I think you know the reason we hadn't provided its frame earlier have you know our goal is to sell millions of cars in and to be.

Mark Jenkins: I think, you know, the reason we kind of provided this frame earlier of, you know, our goal is to sell millions of cars and to be, you know, the largest, most profitable automotive retailer is because, you know, that's the place where we're heading, and I think the question then is how fast are we going to get there? And I do think that there are reasons to believe that we should be able to grow it at fast rates and be very efficient, just given how much more efficient the business is today and the fact that infrastructure is sitting there to be filled in, but we have to go execute on that, and so I think, you know, we will always be in a rush to make as much progress as we possibly can, but we will try to be intelligent about how we transition between the goal of efficiency and the goal of growth.

Rajat Gupta: The largest most profitable automotive retailers because that's the place where we're heading and I think the question. Then is how fast are we going to get there and I do think that there are reasons to believe that we should be able to grow it at fast rates and be very efficient just given how much more efficient the businesses today and the fact that infrastructure sitting there to be filled in but we have to go execute on that and so I think you.

Rajat Gupta: We will always be in a rush to make as much progress as we possibly can but.

Rajat Gupta: But we will try to be intelligent about how we transition between the goal of efficiency and the goal of of growth. We think that there still gains to be had in both areas.

Mark Jenkins: We think that there are still gains to be had in both areas, and that's why we're labeling that a transition period. You know, the place where we're headed is clear. The speed that we're going to get there is less clear, and so, you know, as we start to make that transition, we'll keep giving you feedback to make it clear what we believe at any point in time. Got it, got it.

Rajat Gupta: And that's why we're labeling that a transition period.

Rajat Gupta: The place where we're headed is clear the speed that we're going to get there is less clear and so as we start to make that transition, we'll keep giving you feedback to make it clear what we believe at any point in time.

Speaker Change: Got it got it okay. That's fair.

Mark Jenkins: Okay, that's fair. And just in the finance business, I mean, you undersold a couple hundred million in the fourth quarter, and you noted in the shareholder letter that you don't expect any one-time benefits here in the first quarter either. So does that mean you're likely to run at this elevated level of refueling on the balance sheet from here on? And what was driving that?

Rajat Gupta: The finance business.

Speaker Change: You undersold.

Speaker Change: 100 million in the fourth quarter and you noted in the shareholder letter that you don't expect any one time benefits here in the first quarter either so there's.

Speaker Change: Does that mean, you're likely to run at this.

Speaker Change: Weighted level look with you more on the balance sheet from your own and what what's driving that decision.

Speaker Change: I get it that yes.

Mark Jenkins: Yeah, so I think the um... I would say what we call that in the outlook is us being significantly above 100 million of adjusted EBITDA. That doesn't anticipate any loan sales above originations.

Speaker Change: I think the.

Speaker Change: I would say the.

Speaker Change: What we called out in the outlook is us being significantly above $100 million of adjusted EBITDA. You know that doesn't anticipate any loan sales above originations I think it's possible that we could oversaw all originations it's just not.

Mark Jenkins: I think it's possible that we could oversell originations. It's not necessarily a baseline expectation, and it's also, I think, the most important point. We don't need to feel really good about our significantly above $100 million Adjusted Evita Outlook. And then, you know, in terms of, you know, does, is Q4 the base level? The answer to that is no.

Speaker Change: It's not necessarily our baseline expectation and it's also I think the most important point is.

Speaker Change: We don't need to to feel really good about our significantly above $100 million are adjusted.

Speaker Change: Adjusted EBITDA outlook.

Speaker Change: And then in terms of.

Speaker Change: It does is Q4 the base level the answer to that is no I do think we'll we'll we'll transition back toward more normalized levels by.

Mark Jenkins: I do think, you know, we'll transition back toward more normalized levels by overselling originations, you know, at various points from time to time over the course of the year would be my expectation. Understandable. That's clear. Thank you, and our next question. Please go ahead. Okay, thanks. A couple real quick, sort of asked, but I'll ask it another way, maybe.

Speaker Change: By over solid originations.

Speaker Change: At various points from time to time over the course of the year would be my expectation.

Speaker Change: Understood that's fair thank you.

Speaker Change: Yeah.

Speaker Change: And our next question will come from Mike Baker with D. A Davidson. Please go ahead.

Mike L. Levin: Okay. Thanks, a couple of real quick.

Mike L. Levin: Sort of asked but I'll ask it another way maybe.

Mark Jenkins: Anything unique about the first quarter and that's significantly above the $100 million that's shown? Translate into something similar and... We did address this in our outlook. So our outlook does not anticipate any, you know, one-time benefits or costs. But anything in terms of the market or, you know, is the first quarter usually more profitable than other quarters or anything, you know, externally or anything that would suggest that, you know, that kind of quarterly number. No, I think our expectations for Q1 are normal seasonality, but nothing, you know, there's the tax season that we discussed earlier that is hitting today.

Mike L. Levin: Anything unique about the first quarter and that's significantly above 100 million that shouldn't.

Mike L. Levin: Translate into something similar in future quarters in 2024.

Speaker Change: We did address this in our outlook so our outlook does not anticipate any.

Speaker Change: Hum.

Speaker Change: One time benefits or cost.

Mike L. Levin: But anything in terms of the market or you know.

Mike L. Levin: So first quarter, usually more profitable than other quarters or any any anything extra.

Mike L. Levin: Externally or anything that would suggest that that kind of quarterly number isn't sustainable.

Mike L. Levin: No I think our expectations for Q1 are our normal seasonality.

Mike L. Levin: But nothing there's tax season that we discussed earlier that that is hitting today.

Ernie Garcia III: Nothing abnormal beyond that in our assumption, uh... that makes sense, uh... OK, uh... I see a lot of advertisements and announcements on the same day, and part of that is sort of the backhaul, being more efficient on your backhauls, but what's the uptake on that? How much of a competitive advantage is that? Yeah, well, I mean, first of all, you know, we're extremely proud of that offering because that's not an easy thing to do. And I think it's the kind of thing that I think sort of flexes our vertical integration muscle, because to do that, well, you have to have a transaction platform that's very quick and easy, that's deeply integrated into your logistics system, which is connected up through your verification system, as So I think that's a complicated offering to put together.

Mike L. Levin: Nothing abnormal beyond that in our assumptions.

Speaker Change: Thank you that makes sense okay.

Mike L. Levin: And a lot of advertisements and analysis on the same day I understand part of that is sort of the backhaul being more efficient on your backhaul, but is that because what's the uptake on that how much of a competitive advantages that are becoming for you from a customer standpoint.

Mike L. Levin: Yeah, well I mean first of all we're extremely proud of that offering that's not an easy thing to do and I think it's a it's the kind of thing that debt.

Mike L. Levin: I I think sort of flex is our vertical integration muscle because to do that well you have to have a transaction platform. That's very quick and easy that's deeply integrated into your logistics system, which is connected up through your verification system as most of those customers are getting financing and they need to get their financing terms and get verified to unlock that so I think that's a complicated.

Mike L. Levin: Offering to put together that does require a vertical integration and in a lot of our system's intelligently speaking to one another I think that's something we've been working on for.

Ernie Garcia III: That does require vertical integration, and a lot of systems communicating intelligently with one another. I think that's something we've been working on, you know, for a bit now. But it's something that we've generally been pointing more at efficiency gains than at, you know, driving growth. And I think what we mean by that is, you know, just as a function of normal course, there are always kind of gaps in any given calendar that pop up for many different reasons.

Mike L. Levin: For a bit now, but it's something that we've generally been pointing more at efficiency gains than at <unk>.

Mike L. Levin: Driving growth and I think what we mean by that is just as a as a function of normal course, there are always kind of gaps in any given calendar that pop up for many different reasons and by building same day capabilities. We've been able to then basically fill in gaps.

Ernie Garcia III: And, you know, by building same-day capabilities, we've been able to then basically fill in gaps with additional volume by just making those times available to customers. And so we've been able to basically drive efficiency in our costs while simultaneously giving customers faster delivery. Now, to the extent we want to start to, you know, flex that into more of a growth tool over time, you know, one, you kind of can just do that with scale because density makes that easier to do. But two, you can lean in a little bit more into your kind of staffing model to enable more of those slots. That, I would say, is sort of a separate choice.

Mike L. Levin: With additional volume by just making those those times available to customers and so we've been able to basically drive efficiency in our cost while simultaneously, giving customers faster delivery.

Mike L. Levin: And that to the extent, we want to start to flex that into more of a growth tool over time.

Mike L. Levin: One you you kind of can you just do that with scale because density makes that easier to do but two you can lean in a little bit more into to your kind of staffing model to enable more of those slots.

Mike L. Levin: That I would say, it's sort of a separate choice. The underlying capability is something that we have built something that we're rolling out something that we're extremely excited about something that that does have uptake that is notable in the customers really like it if you search round in our reviews are online you can find a lot of commentary on it where where customers are very positively surprised by it and then I think separate.

Ernie Garcia III: The underlying capability is something that we have built, something that we're rolling out, something that we're extremely excited about, something that does have uptake that is notable and that customers really like. And if you, you know, search around in our reviews or online, you can find a lot of commentary on it where customers are very positively surprised by it. And then, I think separately, we have a choice of kind of using that, you know, just to drive efficiency, or are we going to kind of push the lever more in the direction of growth? And over time, as we balance this transition, I think that's probably the direction it'll go, but we'll see what speed it goes in that direction.

Mike L. Levin: We have a choice of kind of are we using that just to drive efficiency or or are we going to kind of get pushed to lever more of the direction of growth and overtime as we balance. This transition I think that's probably the direction it'll go but we'll see what speed it goes that direction.

Ernie Garcia III: Okay, makes sense. If I could ask one more question, your units available for sale on your website have been pretty consistent, although we did see a pickup lately as we tracked that. My guess is that's because of taking the inventory from your liquidating competitor, or am I wrong about that?

Speaker Change: Ah Okay makes sense, if I could ask one more the your units available for sale on your website. It has been pretty consistent although we did see a pick up lately as we track that my guess is that's because of taking the inventory from your liquidating competitor or am I wrong about that.

Speaker Change: More of a discretionary decision to start to bump up your inventory in anticipation of stronger growth.

Ernie Garcia III: Is that more of a discretionary decision to, you know, start to bump up your inventory in anticipation of stronger growth? I think that, um... I think most likely what you're referencing is, you know, the bulk sale or bulk acquisition of vehicles from a competitor is most likely what you're referencing there in the data. Yeah, I think there hasn't been a concerted effort.

Mike L. Levin: I think that.

Mike L. Levin: I think most likely what you're referencing is.

Mike L. Levin: The bulk sale of our bulk acquisition vehicles from a competitor.

Mike L. Levin: Most likely what you're what you're referencing there and in the data.

Speaker Change: Yeah, there hasn't been a third effort yet.

Mark Jenkins: Yeah. Right, understood. Thank you. And our next question will come from. Please guys, great, thanks for taking the questions. Maybe as a quick follow-up, Ernie, this one just on the same-day shift.

Speaker Change: Understood. Thank you.

Mike L. Levin: Yeah.

Mike L. Levin: And our next question will come from Iran. Joseph with Citi. Please go ahead.

Iran Joseph: Great. Thanks for taking the questions maybe just a quick follow up Ernie. This one just on same day shipping I think we just talked about a little bit, but now live in 11 markets rather than focusing on efficiency I wanted to hear your comments on perhaps the impact to improve conversion rates. That's coming from same day shipping is this something that youre seeing have an impact on on just you know conversion to sale.

Ernie Garcia III: Now live in 11 markets, rather than focusing on efficiency, I wanted to hear your comments. Impact to Improve, something that you're seeing have an impact on just, Transcribed by Transcription Outlet, Inc. College. That's question one, and then maybe Mark, you know, realizing it's also early, but Carly, you know, now that it's, you call it, implemented, wanted to hear about the efficiencies you're seeing just across the reconditioning process, and this in the process of, like, how AI is changing the business. Thank you.

Mike L. Levin: Or is it say call it still too early to tell in the market to see the benefits. There. That's question one and then maybe Mark you know realizing it's also early but hardly you know now that it's call. It implemented wanted to hear about the efficiencies you're seeing just across our reconditioning process and this is in the process of like how AI is.

Mark Jenkins: It's changing the business. Thank you.

Ernie Garcia III: Sure. So, on same-day delivery, I think, you know, we'll elect to not quantify the impacts, but absolutely, there's no question that speed drives conversion, and that we see that in same-day delivery as well. So, I think that is exciting. That's a powerful feature.

Mark Jenkins: Sure. So on same day delivery I think.

Mike L. Levin: Sure.

Mark Jenkins: We'll elect to not quantify the impacts but absolutely. There is no question that the speed drives conversion and that we see that in in same delivery as well our same day delivery as well.

Mike L. Levin: That is that is exciting that's a that's a powerful feature.

Ernie Garcia III: And as discussed earlier, I think over time, it's a feature that we can lean into more, you know, if we choose to use that as a growth lever. And then also, as we expand our footprint, you know, leveraging more of our desktop sites for reconditioning, it unlocks the ability to do same-day delivery in many more markets. So, I think that's a story that will probably unfold over many years, but we think it's a pretty exciting story. It's a story that is only possible with vertical integration. It's a story that's only possible with an enormous footprint, and I think it's very hard to replicate. So, something we're very excited about. And then Mark, do you want to hit Carly? Sure. Yeah, I can hit Carly.

Mike L. Levin: And as discussed earlier I think over time, it's a feature that we can lean into more if.

Mike L. Levin: If we choose to use that as a growth lever and then also as we expand our footprint.

Mike L. Levin: Leveraging more of our desktop sites for reconditioning. It unlocks the ability to do same day delivery in many more markets. So.

Mike L. Levin: I think that's a story that will probably unfold over over many years, but we think it's a pretty exciting story. It's a story that is only possible vertical integration. It's a story that's only possible with an enormous footprint and I think it's very hard to replicate so something we're very excited about and then Mark you want Harley sure yeah.

Mark Jenkins: I can hit Carly so.

Mark Jenkins: So, you know, I think we're very excited about the progress that we've made, obviously, in the reconditioning centers. A lot of that was operational gains, and a lot of that was technological gains led by the nationwide rollout of Carly. And so, you know, we have seen, I think we've talked about, more than $900 step down in non-vehicle retail cost of sales since our, you know, peak, you know, over a year ago.

Mark Jenkins: I think we're very excited about the progress that we've made obviously in the reconditioning centers.

Mark Jenkins: A lot of that was.

Mark Jenkins: Operational gains and a lot of that was technology gains led by the nationwide rollout of Carly.

Mark Jenkins: So we have seen I think we've talked about you know more than $900 stepped down.

Mike L. Levin: Non vehicle retail cost of sales.

Mike L. Levin: Since our.

Mike L. Levin: Peak.

Mike L. Levin: Over a year ago, and I think you know.

Mark Jenkins: And I think, you know, I think that's been driven by many sources getting better at, you know, the managing the process of reconditioning, getting better at, you know, parts procurement and efficiency and a number of other things. So I think that's been a big success story in the IRCs. And then you also looped in a question about AI more broadly.

Mike L. Levin: I think that's been driven by many sources getting getting better at the.

Mike L. Levin: The managing the process of reconditioning and getting better at.

Mike L. Levin: Parts procurement and efficiency at a number of other things. So I think that's been.

Mike L. Levin: A big success story.

Mike L. Levin: And in the IR sees and then you also looked in a question about AI more broadly and that's certainly an area. It's widely talked about but it is something that we're very excited about I think we have several what we see is significant advantages that are positioned to take advantage of the rapid developments that AI.

Mark Jenkins: And, you know, that's certainly an area that's widely talked about, but it is something that we're very excited about. I think we have several, what we see as, you know, significant advantages in our position to take advantage of the rapid developments in AI. One is our large scale.

Mike L. Levin: One is our large scale. So we have are collecting.

Mark Jenkins: So, you know, we collect enormous numbers of data points every year with all the cars that we're evaluating on a day-to-day basis, all of the... You know, customer interactions that we have every single day, whether it's on the website or in our communications with customers, and a number of other things. And we're able to do that at a very large scale. We're also, you know, highly vertically integrated, which we think makes AI even more powerful because various parts of the vertically integrated chain can be connecting and learning from one another, driving even further gains in AI.

Mike L. Levin: Enormous numbers of data points every year with all of the cars that we're evaluating on a day to day basis all of the.

Mike L. Levin: Customer interactions that we have every single day or whether it's on the website or in our communications with customers.

Mike L. Levin: And a number of other things and where we're able to do that a very large scale. We're also highly vertically integrated which we think makes it even.

Mike L. Levin: Even more powerful because various parts of the.

Mike L. Levin: Vertically integrated chain can be connected connecting and learning from one another are driving even further gains on AI.

Mark Jenkins: And obviously, we're also technology-centric, which I think, along with having large-scale vertical integration, is important to making the most of AI as quickly as possible. You know, we've seen all kinds of gains already or, you know, in customer care, in particular, getting better at... Processing documents, you know, automatically speeding up the time it takes to handle calls that come in to our customer care centers, and, you know, I think those are just a couple of quick examples, but this is certainly something that we're very excited about. We think we're structurally positioned to, you know, significantly benefit from it, given our large scale, our vertical integration, and our technology focus. And so definitely something that we're excited about. And just because that's a fun one, I would love to jump in and add a couple of points as well.

Mike L. Levin: And obviously, we're also technology centric, which I think along with having a large scale of vertical integration is important to making the most use of AI as quickly as possible.

Mike L. Levin: Seen all kinds of.

Mike L. Levin: Gains already or.

Mike L. Levin: Customer care in particular.

Mike L. Levin: Getting better at.

Mike L. Levin: Our processing documents.

Mike L. Levin: Automatically speeding up the time it takes to handle calls that come in to our customer care centers.

Speaker Change: And I think those are a couple of quick examples but this is certainly something that we're very excited about we think we're structurally positioned to a.

Speaker Change: We benefit from it given our large scale, our vertical integration and our technology focus and so definitely something that we're excited about and just because that's a fun what I would love to jump in and add a couple of points as well. The other thing that we believe is unique about US is our system is it totally deterministic, meaning that there isn't negotiation and that means.

Ernie Garcia III: The other thing that we believe is unique about us is that our system is totally deterministic, meaning that there isn't any negotiation, and that means that a customer coming to our site can get a complete answer, you know, instantly, just driven by logic, and so it means the experiences they can get through these tools are much more complete, and I think, you know, there are a few tools that we've worked on in our history that I think That's a hard question to answer, and it's an extremely hard question to answer if you're not vertically integrated, and if your data isn't organized in a way that enables you to do it, and it's impossible to answer if you're not. And your policies don't result in deterministic calcs that drive that, and all of ours do, so I think it's really exciting.

Speaker Change: A customer coming to our site can get a complete answer.

Speaker Change: Instantly just driven by logic and.

Speaker Change: So it means the experiences they can get through these tools are much more complete.

Speaker Change: And I think there there are few tools that we've worked on it.

Speaker Change: And in our history that I think have more clearly demonstrated the value of vertical integration because it is very very hard to answer what can feel to a customer like a very simple question do you have any.

Speaker Change: Any similar cars with the sunroof that they will cost me $20 less per month, that's a hard question to answer and it's extremely hard question to answer if youre not vertically integrated and if your data is an organized in a way that enables you to do it and it's impossible to answer if you're not if.

Speaker Change: If your policies don't result in deterministic calc that drive that and and all of ours do so I think it's really exciting. It's this is an area where anyone who's paying any attention at all is your mind is constantly blown every every week when you kind of see the new things that are rolling out. So I don't think we yet know exactly where that's going.

Ernie Garcia III: This is an area where, you know, anyone who's paying any attention at all is constantly having their mind blown every week when they kind of see the new things that are rolling out, so I don't think we yet know exactly where this is going to go. But I think we do know that we're well-positioned to take advantage of it. I think there's kind of another fundamental at play, which is... You know, the value of any given technology is always a function of how well positioned you are to use it versus those you compete with. And I think there's a pretty differentiated story here.

Speaker Change: Go I think we do know that we're well positioned take advantage of it I think also there's kind of another fundamental at play which is.

Speaker Change: The value of any given technology as is always a function of how well positioned you are to use it versus those you compete with and I think there's a pretty differentiated story here.

Ernie Garcia III: We've got a great team, and we're paying very close attention. And so we'll see where that takes us. I'm not sure it's driving, you know, numerical results yet, outside of some things you're seeing in customer care.

Speaker Change: Got a great team, we're paying very close attention and so we'll see where that takes us I'm not sure it's driving.

Mike L. Levin: Numerical results yet outside of some things youre seeing in customer care.

Ernie Garcia III: But we are certainly working on it, and we're excited about where it could go in time. Super helpful, thanks guys.

Mike L. Levin: But we are certainly working on it and we're excited about where it could go over time.

Speaker Change: Super helpful. Thanks, guys. Thank.

Speaker Change: Thank you.

Mike L. Levin: And our last question will come from John Blackledge with TD Cowen. Please go ahead.

Operator: Thank you. And our last question, we'll, Oh, great. Thanks. Two questions.

John Blackledge: Great. Thanks, two questions first he had spend was down over 30% year over year. Just curious how we should think about ads found in the first quarter and then 2024 and then just a follow up on the same day.

Operator: First, ad spend was down over 30% year over year. Curious how we should think about ad spend in the first quarter and then 2024. And then just a follow up on same day. I recognize it's in 11 markets right now and it's early days, but what's the typical mix of kinds of same day inventory available in a given market and how could that trend over time?

John Blackledge: Recognize it's in 11 markets right now and its early days, but what what's the typical mix of kind of same day inventory available in the market and how could that trend over time. Thank you.

Mark Jenkins: I can start by hitting the question on ad spend. So for ad spend in the first quarter, we expect a slight kickdown from where we were in Q4, more toward Q2, Q3 levels, maybe slightly lower, but roughly in the Q2 to Q3 range. So the overall story there is stable ad spend in Q1 relative to the past few quarters. And then, generally speaking, as it relates to inventory availability of same day, the right kind of first order way to think about that is usually the vehicles that are closest to customers in the markets where we offer them are available same day. And we are generally rolling it out in markets where we are nearby inspection centers. And so that is what is governing our choices of which markets we're rolling that out in.

Speaker Change: I can start by hitting a question on AD spend so AD spend in the first quarter, we expect a slight tick down from where we were in Q4.

Speaker Change: More toward Q2 Q3 levels.

Speaker Change: Maybe slightly lower but roughly in the Q2 to Q3 range. So that the overall story there is stable ad spend.

John Blackledge: In Q1 relative to the past few quarters.

John Blackledge: And then generally speaking as it relates to inventory availability of same day.

John Blackledge: The right kind of first of all the way to think about that is usually the vehicles that are closest to customers in the markets, where we offer it are available same day and we are generally rolling it out in markets, where we are nearby inspection centers and so that that is what is governing our choices of which markets rolling that out to and that's why over time as we.

Mark Jenkins: And that's why, over time, as we continue to open more capabilities at Odessa locations, we'll be able to expand that further. Thank you. This concludes our question and answer session. I would now like to turn the conference back on.

John Blackledge: Continue to open more capabilities at a desk locations will be able to expand that further.

Speaker Change: Thank you.

Speaker Change: Thank you.

John Blackledge: And this concludes our question and answer session I would now like to turn the conference back over to Ernie Garcia for any closing remarks.

Operator: Well, thanks, everyone, for joining the call. We're extremely excited about the work that has been done by the team here, and to the Carvana team. We do this every call. We always say thank you. I always feel like there's no way it's coming through the phone in the way that we mean it, but we really do hope that you guys feel that and understand and appreciate the impact of all the work that you've done. I don't think it was reasonable to expect the progress that we've made from the perspective of a year ago, and I hope that we have another unreasonable year now, and I think we're positioned to do it if we keep charging. So keep marching. Thank you all. We'll talk to you guys next quarter, comfort. Thank you for attending today's... Are you with me now?

Ernie Garcia III: Great well thanks, everyone for joining the call. We're extremely excited about the work that has been done by the team here and and to the Carvana team. Yeah. We do this every call. We always say thank you I always feel like Theres no way, it's coming through the phone and the way that we mean, it but but we really do hope that you guys feel that and understand and.

John Blackledge: And appreciate the impact of all the work that you've done.

John Blackledge: I just I I don't think it was reasonable to expect the progress that we've made from the perspective of a year ago and I hope that we have another unreasonable year now and I think we're positioned to do it if we keep charging so keep marching. Thank you all will talk to you next quarter.

John Blackledge: Okay.

Speaker Change: The conference has now concluded.

Speaker Change: Thank you for attending today's presentation you may now disconnect your lines.