Q2 2024 Carvana Co Earnings Call

Operator: Good day and welcome. Thank you for earning this call. All participants will be in less than only Should you need assistance, please signal a conference special by pressing the star key followed by zero.

Operator: Good day and welcome to the Carvana 2nd quarter of 2024, our news call. Our participants will be in less than only homes.

Speaker Change: Good day and welcome to the Carvana second quarter 2024 earnings call. All participants will be in listen-only mode.

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Should you need assistance, please signal a conference by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions.

Operator: After today's presentation, there will be an opportunity to ask questions, to ask a question. [inaudible] Should you wish to withdraw your questions, please press start. Note, this event is being recorded. I would now like to turn the conference over to Meg Kehan, Ambassador Relations. Please go ahead.

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Meg Kehan: I would now like to turn the conference over to Meg Kehan, Investor Relations. Please go ahead.

Speaker Change: I would now like to turn the conference over to Meg Kehan, Ambassador Relations. Please go ahead.

Meg Kehan: Thank you, Brenda. Good afternoon, ladies and gentlemen, and thank you for joining us on Carvana's 2nd quarter 2024 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 2nd quarter shareholder letter is also posted on the IR website. Additionally, we posted a set of supplemental financial tables for Q2, which can be found on the events and presentations page of our IR website.

Meg Kehan: Thank you, Brenda. Good afternoon, ladies and gentlemen, and thank you for joining us on Carvana's second quarter 2024 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 second quarter shareholder letter is also posted on the IR website.

Meg Kehan: Thank you, Brenda. Good afternoon, ladies and gentlemen, and thank you for joining us on Carvana's second quarter 2024 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.

Meg Kehan: Additionally, we posted a set of supplemental financial tables for Q2, 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 discussion contains 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 and Form 10-Q.

Speaker Change: The second quarter shareholder letter is also posted on the IR website. Additionally, we posted a set of supplemental financial tables for Q2, which can be found on the events and presentations page of our IR website.

Meg Kehan: 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 with the meaning of the federal securities laws, including but not limited to Carvana's market opportunities and future financial results, that involve risk and uncertainties that may cause actual results to differ materially from those discussed here. A detailed discussion of the material factors that cause actual results to differ from forward-looking statements can be found in the risk factor section of Carvana's most recent Form 10-K and Form 10-Q.

Speaker Change: Joining me on the call today are Ernie Garcia, Chief Executive Officer, and Mark Jenkins, Chief Financial Officer.

Speaker Change: Before we start, I would like to remind you that the following discussion contains forward-looking statements with the meaning of the federal securities laws, including but not limited to Carvana's marked opportunities and future financial results that involve risks and uncertainties that may cause actual results to differ materially 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 of Carvana's most recent Form 10-K and Form 10-Q .

Meg Kehan: Before looking, statements and risks in this conference call are based on current expectations as of today, and Carvana assumes no obligation to update or revise them, 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 EBITDAF will be to adjusted EBITDAF. Our conciliations between gap and non-gap metrics for our reporter results can be found in our shareholder letter issued today. A copy of which can be found on our IR website.

Meg Kehan: The forward-looking statements and risks in this conference call are based on current expectations as of today, and Carvana assumes no obligation to update or revise them, 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 on 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 non-GAAP metrics, and all references to EBITDA will be to adjusted EBITDA.

Ernie: Reconciliations between GAP and non-GAP 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. Ernie?

Meg Kehan: And with that said, I'd like to turn the call over to Ernie Garcia. Ernie?

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

Ernest C. Garcia: Thanks Meg, and thanks everyone for joining the call. The second quarter was another landmark quarter for Carvana. In the first quarter of this year, we were both the fastest growing and the most profitable public automotive retailer for the first time. In the second quarter, we did it again.

Ernest Garcia: The second quarter was another landmark quarter for Carvana. In the first quarter of this year, we were both the fastest growing and most profitable public automotive retailer for the first time. In the second quarter, we did it again. And this time, we extended our separation in each category. Historically, when those two things are true at the same time, it bodes very well for an extremely successful future. We have every intention of working hard to validate that pattern. And in this case, a promising pattern is paired with tremendous room to run. We are a company with just a 1% market share in a trillion-dollar industry, with highly fragmented competition and barriers to entry that have recently been proven to be extremely hard to overcome.

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

Ernest C. Garcia: The second quarter was another landmark quarter for Carvana.

Ernest C. Garcia: In the first quarter of this year, we were both the fastest growing and most profitable public automotive retailer for the first time.

Ernest C. Garcia: And this time, we extended our separation in each category. Historically, when those two things are true at the same time, it bodes very well for an extremely successful future. We have every intention of working hard to validate that pattern. And in this case, a promising pattern is paired with tremendous room to run. We are a company with just a 1% market share in a trillion-dollar industry, with highly fragmented competition and barriers to entry that have recently been proven to be extremely hard to overcome. Our position is unique. And it is important to remember why.

Ernest C. Garcia: In the second quarter, we did it again, and this time we extended our separation in each category. Historically, when those two things are true at the same time, it bodes very well for an extremely successful future. We have every intention of working hard to validate that pattern.

Ernest C. Garcia: And in this case, a promising pattern is paired with tremendous room to run. We are a company with just a 1% market share in a trillion dollar industry, with highly fragmented competition, and barriers to entry that have recently been proven to be extremely hard to overcome. Our position is unique.

Ernest Garcia: Our position is unique. And it is important to remember why.

Ernest Garcia: We are in this position today because 10 years and 10 billion dollars ago, we set out to build an entirely new way to buy and sell cars. We thought through everything from scratch, starting with what our customers wanted, and then pairing that with what we believe was possible with new technology and new operations. We also discarded what others told us was impossible, and all the reasons they provided us. We were stubborn and ambitious. I am grateful for both. And I am also grateful that we had no idea how hard it would be to get to this point.

Ernest C. Garcia: We are in this position today because, 10 years and $10 billion ago, we set out to build an entirely new way to buy and sell cars. We thought through everything from scratch, starting with what our customers wanted and then pairing that with what we believed was possible with new technology and new operations. We also discarded what others told us was impossible and all the reasons they provided us.

Speaker Change: And it is important to remember why. We are in this position today because 10 years and 10 billion dollars ago, we set out to build an entirely new way to buy and sell cars. We thought through everything from scratch, starting with what our customers wanted, and then pairing that with what we believed was possible with new technology and new operations.

Speaker Change: We also discarded what others told us was impossible and all the reasons they provided us. We were stubborn and ambitious. I'm grateful for both. And I'm also grateful that we had no idea how hard it would be to get to this point. Being right about outcome and wrong about path may be the most productive combination there is.

Ernest C. Garcia: We were stubborn and ambitious, and I'm grateful for both. And I'm also grateful that we had no idea how hard it would be to get to this point. Being right about the outcome and wrong about the path may be the most productive combination there is. From here, we believe the outcome is clear and exciting, and we are weather-worn enough to know the path will be harder than we think, but we are still ambitious and stubborn enough to keep pushing and never accept anything as good enough.

Ernest Garcia: Being right about outcome and wrong about half, maybe the most productive combination there is. from here we believe the outcome is clear and exciting, and we are weather-worn enough to know the path we harder than we think but we are still ambitious and severed enough to keep pushing it to never accept anything is good enough. We are a team of fighters, and we are going to keep fighting on the good days and on the hard days, just as we have in the past. As a result, our visibility into additional scale and further improvements in unit economics is also very clear.

Speaker Change: From here, we believe the outcome is clear and exciting, and we are weather-worn enough to know the path will be harder than we think, but we are still ambitious and stubborn enough to keep pushing and to never accept anything as good enough.

Ernest C. Garcia: We are a team of fighters, and we're going to keep fighting, on the good days and on the hard days, just as we have in the past. As a result, our visibility into additional scale and further improvements in unit economics is also very clear. We are currently carrying the physical capacity and associated fixed expenses of being built for approximately three times our current volume. In addition, through our ADESA acquisition, we have the real estate to handle vehicle reconditioning at a scale of approximately eight times our current run rate.

Speaker Change: We're a team of fighters and we're going to keep fighting, on the good days and on the hard days, just as we have in the past. As a result, our visibility into additional scale and further improvements in unit economics is also very clear.

Ernest Garcia: We are currently carrying a physical capacity and associated fixed expense of being built for approximately three times our current volume. In addition, through our desk acquisition, we have the real estate to handle vehicle reconditioning at a scale approximately eight times our current run rate. Importantly, we also have very clear plans and high confidence in achieving further fundamental gains across each area of variable cost and gross profit. In the last year, we improved in these areas to the tune of approximately $2,000 per unit. Given that we improved that much, that fast, it is obvious that significant gains remain.

Speaker Change: We are currently carrying the physical capacity and associated fixed expense of being built for approximately three times our current volume.

Speaker Change: In addition, through our ADESA acquisition, we have the real estate to handle vehicle reconditioning at a scale approximately eight times our current run rate. Importantly, we also have very clear plans and high confidence in achieving further fundamental gains across each area of variable cost and gross profit.

Ernest C. Garcia: Importantly, we also have very clear plans and high confidence in achieving further fundamental gains across each area of variable cost and gross profit. In the last year, we improved in these areas to the tune of approximately $2,000 per unit. Given that we improved that much, that fast, it is obvious that significant gains remain. Our team is using the same operational processes it has for the last two years and is currently working on a very clear set of well-defined, specific enhancements to each part of our offering that we believe have the potential to materially impact the customer offering and the business as a whole.

Speaker Change: In the last year, we improved in these areas to the tune of approximately $2,000 per unit.

Speaker Change: Given that we improved that much, that fast, it is obvious that significant gains remain.

Ernest Garcia: Our team is using the same operational process that we have for the last two years and is currently working on a very clear set of well-defined specific enhancements to each part of our offering that we believe have potential to materially impact the customer offering and the business as a whole. We work hard to unlock them as quickly as we can, and we will do the same each year thereafter. As we unlock these gains over time, we anticipate passing more and more of the value we create back to our customers, further differentiating our offering and driving additional growth.

Speaker Change: Our team is using the same operational processes we have for the last two years and is currently working on a very clear set of well-defined, specific enhancements to each part of our offering that we believe have potential to materially impact the customer offering and the business as a whole.

Ernest C. Garcia: We will work hard to unlock them as quickly as we can, and we will do the same each year thereafter. As we unlock these gains over time, we anticipate passing more and more of the value we create back to our customers, further differentiating our offering, and driving additional growth. The combined benefits of constantly improving customer experiences, incremental sales with our strong unit economics, additional fundamental gains, and the leverage that comes with filling in our footprint paint a clear picture of the company we aim to become. A company that is the largest and most profitable automotive retailer, and a company that achieves its mission of changing the way people buy and sell cars.

Speaker Change: We will work hard to unlock them as quickly as we can, and we will do the same each year thereafter.

Speaker Change: As we unlock these gains over time, we anticipate passing more and more of the value we create back to our customers, further differentiating our offering and driving additional growth.

Ernest Garcia: The combined benefits of constantly improving customer experiences and incremental sales with our strong unineconomics, additional fundamental gains, and the leverage that comes with filling in our footprint paint a clear picture of the company we aim to become.

Speaker Change: The combined benefits of constantly improving customer experiences, incremental sales with our strong unit economics, additional fundamental gains, and the leverage that comes with filling in our footprint paint a clear picture of the company we aim to become, a company that is the largest and most profitable automotive retailer, and a company that achieves its mission of changing the way people buy and sell cars.

Ernest Garcia: A company that is the largest and most profitable automotive retailer and a company that achieves its mission of changing the way people buy and sell cars. Now we have to keep our heads down and keep doing the hard work that will turn this picture into reality. We are up to the challenge.

Ernest C. Garcia: Now we have to keep our heads down and keep doing the hard work that will turn this picture into reality. We are up to the challenge. The march continues.

Speaker Change: Now we have to keep our heads down and keep doing the hard work that will turn this picture into reality. We are up to the challenge. The march continues. Mark.

Mark Jenkins: The march continues, Mark.

Mark Jenkins: Thank you, Ernie, and thank you all for joining us today. The second quarter was an exceptional quarter for Carbana and reinforced the significant and sustainable progress we have made and continue to make in our current multi-year phase of driving profitable growth. For the second consecutive quarter, we generated positive net income, and we set new company records for adjusted EBITDA, adjusted EBITDA margin, and GAAP operating income. For the first time, quarterly adjusted EBITDA margin approached the midpoint of our long-term financial model EBITDA margin range of 8% to 13.5%. And we see meaningful opportunities for fundamental gains to drive towards the higher end of that range over time.

Mark Jenkins: Thank you, Ernie, and thank you all for joining us today. The second quarter was an exceptional quarter for Carvana and reinforced the significant and sustainable progress we have made and continue to make in our current multi-year phase of driving profitable growth. For the second consecutive quarter, we generated positive net income, and we set new company records for adjusted EBITDA, adjusted EBITDA margin, and GAAP operating income. For the first time, quarterly adjusted EBITDA margin approached the midpoint of our long-term financial model adjusted EBITDA margin range of 8% to 13.5%, and we see meaningful opportunities for fundamental gains to drive toward the higher end of that range over time. Moving to our second quarter results, all comparisons will be on a year-over-year basis.

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

Speaker Change: The second quarter was an exceptional quarter for Carvana and reinforced the significant and sustainable progress we have made and continue to make in our current multi-year phase of driving profitable growth.

Speaker Change: For the second consecutive quarter, we generated positive net income and we set new company records for adjusted EBITDA, adjusted EBITDA margin, and GAAP operating income.

Speaker Change: For the first time, quarterly adjusted EBITDA margin approached the midpoint of our long-term financial model EBITDA margin range of 8% to 13.5%, and we see meaningful opportunities for fundamental gains to drive toward the higher end of that range over time.

Mark Jenkins: Moving to our second quarter results, unless otherwise noted, all comparisons will be on a year-over-year basis. Q2 again demonstrated the strength of our differentiated business model. Retail units sold increased 33%, despite continued focus on unit economics and profitability initiatives, as a strong demand we experienced in Q1 continued into Q2. Revenue increased by 15%. Revenue grew less than retail units, primarily due to industry-wide declines in retail and wholesale vehicle average selling prices. Q2 are operational teams focused on increasing production capacity to increase selection to more optimal levels for our customers. The teams met their production targets in the quarter, but we still remain below our target available website inventory due to continued strong demand.

Speaker Change: Moving to our second quarter results. Unless otherwise noted, all comparisons will be on a year-over-year basis.

Mark Jenkins: Q2 again demonstrated the strength of our differentiated business model. Retail units sold increased 33% despite continued focus on unit economics and profitability initiatives as the strong demand we experienced in Q1 continued into Q2. However, revenue increased by 15%. However, revenue grew less than retail units, primarily due to industry-wide declines in retail and wholesale vehicle average selling prices.

Speaker Change: Q2 again demonstrated the strength of our differentiated business model. Retail units sold increased 33% despite continued focus on unit economics and profitability initiatives as the strong demand we experienced in Q1 continued into Q2.

Speaker Change: Revenue increased by 15%. Revenue grew less than retail units, primarily due to industry-wide declines in retail and wholesale vehicle average selling prices.

Mark Jenkins: In Q2, our operational teams focused on increasing production capacity to increase selection to more optimal levels for our customers. The teams met their production targets in the quarter, but we still remain below our target available website inventory due to continued strong demand. In the near term, we will continue to increase production across the country. Our strong profitability results in Q2 were driven by meaningful fundamental improvements in GPU and SG&A expenses. In the second quarter, non-GAAP total GPU was $73.44, an increase of $314 and a new company record.

Speaker Change: In Q2, our operational teams focused on increasing production capacity to increase selection to more optimal levels for our customers.

Speaker Change: The teams met their production targets in the quarter, but we still remain below our target available website inventory due to continued strong demand.

Mark Jenkins: In the near term, we will continue to increase production across the country. Our strong profitability results in Q2 were driven by meaningful fundamental improvements in GPU and SGNA expenses. In the second quarter, non-GAAP total GPU was $7344, an increase of $314, and a new company record. Non-gap retail GPUs, $3,539, an increase of $677, and a new company record. Our strength in retail GPU continues to be driven by fundamental gains in consistent performance in several areas, including audio costs of sales, customer sourcing, inventory turn times, and revenues from additional sources. Year-to-year changes were also driven by higher spreads between wholesale and retail market prices, partially offset by higher retail depreciation rates and a lower retail inventory allowance adjustment.

Speaker Change: In the near term, we will continue to increase production across the country.

Speaker Change: Our strong profitability results in Q2 were driven by meaningful fundamental improvements in GPU and SG&A expenses.

Speaker Change: In the second quarter, non-GAAP total GPU was $73.44, an increase of $314 and a new company record.

Mark Jenkins: Non-GAF Retail GPU $3539, an increase of $677, and a new company record. Our strength in retail GPU continues to be driven by fundamental gains in consistent performance in several areas, including obvious cost of sales, customer sourcing, inventory turn times, and revenues from additional sources. Year-over-year changes were also driven by higher spreads between wholesale and retail market prices partially offset by higher retail depreciation rates and a lower retail inventory allowance adjustment.

Speaker Change: Non-GAF retail GPU is $35.39, an increase of $677, and a new company record. Our strength in retail GPU continues to be driven by fundamental gains in consistent performance in several areas, including non-vehicle cost of sales, customer sourcing, inventory turn times, and revenues from additional sources.

Speaker Change: Year-over-year changes were also driven by higher spreads between wholesale and retail market prices partially offset by higher retail depreciation rates and a lower retail inventory allowance adjustment.

Mark Jenkins: Non-GAAP wholesale GPU was $11.04, a decrease of $124. Year-to-year changes were primarily driven by growth in both wholesale vehicle and wholesale marketplace growth profit, offset by growth in retail units sold. Non-GAAP other GPU was $27.01, a decrease of $239. Year-to-year changes in other GPU were primarily driven by holding and selling greater volume of loans relative to originations in Q2, 2023, compared to Q2, 2024, which increased Q2, 2023 other GPU by approximately $650, partially offset by the continued impact of credit scoring improvements, pricing optimizations, and credit tightening begun in Q4, 2023. Non-gap SGNA expense was $390 million, an increase of 2%.

Mark Jenkins: Non-GAP wholesale GPU was $11.04, a decrease of $124. Year over year changes were primarily driven by growth in both wholesale vehicle and wholesale marketplace gross profit, offset by growth in retail units sold. Nongap Other GPU was $27.01, a decrease of $239. Year-over-year changes in OtherGPU were primarily driven by holding and selling a greater volume of loans relative to originations in Q2 2023 compared to Q2 2024, which increased Q2 2023 OtherGPU by approximately $650, partially offset by the continued impact of credit scoring improvements, pricing optimizations, and credit tightening begun in Q4 2023. Non-GAAP SG&A expense was $390 million, an increase of 2%.

Speaker Change: Nongap Wholesale GPU was $11.04, a decrease of $124.

Speaker Change: Year-over-year changes were primarily driven by growth in both wholesale vehicle and wholesale marketplace gross profit, offset by growth in retail units sold.

Speaker Change: Nongap Other GPU was $27.01, a decrease of $239.

Speaker Change: Year-over-year changes in Other GPU were primarily driven by holding and selling a greater volume of loans relative to originations in Q2 2023 compared to Q2 2024, which increased Q2 2023 Other GPU by approximately $650, partially offset by the continued impact of credit scoring improvements, pricing optimizations, and credit tightening begun in Q4 2023.

Mark Jenkins: Q2 was an exceptional quarter for demonstrating the power of our model to leverage SG&A expenses. Retail units sold increased by 33%, leading to an $1,160 reduction in SGNA expense for retail units sold. Sequentially, SGNA expense for retail units sold declined $400, of which $150 was driven by continued improvement in carbon operations expense, demonstrating that we continue to drive operating cost efficiencies while growing. We continue to see opportunities for significant SG&A expense leverage over time and as we scale. Driven by both continued improvement in operational expenses as well as leverage in the fixed component of our cost structure.

Speaker Change: non-GAAP SG&A expense was $390 million, an increase of 2%.

Mark Jenkins: Q2 was an exceptional quarter for demonstrating the power of our model to leverage SG&A expenses. Retail units sold increased by 33%, leading to an $1,160 reduction in SG&A expense per retail unit sold. sequentially, SG&A expense for retail units sold declined $400, of which $150 was driven by continued improvement in Carvana operations expense, demonstrating that we continue to drive operating cost efficiencies while growing. We continue to see opportunities for significant SG&A expense leverage over time and as we scale, driven by both continued improvement in operational expenses as well as leverage in the fixed component of our cost structure. Adjusted EBITDA was $355 million in Q2, an increase of $200 million and a new company record.

Speaker Change: Q2 is an exceptional quarter for demonstrating the power of our model to leverage SG&A expenses.

Speaker Change: Retail units sold increased by 33%, leading to an $1,160 reduction in SGA expense for retail units sold.

Speaker Change: Sequentially, SG&A expense for retail units sold declined $400, of which $150 was driven by continued improvement in Carvana operations expense, demonstrating that we continue to drive operating cost efficiencies while growing.

Speaker Change: We continue to see opportunities for significant SG&A expense leverage over time and as we scale, driven by both continued improvement in operational expenses as well as leverage in the fixed component of our cost structure.

Mark Jenkins: Adjustment EBITDA was 355 million in Q2, an increase of 200 million, and a new company record. Adjustment EBITDA margin was 10.4% in Q2, a 5.2% percentage point increase, and a new company record. It is worth noting that our adjusted EBITDA is very high quality compared to many rapidly growing companies due to our relatively low non-cash expenses. Our gap operating income was 259 million in Q2, leading to gap operating margin of 7.6%, leading the public auto retail industry. As previously noted, we are currently carrying capacity for approximately 3x retail units sales and expect our gap operating income to grow faster than adjusted EBITDA over time.

Speaker Change: Adjusted EBITDA was $355 million in Q2, an increase of $200 million, and a new company record.

Mark Jenkins: Adjusted EBITDA margin was 10.4% in Q2, a 5.2% increase and a new company record. It is worth noting that our adjusted EBITDA is of very high quality compared to many rapidly growing companies due to our relatively low non-cash expenses. Our gap operating income was $259 million in Q2, leading to a gap operating margin of 7.6%, leading the public auto retail industry. As previously noted, we are currently carrying capacity for approximately 3x retail unit sales and expect our GAAP operating income to grow faster than adjusted EBITDA over time.

Speaker Change: Adjusted EBITDA margin was 10.4% in Q2, a 5.2 percentage point increase, and a new company record.

Speaker Change: It is worth noting that our adjusted EBITDA is very high quality compared to many rapidly growing companies due to our relatively low non-cash expenses.

Speaker Change: Our GAAP operating income was $259 million in Q2, leading to a GAAP operating margin of 7.6%, leading the public auto retail industry. As previously noted, we are currently carrying capacity...

Speaker Change: for approximately 3x retail unit sales and expect our gap operating income to grow faster than adjusted EBITDA over time.

Mark Jenkins: Our results in Q1 and Q2 position us for a strong Q3 and Q4.

Mark Jenkins: Our results in Q1 and Q2 position us well for a strong Q3 and Q4. Looking forward, we expect the following, as long as the environment remains stable. First, a sequential increase in retail units sold in Q3 compared to Q2. And second, adjusted EBITDA of $1 to $1.2 billion for the full year 2024, an increase from $339 million last year. We are pairing our continued strong financial results with a disciplined financial policy that positions us well to thoughtfully de-lever over time.

Speaker Change: Our results in Q1 and Q2 position us well for a strong Q3 and Q4.

Mark Jenkins: Looking forward, we expect the following as long as the environment remains stable. First, a sequential increase in retail units sold in Q3 compared to Q2. And second, adjusted EBITDA of 1 to 1.2 billion for the full year 2024, an increase from $339 million last year. We are pairing our continued strong financial results with a disciplined financial policy that positions us well to thoughtfully de-lever over time. This includes, first, in May, we announced our intention to pay cash interest on our 2028 and 2030 Senior Secured Notes beginning in 2025 to reduce long-term cash interest expense. Second, we repurchased 250 million of our 2028 Senior Secured Notes in Q2, and over the same time period, raised 350 million of equity capital.

Speaker Change: Looking forward, we expect the following as long as the environment remains stable. First, a sequential increase in retail units sold in Q3 compared to Q2.

Speaker Change: And second, adjusted EBITDA of $1 to $1.2 billion for the full year 2024, an increase from $339 million last year.

Speaker Change: We are pairing our continued strong financial results with a disciplined financial policy that positions us well to thoughtfully de-lever over time.

Mark Jenkins: This includes, first, in May, we announced our intention to pay cash interest on our 2028 and 2030 senior secured notes beginning in 2025 to reduce long-term cash interest expenses. Second, we repurchased $250 million of our 2028 Senior Secured Notes in Q2, and over the same time period, we raised $350 million of equity capital.

Speaker Change: This includes, first, in May, we announced our intention to pay cash interest on our 2028 and 2030 Senior Secured Notes beginning in 2025 to reduce long-term cash interest expense.

Speaker Change: Second, we repurchased $250 million of our 2028 Senior Secured Notes in Q2 and over the same time period raised $350 million of equity capital.

Mark Jenkins: Third, we intend to further de-lever over time with our primary focus on adjusted EBITDA growth, which both generates cash and reduces leverage ratios.

Speaker Change: Third, we intend to further delever over time with our primary focus on adjusted EBITDA growth, which both generates cash and reduces leverage ratios.

Mark Jenkins: In conclusion, Q2 was an exceptional quarter for Carvana. We are excited about progressing in our long-term phase of driving profitable growth and pursuing our goal of becoming the largest and most profitable auto retailer and buying and selling millions of cars.

Operator: Third, we intend to further delever over time, with our primary focus on adjusted EBITDA growth, which both generates cash and reduces leverage ratios. In conclusion, Q2 was an exceptional quarter for Carvana. We're excited about progressing in our long-term phase of driving profitable growth and pursuing our goal of becoming the largest and most profitable auto retailer and buying and selling millions of cars. Thank you for your attention. We'll now take questions. We will now begin the question and answer session. To ask a question, use the ones on your telephone keypad.

Speaker Change: In conclusion, Q2 was an exceptional quarter for Carvana. We are excited about progressing in our long-term phase of driving profitable growth and pursuing our goal of becoming the largest and most profitable auto retailer and buying and selling millions of cars. Thank you for your attention. We'll now take questions.

Mark Jenkins: Thank you for your attention.

Operator: We'll now begin the question-and-answer session. To ask a question, you may press star-than-1 on your telephone keypad. If you're using a speaker phone, please pick up your hands first before pressing the key. If at any time, your question has been addressed, and you'd like to withdraw your question, please press star-than-2.

Speaker Change: We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the key.

Operator: If you're using a speakerphone, please pick up your handset before pressing the button. If at any time your question has been addressed, and you'd like to withdraw your question, please press star time will pause momentarily to assemble. Chris Pierce from Needham, please go ahead. Chris, are you there?

Speaker Change: If at any time your question has been addressed and you would like to withdraw your question, please press star then choose.

Operator: At this time, we'll pause momentarily to assemble a rooster.

Speaker Change: At this time, we'll pause momentarily to assemble a rooster.

Christopher Pierce: The first question comes from Prince Pierce from Needham. Please go ahead.

Speaker Change: The first question comes from Chris Pierce from Needham. Please go ahead.

Operator: Chris, you there? Sorry.

Speaker Change: Chris, are you there?

Michael David Montani: Sorry, the next question comes from Michael Montani from Evercore IT. I would please go ahead. Yes, hey, congrats on the quarter and thanks for taking the question. Just wanted to ask if I could, can you discuss a little bit the trends that you're seeing for the 100k plus income consumer versus those who are below? And also, Ernie, can you give us some insight into thoughts around credit tightening from here, or do you feel like you're at an appropriate level? Sure. From a demographics perspective, I think clearly affordability has been impacted pretty heavily over the last couple of years. I think there's good news there, though.

Michael Montani: The next question comes from Michael Muntani from Evercore ISI. Please go ahead. Yes, hey, congrats on the quarter, and thanks for taking the question. I just wanted to ask if I could. Can you discuss a little bit the trends that you're seeing for the 100K plus income consumer versus those who are below? And then also, Ernie, can you give us some insight into thoughts around credit tightening from here, or do you feel like you're at an appropriate level now?

Speaker Change: Sorry, the next question comes from Michael Montani from Evercore ISI, please go ahead.

Michael David Montani: Yes, hey, congrats on the quarter and thanks for taking the question.

Michael David Montani: I just wanted to ask if I could, can you discuss a little bit the trends that you're seeing you know for the 100k plus income consumer versus those who are below and then also Ernie can you give us some insight into thoughts around credit tightening from here or do you feel like you're at an appropriate level now?

Ernest Garcia: Sure. I think from a demographic perspective, I think clearly affordability with impact is pretty heavily, you know, over the last couple of years. I think there's good news there, though. We have seen kind of higher levels of depreciation of the last year and a half. I think relative to CPI, car prices are now only probably about 3% higher than they were pre-pandemic. So I think we've closed a lot of that gap. Rates are obviously higher, so if you look at payments, payments are still about 10% higher than they were pre-pandemic for a similar car. So there's probably a little bit of room for that to continue to improve, and that, of course, is impacting the lower end of the demographic spectrum probably more than the higher income end.

Ernest C. Garcia: Sure, I think...

Ernest C. Garcia: From a demographics perspective, I think, you know, clearly affordability was impacted pretty heavily, you know, over the last couple of years. I think...

Ernest C. Garcia: We have seen kind of higher levels of depreciation over the last year and a half. I think relative to CPI, car prices are now only probably about 3% higher than they were pre-pandemic. So I think we've closed a lot of that gap. Interest rates are obviously higher.

Ernest C. Garcia: There's good news there, though. We have seen kind of higher levels of depreciation over the last year and a half. I think relative to CPI, car prices are now only probably about 3% higher than they were pre-pandemic, so I think we've...

Ernest C. Garcia: So if you look at payments, payments are still about 10% higher than they were pre-pandemic for a similar car. So there's probably a little bit of room for that to continue to improve, and that, of course, is impacting the lower end of the demographic spectrum probably more than the higher income end, but I don't think there's anything too notable to call out there. I think we're just focused on continuing to buy the cars that our customers are demanding on our site, getting those up, getting those reconditioned, delivering them to customers, and giving them great experiences, and I think that's what's driving our success right now without too much specific focus on one group or another.

Ernest C. Garcia: closed a lot of that gap. Rates are obviously higher, so if you look at payments, payments are still about 10% higher than they were pre-pandemic for a similar car.

Ernest C. Garcia: So there's probably a little bit of room for that to continue to improve and that of course is impacting the lower end of the demographic spectrum probably more than the higher income end. But I don't think there's anything too notable to call out there. I think we're just focused on continuing to buy the cars that our customers are demanding on our site, getting those up, getting those reconditioned, delivering them to customers and giving them great experiences. And I think that's what's driving our success right now without too much specific focus on one group or another.

Ernest Garcia: But I don't think there's anything too notable to call out there.

Ernest Garcia: I think we're to focus on continuing to buy the cars that our customers are demanding on our site, getting those up, getting those reconditions, delivering them to customers, and giving them great experiences. And I think that's what's driving our success right now, without too much specific focus on one group or another.

Ernest Garcia: From a credit perspective, I think credit clearly was kind of slowly moving back toward pre-pandemic normal after being very good in 2021, and then probably crossed over, was a little bit worse in 2022 and parts of 23. And I think many lenders, ourselves included, started to tighten credit in the fourth quarter of '23. What we've seen so far from that is performance that's definitely in line with what we would have hoped to see. So I think at this time it doesn't feel like there are other moves that would be super material, but obviously we're paying attention, and we may adjust that over time.

Ernest C. Garcia: From a credit perspective, I think credit was kind of slowly moving back toward pre-pandemic normal after being very good in 20 and 21, and then probably crossed over and was a little bit worse in 22 and parts of 23, and I think many lenders, ourselves included, started to tighten credit in the fourth quarter of 23.

Ernest C. Garcia: From a credit perspective, I think credit clearly was slowly moving back toward pre-pandemic normal after being very good in 2020 and 2021, and then probably crossed over and was a little bit worse in 2022 and parts of 2023. And I think many lenders, ourselves included, started to tighten credit in the fourth quarter of 2023. What we've seen so far from that is performance that's

Adam Michael Jonas: What we've seen so far from that is performance that's definitely in line with what we would have hoped to see. So I think at this time it doesn't feel like there are other moves that would be super material, but obviously, we're paying attention, and we may adjust that over time. The next question comes from Adam Jones from Morgan Family. Please go ahead.

Ernest C. Garcia: Definitely in line with what we would have hoped to see, so I think at this time it doesn't feel like there are other moves that would be super material, but obviously we're paying attention and we may adjust that over time.

Operator: Thank you.

Speaker Change: Thank you.

Adam Jonas: The next question comes from Adam Jonas, from Martin Family.

Speaker Change: The next question comes from Adam Jonas from Morgan Stanley , please go ahead.

Operator: Please go ahead.

Ernest C. Garcia: Thanks Ernie, you know I never say congratulations on a quarterly call and believe me, you don't eat it, you don't want me to, but I mean, we do want to do actually, if we don't believe me, you don't. Wow, dude, it's a hard one. All right, so Carvana grew retail units 33% with mostly flat SG&A, right? Carmax units fell I don't want Schadenfreude aside, what's the forward view on SG&A dollars on a per-unit basis or either gross dollars or per-unit, like how much longer can Carvana go on?

Operator: Thanks, Ernie. You know, I never say congratulations on a quarterly call. And believe me, you don't want to eat it. You don't want me to. But I mean, I think we do want to go ahead. Actually, if we don't believe you, believe me; you don't. Wow, dude. It's a hard wow. All right.

Adam Michael Jonas: Thanks Ernie, you know I never say congratulations on a quarterly call and believe me you don't want me to eat it.

Adam Michael Jonas: You don't want me to, but I mean... I think we do want you to, actually, if we get to pick. Thank you. No, no, believe me, you don't. Wow, dude. It's a hard wow. All right, so Carvana grew retail units 33%.

Mark Jenkins: So, Carvana Group retail units, 33% with mostly flat SG&A, right? Correct. Harmax units fell 3% and had SGNA rise 13% year on year.

Speaker Change: with mostly flat SG&A, right?

Speaker Change: Correct. CARMAX units fell 3% and had SG&A rise 13% year-on-year. Again, I don't want Schadenfreude aside, what's the forward view on SG&A dollars

Mark Jenkins: I can't, I don't want Shaden Freud aside, what's the forward view on SGNA dollars on a per unit basis or either gross dollars or per unit? Like, how much longer can Carvana? Well, keeping SGNA flat because the fact that you're mentioning the capacity that you're burdened with, it might give you the impression that you can keep SGNA really relatively unchanged to the dollar amount, but I don't think you want us to actually believe that or do you. That's my first question. Sure, so let's we've broken down SGNA in the past into three categories of overhead, marketing, and operations expense.

Speaker Change: on a per-unit basis or either gross dollars or per-unit?

Ernest C. Garcia: while keeping SG&A flat, because the facts that you're mentioning, the capacity that you're burdened with, it might give the impression that you can keep SG&A really relatively unchanged in the dollar amount, but I don't think you want us to actually believe that, or do you? That's my first question.

Speaker Change: Well, keeping SG&A flat, because the facts that you're mentioning, the capacity that you're burdened with...

Speaker Change: It might give the impression that you can keep SG&A really relatively unchanged to the dollar amount, but I don't think you want us to actually believe that, or do you? That's my first question.

Ernest C. Garcia: We've broken down SG&A in the past into three categories, overhead, marketing, and operations expense, and I think it's probably useful to hit them all separately. On overhead, we've held that pretty flat for the last five or six quarters, and I think that's largely our plan for the immediate future to continue to hold that flat. On marketing expense, we've moved down from a kind of long-term average of just over $1,000 to 542 this quarter.

Speaker Change: We've broken down SG&A in the past into three categories, overhead, marketing, and operations expense, and I think it's probably useful to hit them all separately.

Mark Jenkins: And I think it's probably useful to hit them all separately on overhead. We've held that pretty flat for the last five or six quarters. And I think that that's largely our plan for the immediate future is to continue to hold that flat on marketing expense. You know, we've moved down from a kind of long term average just over a thousand dollars to 542 this quarter. That's something that we're extremely excited about, obviously, and that reflects a lot of gains across, I think, many different parts of the system. I think from a long term fundamental perspective, I think to be able to be the most exciting part of that is what's going on with operations expense.

Speaker Change: On overhead, we've held that pretty flat for the last five or six quarters.

Speaker Change: And I think that that's largely our plan for the immediate future is to continue to hold that flat. On marketing expense, you know, we've moved down from a kind of long-term average just over $1,000 to $542,000 this quarter. That's something that we're extremely excited about, obviously, and that reflects a lot of gains across, I think, many different parts of the system.

Ernest C. Garcia: That's something that we're extremely excited about, obviously, and that reflects a lot of gains across, I think, many different parts of the system. I think from a long-term fundamental perspective, I think debatably the most exciting part of that is what's going on with operations expense. We were at $1,696 this quarter.

Adam Michael Jonas: I think from a long-term fundamental perspective, I think debatably the most exciting part of that is what's going on with operations expense.

Mark Jenkins: We this quarter were at 1696. That's a number that we're extremely excited about. It's a number that's several hundred dollars less than our kind of pre-pandemic numbers that were pretty good at the time. But that's happened at a time when the average of other automotive retailers have probably seen the rest of the day go up. I about a thousand dollars with inflation and everything else. So I think the gains look like a couple hundred dollars there, but I think inflation-adjusted and, most importantly, I think relative to what else is out there. I think those gains are likely over a thousand dollars.

Adam Michael Jonas: We, this quarter, we're at $16.96.

Ernest C. Garcia: That's a number that we're extremely excited about. It's a number that's several hundred dollars less than our kind of pre-pandemic numbers that were pretty good at the time. But that happened at a time when the average of other automotive retailers probably saw their SG&A go up by about $1,000 with inflation and everything else. So I think the gains look like a couple hundred dollars there, but inflation adjusted, and most importantly, I think relative to what else is out there, I think those gains are likely over $1,000.

Mark Jenkins: And then further, I think that you know, inside of that operation expense, there's a warranty line item that today is around 350 and was kind of closer to 150 to 200 pre-pandemic when inflation rates were quite a bit lower. And so I think when you look at kind of the operations expense, X warranty, the gains versus pre-pandemic are more like 400 dollars per unit. Again, at a time when costs across the industry have gone up very significantly. So we're really excited about that because that's a deep fundamental. You know, I think the deep fundamentals are basically how does your customer experience stack up relative to what's available elsewhere.

Ernest C. Garcia: And then further, I think that inside of that operations expense, there's a warranty line item that today is around 350 and was kind of closer to 150 to 200 pre-pandemic when inflation rates were quite a bit lower. And so I think when you look at kind of the operations expense X warranty, the gains versus pre-pandemic are more like $400 per unit, again, at a time when costs across the industry have gone up very significantly. So we're really excited about that because that's a deep fundamental. I think the deep fundamentals are basically how does your customer experience stack up relative to what's available elsewhere.

Adam Michael Jonas: And so I think when you look at kind of the operations expense X warranty, the gains versus pre-pandemic are more like $400 per unit, again, at a time when costs across the industry have gone up very significantly. So we're really excited about that because that's a deep fundamental. I think the deep fundamentals are basically...

Mark Jenkins: And I think the most objective measure of that is the growth that you see at any point in time, especially like relative to your offering at a time like this when we've got inventory flat and marketing dollars flat. I think that it's clear that customers are responding very well to our offering. I think number two is how are you able to monetize the transaction. And I think through our vertical integration and building everything that we've built from scratch to serve any commerce experience. I think that we're fairing very well there. And then the third is what are your variable expenses, and you just kind of walk through that.

Ernest C. Garcia: And I think the most objective measure of that is the growth that you see at any point in time, especially relative to your offering at a time like this when we've got inventory flat and marketing dollars flat. I think that it's clear that customers are responding very well to our offering. I think number two is how are you able to monetize the transaction?

Speaker Change: How does your customer experience stack up relative to what's available elsewhere and I think

Ernest C. Garcia: The most objective measure of that is the growth that you see at any point in time, especially relative to your offering at a time like this when we've got inventory flat and marketing dollars flat. I think that it's clear that customers are responding very well to our offering. I think number two is how are you able to monetize the transaction. And I think through our vertical integration and building everything that we've built from scratch to serve an e-commerce experience, I think that we're faring very well there. And then the third is what are your variable expenses?

Ernest C. Garcia: And I think through our vertical integration and building everything that we've built from scratch to serve an e-commerce experience, I think that we're faring very well there. And then the third question is, what are your variable expenses? And just kind of walk through that, but I think that that's a number that we're extremely excited about because, relative to what else is out there, we've made a lot of gains. So overall, we're excited. We use the term fundamental gains.

Mark Jenkins: But I think that that's the number that we're extremely excited about, and we think relative to what else is out there. We've made a lot of gains. So overall, we're excited. You know, we use this term fundamental gains. We said, you know, we made about $2,000 fundamental gains over the last year. Largely, we mean by that is either gains that we believe are sustainable in gross profit or variable expenses per unit. Which would be in that and that operations expense. We think there are still significant gains left to be had. We're working hard at going and unlocking them.

Ernest C. Garcia: and you know just kind of walk through that but I think that that's that's a number that we're extremely excited about and we think relative to what else is out there we've made a lot of gains so overall we're excited you know we use this term fundamental gains we said you know we made about $2,000 of fundamental gains over the last year

Ernest C. Garcia: We said we made about $2,000 of fundamental gains over the last year. Largely, what we mean by that is either gains that we believe are sustainable in gross profit or variable expenses per unit, which would be in operations expense. We think there are still significant gains left to be had. We're working hard at going after them, but we think the business model is not yet fully flexed. I think we're excited about going and attacking it and also what that means for the future. Thanks, Ernie.

Ernest C. Garcia: Largely what we mean by that is either gains that we believe are sustainable in gross profit or variable expenses per unit, which would be in that operations expense.

Ernest C. Garcia: We think there are still significant gains left to be had. We're working hard at going and unlocking them, but we think the business model is not done being fully flexed, and I think we're excited about going and attacking that and also what that means for the future.

Mark Jenkins: But we think the business model is not done being fully flexed. And I think we're excited about going and attacking that, and also what that means for the future.

Operator: Thanks, Ernie.

Ernest C. Garcia: Just a follow-up, if I take the midpoint of your guide, that would imply a second half quarterly run rate EBITDA of, you know, maybe 100 million, I'm rounding here, Ernie, bear with me, about 100 million less than what you did. Kind of a mid 200 number rather than a 355 number. So, what would you say is kind of baked in there, including seasonality and then other stuff beyond seasonality that might have maybe made the 355 a little on that? And again, maybe I'm stupid for using the midpoint of your guide and you're being very conservative, but just... if it was a genuine guide, what's embedded, and why it's a 100 million lower run rate. Thanks.

Operator: Just a follow-up. If I take the midpoint of your guide, that would imply the second half quarterly run rate EBITDA of maybe 100 million, I'm rounding here, Ernie, bear with me, about 100 million less than what you did. Kind of a mid-200 number rather than a 355 number.

Ernest C. Garcia: Thanks, Ernie. Just a follow-up. If I take the midpoint of your guide, that would imply

Ernest C. Garcia: The second half quarterly run rate EBITDA of You know maybe a hundred million. I'm rounding here Ernie bear with me about a hundred million less than what you did You know kind of a mid 200 number rather than a 355 number

Ernest Garcia: So what would you say is kind of baked in there, including seasonally and then other stuff beyond seasonally that might have maybe made the 355 a little on that. And again, maybe I'm stupid for using the midpoint of your guide, and you're being very conservative, but just if it was a genuine guide, what's embedded in why it's 100 million lower run rate. Thanks. Yes, sir.

Ernest C. Garcia: [inaudible]

Speaker Change: If it was a genuine guide, what's embedded and why it's 100 million lower run rate. Thanks.

Ernest C. Garcia: Yes, sure. But, first and most importantly, we see gains in front of us in growth and in the various fundamental areas we just discussed, and we're going to go out and try to get them. And I think that that's going to be something that we continually do over the next several years. So I think that that's probably the most important thing. As it relates to the guide, I think you're bringing up all the appropriate points and doing all the math correctly.

Ernest Garcia: So I think first and most importantly, we see gains in front of us in growth and in the various fundamental areas we just discussed, and we're going to go out and try to get them. And I think that that's going to be something that we're going to continually do over the next several years. So I think that's probably the most important thing. I think, as it relates to the guide, I think you're bringing up all the appropriate points and doing all the math correctly. We did sell a little bit more in loan production this quarter than we originated.

Speaker Change: Yes, sir. So, I think...

Speaker Change: I think first and most importantly, we see gains in front of us in growth and in the various fundamental areas we just discussed, and we're going to go out and try to get them. And I think that that's going to be...

Ernest C. Garcia: something that we're going to continually do over the next several years. So I think that's probably the most important thing. I think as it relates to the guide, I think you're bringing up all the appropriate points and doing all the math correctly. We did sell a little bit more in loan production this quarter than we originated. So we provided a bridge in the shareholder letter that that was probably about 0.4%, so probably a more normalized number would have been about 10%. In dollars, that would have been about $12 million, give or take.

Ernest C. Garcia: We did sell a little bit more in loan production this quarter than we originated, so we provided a bridge in the shareholder letter that that was probably about 0.4%. Probably, a more normalized number would have been about 10%. In dollars, that would have been about $12 million, give or take.

Ernest Garcia: So we provided a bridge in the shareholder letter that that was probably about 0.4%. So probably a more normalized number would have been about 10% in dollars. That would have been about $12 million, give or take. So that positively impacted the quarter. And then there is seasonality heading into the back half of the year. But obviously we're extremely excited with the results we just had. We're extremely excited about the outlook for the rest of this year.

Ernest C. Garcia: So that positively impacted the quarter. And then there is seasonality heading into the back half of the year. But obviously we're extremely excited with the results we just had. We're extremely excited about the outlook for the rest of this year. And I think most importantly, we're just extremely excited about the opportunity that we've got because

Ernest C. Garcia: So that positively impacted the quarter. And then there is seasonality heading into the back half of the year. But obviously, we're extremely excited about the results we just had. And we're extremely excited about the outlook for the rest of this year. And I think most importantly, we're just extremely excited about the opportunity that we've got because I think part of the goal of building out this dream is to take something that was very non-obvious and slowly but surely turn it into something that's obvious. And we think this quarter is probably the biggest discontinuous step in making what we're trying to achieve obvious that we've ever taken. So we're very excited about it. Thanks, Ernie.

Ernest Garcia: And I think most importantly, we're just extremely excited about the opportunity that we've got because I think part of the goal of building out this dream is to take something that was very non-obvious and slowly but surely turn into something that's obvious. And we think this quarter is probably the biggest discontinuous step in making what we're trying to achieve obvious that we've ever taken. So we're very excited about it.

Ernest C. Garcia: I think, you know, part of the goal of building out this dream is to take something that was very non-obvious and slowly but surely turn into something that's obvious and we think this quarter is probably the biggest discontinuous step in making what we're trying to achieve obvious that we've ever taken. So we're very excited about it.

Operator: Thanks, Arnie. It's impressive.

Operator: It's impressive. Thank you. The next question... Chris Pierce with Nidhum, please go ahead.

Operator: Thank you.

Ernest C. Garcia: Thanks, Ernie. It's impressive. Thank you.

Christopher Pierce: The next question comes from Chris Pierce with Mid-Hum. Please go ahead. Hey, can you guys hear me this time? You can. Oh, perfect.

Ernest C. Garcia: The next question comes from Chris Pierce with Nidhum. Please go ahead.

Christopher Alan Pierce: Hey, can you guys hear me this time? We can. I just wanted to kind of, can you talk about where the upper bound of retail GPU might be? And can you kind of touch base on, you know, the standalone reconditioning? I guess, you know, CarMax has just mentioned the previous question. We were kind of told that $2,200 for a retail GPU.

Christopher Alan Pierce: Hey, can you guys hear me this time? We can.

Mark Jenkins: I just wanted to kind of, can you talk about where the upper bound of retail GPU might be? And can you kind of touch base on the standalone reconditioning? I guess, you know, CarMax has just mentioned the previous question. We were kind of told that $2,200 in retail GPU was the efficient frontier as far as units. But that was in a, hey, the conditioning centers in the store, type of model.

Christopher Alan Pierce: Oh, perfect.

Christopher Alan Pierce: I just wanted to kind of, can you talk about where the upper bound of retail GPU might be? And can you kind of touch base on, you know, the standalone reconditioning? I guess...

Speaker Change: CarMax has just mentioned the previous question. We were kind of told that $2,200 in retail GPU was the efficient frontier as far as units. But that was in a, hey, the conditioning center's in the store type of model. So what's the right way to think about?

Ernest C. Garcia: The Efficient Frontier as far as units goes, but that was in a, hey, the conditioning centers in the store type of model. So, what's the right way to think about where retail GP can go and how excited are you? as far as pushing retail GPU even higher. Sure.

Mark Jenkins: So like, what's the right way to think about where retail GPU can go and how excited are you as far as pushing retail GPU even higher from here? Sure. Well, so first, I would say we believe there are significant fundamental gains to be had in every GPU line item, retail GPU included. And so we think that we can deliver to customers the same quality of offering and cause retail GPU to go up. I think it's important to reevaluate what GPU might mean in this environment versus pre-pandemic. And I think a lot of heuristics over time have been established pre-pandemic that maybe, you know, weren't some revisiting now.

Speaker Change: Where Retail GPU can go and how excited are you as far as you know pushing Retail GPU even higher from here?

Ernest C. Garcia: Well, first, I would say, we believe there are significant fundamental gains to be had in every GPU line item, retail GPU included. And so we think that we can deliver to customers the same quality of offering and cause retail GPU prices to go up. I think it's important to reevaluate what GPUs might mean in this environment versus pre-pandemic.

Speaker Change: Sure. Well, so first I would say we believe there are significant fundamental gains to be had in every GPU line item, retail GPU included. And so we think that we can deliver to customers the same quality of offering and cause retail GPU to go up.

Speaker Change: I think it's important to re-evaluate what GPU might mean in this environment versus pre-pandemic and I think a lot of heuristics over time have been established pre-pandemic that maybe warrants some revisiting now.

Ernest C. Garcia: And I think a lot of heuristics over time have been established pre-pandemic that maybe, you know, warrant some revisiting now. And so for perspective on that, I spoke in the last question about how most dealers have seen SG&A per unit go up by about $1,000. I think the right kind of first order mental model for how the automotive industry works is that, generally speaking, it's cost plus. Many dealers share a cost structure, and they're at auction holding up their hand to buy a car at a certain price, and then they're pricing it with a profit in mind, and many are acting in similar ways.

Mark Jenkins: And so for perspective on that, you know, I spoke in the last question about how most dealers have seen SG&A for a unit go up by about $1,000. I think the right kind of first-order mental model for how the automotive industry works is that, generally speaking, it's cost-plus. You know, many dealers share a cost structure and they kind of, you know, they're at auction holding up their hand to buy a car at a certain price and then they're pricing it with a profit in mind, and many are acting in similar ways. So if you look at the average retail GPU across many automotive retailers, you know, now versus pre-pandemic, it's also up around $1,000 as like a good first-order estimate.

Speaker Change: And so for perspective on that, I spoke in the last question about how most dealers have seen SG&A per unit go up by about $1,000.

Speaker Change: I think the right kind of first order mental model for how the automotive industry works is that generally speaking it's cost plus. Many dealers share a cost structure and they're at auction holding up their hand to buy a car at a certain price and they're pricing it with a profit in mind and many are acting in similar ways.

Speaker Change: So if you look at the average, you know, retail GPU across many automotive retailers, you know, now versus pre pandemic, it's also up around $1,000 as like a good first order estimate. And so I think debatably kind of all the heuristics from before, you could kind of move up by $1,000. And I think that that's also buttressed by just looking at wholesale retail spreads today, which is basically kind of, you know, you're just

Mark Jenkins: And so I think debatably, kind of all the heuristics from before, you could kind of move up by $1,000. And I think that that's also buttressed by just looking at wholesale retail spreads today, which is basically kind of, you know, you're just looking at the aggregate market that is impacted by the sum of dealers. It probably is supporting about $1,000 more in retail GPU than it was pre-pandemic. So I think all the heuristics, you know, first-order, I think you kind of move them by roughly $1,000, and I think that's helpful in explaining the significant changes that you've seen from us.

Ernest C. Garcia: And I think that that's also buttressed by just looking at wholesale retail spreads today, which is basically kind of, you know, you're just looking at the aggregate market that is impacted by the sum of dealers. It probably is supporting about $1,000 more in retail GPU than it was pre-pandemic. I think all the heuristics, first order, I think you kind of move them by roughly $1,000, and I think that's helpful in explaining the significant changes that you've seen from us.

Speaker Change: Looking at the aggregate market that is impacted by the sum of dealers, it probably is supporting about $1,000 more in retail GPU than it was pre-pandemic.

Speaker Change: I think all the heuristics, you know, first order, I think you kind of move them by roughly $1,000, and I think that's helpful in explaining the significant changes that you've seen from us.

Mark Jenkins: Now I think, you know, a lot of the gains that we've made have been fundamental; they've been in every part of the business, every part of the kind of business of acquiring cars and getting cars to our inspection centers and doing that inexpensively and reconditioning them as efficiently as we possibly can. And we believe we have gains in all those same areas. So all the same teams are largely, they've got new projects but they're all pointing at the same areas, and they're all running in the same directions to continue making gains from here. So we do think it can go up.

Ernest C. Garcia: Now, I think a lot of the gains that we've made have been fundamental, and they've been in every part of the business, every part of the kind of business of acquiring cars and getting cars to our inspection centers, and doing that inexpensively, and reconditioning them as efficiently as we possibly can. And we believe we have gains in all those same areas, so all the same teams are largely got new projects, but they're all pointing at the same areas, and they're all running in the same directions to continue making gains from here.

Speaker Change: Now, I think a lot of the gains that we've made have been fundamental, and they've been in every part of the business.

Speaker Change: every part of the the kind of business of acquiring cars and getting cars to our inspection centers and and doing that inexpensively and recondition them as efficiently as we possibly can and we believe we have gains in all those same areas so all the same teams are you know largely they've got new projects but they're all pointing at the same areas and they're all running in the same directions to continue making gains from here.

Ernest C. Garcia: So we do think it can go up. But, as we kind of stated in the shareholder letter and in prepared remarks, we think that we're probably now getting to a place where it's more likely than not that it will make more sense to pass additional gains back to customers, or more of the additional gains that we make from here back to customers. And we're excited about what that means as well, because we have a business model now that is capable of churning out quite a bit of cash and also responds very well to scale. So we're going to keep trying to make those gains. We'll try to invest in them intelligently, but I think overall we're pretty excited. We think there's room everywhere.

Mark Jenkins: We also think that, you know, as we kind of state in the shareholder letter and in prepared remarks, we think that, you know, we're likely now getting to a place where it's more likely than not that it will make more sense to pass additional gains back to customers or more of the additional gains that we make from here back to customers. And we're excited about what that means as well because we've got a business model now that is capable of turning out quite a bit of cash and also responds very well to scale. So we're going to keep trying to make those gains; we'll try to invest them intelligently, but I think overall we're pretty excited.

Speaker Change: So we do think it can go up. We also think that, as we kind of stated in the shareholder letter and in prepared remarks,

Speaker Change: We think that we're likely now getting to a place where it's...

Speaker Change: More likely than not that it will make more sense to pass additional gains back to customers or more of the additional gains we make from here back to customers.

Speaker Change: And we're excited about what that means as well because we've got a business model now that is capable of churning out quite a bit of cash and also responds very well to scale. So we're going to keep trying to make those gains. We'll try to invest them intelligently. But I think overall we're pretty excited. We think there's room everywhere.

Mark Jenkins: We think there's room everywhere.

Mark Jenkins: Okay, and then on adding production marks comments, should we think about that as adding a second shift in facilities, or based on kind of what you talked about in Rockland, you have production capacity that can increase as you increase the, you know, vehicles flowing through the one ship that you have now, or like what's the way we think about what could happen to, you know, the IRC staffing. Sure, yeah, I think there, I think we have a lot of flexibility to increase production capacity. And I think that takes three primary forms. So first, you know, adding, continue to add lines in existing Carvana facilities that have excess capacity to add lines, I would say it's category number one, and we definitely have capacity to continue to do that.

Christopher Alan Pierce: Okay, and then on adding production, Mark's comment. Should we think about that as adding a second shift in facilities, or based on kind of what you talked about in Rockland, you have production capacity that can increase as you increase the vehicles flowing through the one shift that you have now? Or what's the right way to think about what could happen to the IRC staff?

Speaker Change: Okay, and then on adding production, Mark's comments.

Mark Jenkins: Should we think about that as adding a second shift in facilities, or based on kind of what you talked about in Rockland, you have production capacity that can increase as you increase the, you know, vehicles flowing through the one shift that you have now? Or like, what's the right way to think about what could happen to, you know, the IRC staffing?

Mark Jenkins: Sure, yeah. I think we have a lot of flexibility to increase production. I think that takes three primary forms.

Speaker Change: Sure, yeah. I think we have a lot of flexibility to increase production. I think that takes...

Mark Jenkins: So first, continuing to add lines in existing Carvana facilities that have excess capacity to add lines. I would say it's category number one, and we definitely have the capacity to continue to do that. Category number two would be more what you suggested, which is a slightly different form of adding lines, which is adding shifts to IRCs where all the production lines during the day shift are full.

Speaker Change: You know, adding, continuing to add lines in existing Carvana facilities that have excess capacity to add lines, I would say it's category number one, and we definitely have capacity to continue to do that.

Mark Jenkins: Category number two would be more would use suggestive, which is also a slightly different form of adding lines, which is adding shifts to IRC's where all the production lines during the day shift are full, you know, at a second shift to increase production capacity. And then the third that I would layer in is increasing production at a desk locations.

Speaker Change: Category number two would be more what you suggested, which is also a slightly different form of adding lines, which is adding shifts to IRCs where all the production lines during the day shift are full, you can add a second shift to increase production capacity.

Mark Jenkins: You can add a second shift to increase production capacity. And then the third that I would layer in is increasing production at Odessa locations. So, you know, we've had a lot of success adding Carvana reconditioning software and processes at two locations so far in Buffalo and Portland.

Speaker Change: And then the third that I would layer in is...

Mark Jenkins: So, you know, we've had a, you know, a lot of success adding, you know, Carvana, reconditioning software and processes into locations so far in Buffalo and Portland. You know, we plan to integrate Carvana production into a third location in Kansas City that we call a mega site, which is a site where we, you know, are continuing to serve, you know, very effectively physical auction customers at the site while also, you know, implementing Carvana reconditioning processes and systems. And so, you know, integrating more desiccites, you know, with the, you know, the ongoing physical auction services combined with Carvana reconditioning is the third avenue for production growth that we're excited about.

Speaker Change: increasing production at Odessa locations, so...

Speaker Change: You know, we've had a...

Speaker Change: You know, a lot of success, adding, you know, Carvana.

Speaker Change: reconditioning software and processes in two locations so far in Buffalo and Portland. You know, we plan to integrate Carvana production into a third location in Kansas City that we call a Megasite, which is a site where, you know, we, you know, are continuing to serve, you know, very effectively physical auction customers at the site while also, you know, implementing Carvana reconditioning processes and systems.

Mark Jenkins: You know, we plan to integrate Carvana production into a third location in Kansas City that we call a mega site, which is a site where, you know, we are continuing to serve, you know, very effectively, physical auction customers at the site while also, you know, implementing Carvana reconditioning processes and systems. And so, you know, integrating more Odessa sites with the ongoing physical auction services combined with Carvana reconditioning is a third avenue for production growth that we're excited about.

Speaker Change: And so, you know, integrating more ADESA sites, you know, with the, you know, the ongoing physical auction services combined with Carvana reconditioning is a third avenue for production growth that we're excited about. So, you know, all of those together give us a lot of flexibility. I think one of the things we're excited about in this next phase of growth is, you know, we do have more flexibility than we've ever had before for growing production efficiently at the right cost, at the right level of quality over time.

Mark Jenkins: So, you know, all of those together give us a lot of flexibility.

Mark Jenkins: So, you know, all of those together give us a lot of flexibility. I think one of the things we're excited about in this next phase of growth is that we do have more flexibility than we ever had before for growing production efficiently at the right cost and at the right level of quality over time. Okay, thank you both. Thank you. The next question comes from Brian Najo from Oppenheimer. Please go ahead. Have a good afternoon.

Mark Jenkins: I think one of the things we're excited about in this next phase of growth is, you know, we do have more flexibility than we've ever had before for growing, growing production, efficiently at the right cost, at the right level quality over time. Okay.

Operator: Thank you both. Thank you.

Speaker Change: Okay, thank you both.

Brian Nagel: The next question comes from Brian, Brian, from Openheimer. Please go ahead. Good afternoon. So I want to have my, do you want to have my congratulations? Nice quarter here. Oh, thank you. Appreciate it.

Speaker Change: Thank you.

Speaker Change: The next question comes from Brian . Brian Najo from Oppenheimer. Please go ahead.

Operator: So I do want to add my congratulations. Oh, thank you. I appreciate it.

Brian Najo: Good afternoon. I do want to add my congratulations. Nice quarter here. Thank you. I appreciate it.

Operator: So the question I have, you know, just to understand better, I guess my first question, maybe understand better the demand dynamic in the sales trajectory for Carvana. You talked about, you know, still, I guess a lack of a recondition, a limited supply of reconditioning cars holding back sales. So the question is, you look at the business, what, how much is that number? What if you're, if you're a reconditioning, you're operating where you wanted to. What would, what would fails we running that? Sure. Well, so I think, you know, we, we talked last quarter about kind of moving into this transition to growth.

Operator: So the question I have, just to understand better, I guess my first question is, maybe understand better the demand. Sales Trajectory for Carvana. I guess there is a lack, Reconditioned Car, Unlimited Supplies of Reconditioned Cars, Holding Back Sales.

Brian Najo: So the question I have, just to understand better, I guess my first question, maybe understand better the demand dynamic and the sales trajectory for Carvana. You know you've talked about

Ernest C. Garcia: So the question I have is, when you look at the business, I mean, what is that number? What if you're reconditioning, we're operating, we're [inaudible] Sure, so I think we talked last quarter about kind of moving into this transition to growth, and I think that that's where we remain. I think in the first quarter we sold more cars than we anticipated, and that caused our inventory to be a little lighter than we expected.

Speaker Change: Sure. So I think we talked last quarter about kind of moving into this transition to growth, and I think that that's

Ernest Garcia: And I think that that's where we remain. I think you know, in the first quarter, we sold more cars than we anticipated; that caused our inventory to be a little lighter than we expected. We, we turned up our production plans and, you know, the operating teams did a great job, and we're able to achieve that. That enabled us to sell more cars than we expected again in the second quarter. But we did build our inventory much less than we would have liked to. So I think we're continuing to lean in that direction. You know, we haven't invested in marketing yet.

Speaker Change: That's where we remain. I think in the first quarter we sold more cars than we anticipated. That caused our inventory to be a little lighter than we expected. We turned up our production plans and the operating teams did a great job and were able to achieve that. That enabled us to sell more cars than we expected again in the second quarter.

Ernest C. Garcia: We turned up our production plans, and the operating teams did a great job and were able to achieve that. That enabled us to sell more cars than we expected again in the second quarter. But we did build our inventory much less than we would have liked to. So I think we're continuing to lean in that direction. We haven't invested in marketing yet.

Speaker Change: But we did build our inventory much less than we would have liked to. So I think we're continuing to lean in that direction. We haven't invested in marketing yet.

Ernest Garcia: There's, you know, our marketing expense relative to our gross profits, you know, leaves a lot of room. And, and so I think, you know, we kind of put this outline in the shoulder letter of the things that we believe have driven our growth since the beginning, which we think have been consistent, but have just shown up in kind of, you know, different, different weights across time. And that's, you know, continuously improving customer experience that's, that's highly differentiated. Increasing awareness, understanding, and trust. I think those are three different steps of brand, but every step matters there.

Ernest C. Garcia: Our marketing expense relative to our gross profits leaves a lot of room. And so I think we kind of put this outline in the shareholder letter of the things that we believe have driven our growth since the beginning, which we think have been consistent, but have just shown up in kind of different weights across time. And that's continuously improving a customer experience that's highly differentiated, increasing awareness, understanding, and trust. I think those are three different steps in the brand, but every step matters there.

Speaker Change: You know, our marketing expense relative to our gross profits, you know, leaves a lot of room. And so I think, you know, we kind of put this outline in the shareholder letter of the things that we believe have driven our growth since the beginning, which we think have been consistent, but have just shown up in kind of, you know, different weights across time.

Speaker Change: And that's, you know, continuously improving customer experience that's highly differentiated, increasing awareness, understanding, and trust. I think those are three different steps of brand, but every step matters there. And then increasing inventory selection and other scale benefits.

Ernest Garcia: And then increasing inventory selection and other scale benefits. And I think that, you know, so far, we've kind of gotten to a place where we've gone from negative, you know, effects in the second and third area over the last couple of years as we were shrinking inventory. And as we were investing less in marketing and as we are getting beat up a little bit in the press to more like still wins, but, but, you know, those still wins still have enabled pretty exciting levels of growth. So, I think this transition period is about figuring out where exactly that healthy balance of growth is, where we can grow significantly and get all the clear benefits to come with that.

Ernest C. Garcia: And then increasing inventory selection and other scale benefits. And I think that so far, we've kind of gotten to a place where we've gone from negative effects in the second and third areas over the last couple of years as we were shrinking inventory and as we were investing less in marketing and as we were getting beat up a little bit in the press, to more like still wins. But those wins still have enabled pretty exciting levels of growth.

Speaker Change: And I think that, you know, so far we've kind of gotten to a place where we've gone from negative, you know, effects in the second and third area over the last couple years as we were shrinking inventory and as we were investing less in marketing and as we were getting beat up a little bit in the press.

Speaker Change: to more like still wins, but those still wins still have enabled pretty exciting levels of growth.

Ernest C. Garcia: So I think this transition period is about figuring out where exactly that healthy balance of growth is, where we can grow significantly and get all the clear benefits that come with that, but also continue to make fundamental gains because we do still believe there are significant fundamental gains to be had. And we've been saying that for the last year, and I think the way the team has executed has really proven that to be extremely true.

Speaker Change: So, I think this transition period is about figuring out where exactly that healthy balance of growth is, where we can grow significantly and get all the clear benefits that come with that, but also continue to make fundamental gains because we do still believe there are significant fundamental gains to be had, and we've been saying that for the last year, and I think the way the team's executed has really proven that to be extremely true.

Ernest Garcia: But also continue to make fundamental gains because we do still believe there are significant fundamental mental gains to be had. And you know, we've been saying that for the last year, and I think, you know, the way the teams executed has really proven that to be extremely true. And so, I think, you know, we're still feeling that out as we go, but I think if we take a step a little further back. I just think the position that we're in relative to this industry is very, very exciting, right? We've gone from a company that grew at 85% compounded for the five years prior to 2021.

Ernest C. Garcia: And so I think, you know, we're still feeling that out as we go, but I think if we take a step a little further back, I just think the position that we're in relative to this industry is very, very exciting, right? We've gone from a company that grew at 85% compounded for the five years prior to 2021. We grew very, very fast to a company that went through a difficult time and, during that difficult time, found a way to get a lot more efficient and, frankly, to serve our customers better and to just be a better business. And I think now we're in a position where we're starting to kind of turn the engines back on, and we're moving in that direction. We're a 1% market shareholder.

Speaker Change: And so I think you know we're still feeling that out as we go, but I think if we take a step a little further back

Speaker Change: I just think the position that we're in relative to this industry is very, very exciting. We've gone from...

Speaker Change: A company that grew at 85% compounded for the five years prior to 2021. We grew very, very fast.

Ernest Garcia: We grew very, very fast to a company that went through a difficult time and, during that difficult time, found a way to get a lot more efficient and, frankly, to serve our customers better and to just be a better business. And I think now we're in a position where we're starting to turn the engines back on, and we're moving in that direction. We're a 1% market shareholder; we see a lot of room to run. And the most important thing is that we make good decisions, we prioritize, we stay focused, and we just keep marching because there's a big prize in front of us.

Speaker Change: to a company that went through a difficult time and during that difficult time found a way to get a lot more efficient.

Speaker Change: and frankly to serve our customers better and to just be a better business.

Speaker Change: And I think now we're in a position where we're starting to kind of turn the engines back on and we're moving in that direction. We're a 1% market shareholder. We see a lot of room to run. And the most important thing is that we make good decisions, we prioritize, we stay focused, and we just keep marching because there's a big prize in front of us. And so we're going to go out and try to be as intelligent as we can be as we go tackle it.

Ernest C. Garcia: We see a lot of room to run, and the most important thing is that we make good decisions, we prioritize, we stay focused, and we just keep marching because there's a big prize in front of us. And so we're going to go out and try to be as intelligent as we can be as we go tackle. That's very helpful. My follow-up question, just with respect to death, one of the questions... How should we think about the timing of the conversion or the reconfiguration, if you will, of some of these investment facilities to be reconditioned type centers?

Operator: And so we're going to go out and try to be as intelligent as we can be as we go tackling. That's very helpful.

Ernest Garcia: My follow-up question, just with respect to death, one of the questions we get a lot when you talk to clients about Carvana, is how should we think about the timing of the conversion or the reconfiguration of your wealth, some of these deaths and facilities to be reconditioned type centers for you? So I think that's also something that we're figuring out in this transition period. I think your Mark spoke about our next site in Kansas City, which is going to be a site where we're calling it a mega site. It's going to have all the capabilities it wants.

Speaker Change: That's very helpful. My follow-up question, you know, just with respect to death, I mean, one of the questions we get a lot, when we talk to clients about carvona,

Speaker Change: Just how should we think about the timing of the conversion or the reconfiguration, if you will, of some of these adaptive facilities to be reconditioning type centers for you?

Ernest C. Garcia: So I think that that's also something that we're figuring out in this transition period. I think, you know, Mark spoke about our next site in Kansas City, which is going to be a site we're calling a mega site. It's going to have all the capabilities it wants.

Speaker Change: So I think that's also something that we're figuring out in this transition period. I think, you know, Mark spoke about, you know, our next site in Kansas City, which is going to be a site, we're calling it a mega site, because it's going to have all the capabilities it wants.

Ernest C. Garcia: You know, we've done it very efficiently so far with, you know, almost no CapEx. I think the more of these sites that we choose to open, there are many more that we could integrate and not have a huge CapEx investment. But I think the more of them that we choose to open, the more that that'll lean a little bit in the direction of CapEx, but there are a lot of other offsetting benefits.

Ernest Garcia: We've done it very efficiently so far with almost no CAPEX. I think the more of these sites that we choose to open, there are many more that we could integrate and not have a huge CAPEX investment. But I think the more of them that we choose to open, the more that will lean a little bit in the direction of CAPEX, but there's a lot of other offsetting benefits. You get access to a lot more inventory pools, you get close to your customers, your inbound transport costs are less, your outbound transport costs are less, your transport times are faster, which leads to higher conversion.

Mark Jenkins: We've done it very efficiently so far with almost no CapEx.

Speaker Change: I think the more of these sites that we choose to open, there are many more that we could integrate and not have a huge CapEx investment, but I think the more of them that we choose to open, the more that that'll lean a little bit in the direction of CapEx, but there's a lot of other offsetting benefits. You get access to a lot more inventory pools, you get closer to your customers, your inbound transport costs are less, your outbound transport costs are less, your transport times are faster, which leads to higher conversion.

Ernest C. Garcia: You get access to a lot more inventory pools, you get closer to your customers, your inbound transport costs are less, your outbound transport costs are less, your transport times are faster, which leads to higher conversion. And so I think we're trying to find the balance right now between adding inventory pools and logistics capabilities to those sites and being really efficient. And so far, that's led to adding reconditioning capabilities in Buffalo, Portland, and Kansas City. I think over time, we'll certainly do more. And I think the speed at which we do that is something that we're figuring out as we go right now. I appreciate all the calls.

Operator: And so I think we're trying to find the balance right now between adding inventory pools and logistics capabilities, those sites and being really efficient. And so far that's led to adding reconditioning capabilities in Buffalo, Portland, and Kansas City. I think over time we will certainly do more, and I think the speed at which we do that is something that we're figuring out as we go right now. Got it. Right. Appreciate all the color. Thank you.

Speaker Change: And so I think we're trying to find the balance right now between adding inventory pools and logistics capabilities to those sites and being really efficient. And so far that's led to adding reconditioning capabilities in Buffalo and Portland and Kansas City. I think over time we'll certainly do more, and I think the speed at which we do that is something that we're figuring out as we go right now.

Speaker Change: Got it. Well, I appreciate the call. Thank you.

Speaker Change: Thank you.

Michael Baker: The next question comes from Michael Baker from VA Daystone.

Operator: Thank you. Thank you. The next question comes from Michael Baker from ZAJ. Please go ahead.

Speaker Change: The next question comes from Michael Baker from Z.A. Daystone. Please, go ahead.

Operator: Please go ahead. Okay. Thanks.

Michael Allen Baker: Okay, thanks. Two questions. One, you talked about giving back to customers. Procter & Gamble customers, does that show up?

Operator: Two questions. One, you talked about giving back to customers, giving some of the customers that you're up in shop or pricing, more choice, faster speed of service, all the above. And then second question, do you think you gained any share this quarter from some of your competitors being impacted by CDK Global cyber attack? And if so, how much, and does that mean share game would be a little bit less going forward? Thanks. Sure. I think that, so I think we provided in the bridge, we put the shareholder letter. It gives you a walk from kind of where we are to where we expect leverage to be and how we're doing from a marketing perspective and some more mature markets.

Michael Allen Baker: Okay, thanks. Two questions.

Speaker Change: One, you talked about giving back to customers, giving some of the products back to customers. Does that show up in sharper pricing, more choice, faster speed of service, all of the above?

Ernest C. Garcia: Sharper pricing, more choice, faster speed of service, all of the above. And then, second question, do you think you've gained any share this quarter from some of your competitors being impacted by CDK global cyber attacks? So how much and does that mean, you know, share gains will be a little bit less going forward? Sure.

Speaker Change: And then second question, do you think you've gained any share this quarter from some of your competitors being impacted by CDK Global's cyber attack? And if so, how much? And does that mean share gain would be a little bit less going forward? Thanks.

Ernest C. Garcia: I think that, in the bridge we put the shareholder letter, it gives you a walk from kind of where we are to where we expect leverage to be and, you know, how we're doing from a marketing perspective in some of our more mature markets. And I think that gives us a pretty clear path to the very high end of our long-term financial model from an EBITDA perspective without the need for fundamental gains. And then we do believe there are very significant fundamental gains to be had. And I think the areas where we could invest them were all of the areas that you suggested and a couple more.

Speaker Change: Sure, um, I think that, um...

Speaker Change: So I think we provided in the bridge we put the shareholder letter It gives you a walk from kind of where we are to where we expect leverage to be and and you know How we're doing from a marketing perspective and some are more mature markets

Ernest Garcia: And I think that gives a pretty clear walk to the very high end of our long term financial model from an EBITOP perspective without the need for fundamental gains. And then we do believe there are very significant fundamental gains to be had. And I think the areas where we could invest some were all of the areas that you suggested in a couple more. And I think as we move forward, we will try to do that as intelligently as we can. I'm not sure we want to tip our hand too much on that because I think we've got some creative ideas.

Speaker Change: And I think that gives a pretty clear walk to the very high end of our long-term financial model from an EBITDA perspective without the need for fundamental gains, and then we do believe there are very significant fundamental gains to be had.

Speaker Change: and I think the areas where we could invest them were all of the areas that you suggested and a couple more.

Ernest C. Garcia: And I think, you know, as we move forward, we will try to do that as intelligently as we can. I'm not sure we want to tip our hand too much on that because I think we've got some creative ideas and I think there are also some lessons that we've got to learn between here and there as we start to give that back to see where it's most efficient. But we, as long as we execute, we anticipate having gains to give back.

Speaker Change: And I think, you know, as we move forward, we will try to do that as intelligently as we can. I'm not sure we want to tip our hand too much on that because I think...

Ernest Garcia: And I think there's also some lessons that we've got to learn between here and there as we start to give that back to see where it's most efficient. But as long as we execute, we anticipate having gains to give back, and then we'll try to do that very intelligently.

Speaker Change: We've got some creative ideas, and I think there's also some lessons that we've got to learn between here and there as we start to give that back to see where it's most efficient. But as long as we execute, we anticipate having gains to give back, and then we'll try to do that very intelligently.

Ernest C. Garcia: And then we'll try to do that very intelligently. As it relates to CDK, I think there's no question that that had an impact on the industry broadly. I think there were, you know, significant impacts on many automotive retailers. But the impact to us, I think our best guess at that is that it was pretty muted. We didn't see huge impacts either when it started, when it was ongoing, or as it was alleviated.

Ernest Garcia: As it relates to CDK, I think there's no question that that was an impact in the industry broadly. I think there were significant impacts on many automotive retailers. The impact to us, I think our best guess at that is that it was pretty muted. We didn't see huge impacts either when it started, when it was ongoing, or as it was alleviated. Maybe there were little directional things that you could have picked out, but nothing that I think Warren's mentioned. So I'm not sure there was a huge impact. Sarah.

Speaker Change: As it relates to CDK, I think there's no question that that was an impact in the industry broadly. I think there were significant impacts on many automotive retailers. The impact to us, I think our best guess at that is that it was pretty muted. We didn't see huge impacts either when it started, when it was ongoing, or as it was alleviated. Maybe there were little directional things that you could have picked out, but nothing that I think warrants mention. So I'm not sure there was a huge impact there.

Michael Allen Baker: Maybe there were little directional things that you could have picked out, but nothing that I think warrants mention. So I'm not sure there was a huge impact there. Okay, thank you. I appreciate the call.

Operator: Okay, thank you. Appreciate the color. Thank you.

Speaker Change: Okay, thank you, appreciate the call. Thank you.

Sharon Zackfia: The next question comes from Sharon Zackfia, from William Blair. Please go ahead. Good afternoon. I think one of the underlying questions is you're kind of balancing profitability with growth. It's just kind of how much unmet demand you're leaving on the table. So when we think about kind of inventory and being under inventory, obviously, when you're selling non-commodity items, that's constraining sales, right? So, to assume conversion is a bit below where you would like it to be. It sounds like there's going to be investments in things like Recon and, you know, at some point I expect marketing to kick up again.

Operator: Thank you. [inaudible] from Sharon and William Blair. Please go ahead.

Speaker Change: The next question comes from Sharon Duxka from William Blair, please go ahead.

Sharon Zackfia: You know, I think, hi, I think one of the underlying questions is you're kind of balancing profitability with growth is just kind of how much unmet demand you're leaving on the table. So when we think about kind of inventory and being under inventory, and obviously, when you're selling non-commodity items, that's constraining sales, right? So to assume conversion is a bit below where you would like it to be. It sounds like there's going to be investments in things like recon, and at some point, I expect marketing to kick up again.

Sharon Zackfia: Hi, good afternoon.

Speaker Change: balancing profitability with growth is just kind of how much unmet demand you're leaving on the table. So when we think about

Sharon Zackfia: Kind of inventory and being under-inventoried obviously when you're selling non-commodity items that's constraining sales, right? So to assume conversion

Speaker Change: is a bit below where you would like it to be. It sounds like there's going to be investments in things like recon. And at some point I expect marketing to kick up again. Can you talk about kind of where underlying demand is?

Sharon Zackfia: Can you talk about kind of where underlying demand is relative to your sales? And it does feel like you are in growth mode now, just given these sales metrics that you're putting up. What kind of testing and iteration are you doing to think about things like turning back on marketing to a greater extent? Sure, but I'm not sure my answer is going to be as satisfying as you would like.

Ernest Garcia: Can you talk about kind of where underlying demand is relative to your sales? And it does feel like you are in growth mode now, you know, just giving these sales metrics that you're putting up. What kind of testing and iteration are you doing to think about things like turning back on marketing to a greater extent?

Speaker Change: Relative to your sales, and it does feel like you are in growth mode now, you know, just given these sales metrics that you're putting up, what kind of testing and iteration are you doing to think about things like turning back on marketing to a greater extent?

Mark Jenkins: Sure. So I think I'm not sure my answer is going to be as satisfying as you would like. I think all of your observations are correct. I think we're in this transition period. I think we're moving in that direction. As discussed, we're trying to balance growth and its benefits with the benefits of being able to keep things a little more stable and continue to make gains. I think there's no question that we are very, very small compared to what we want to be. At any point in time, you know, measuring the exact amount of latent demand is complicated because you even have to frame what that means kind of carefully.

Speaker Change: Sure. So I think, I'm not sure my answer is going to be as satisfying as you would like. I think all of your observations are correct. I think we're in this transition period. I think we're moving in that direction. As discussed, we're trying to balance.

Ernest C. Garcia: I think all of your observations are correct. I think we're in this transition period, and I think we're moving in that direction. As discussed, we're trying to balance growth and its benefits with the benefits of being able to keep things a little more stable and continue to make gains. I think there's no question that we are very, very small compared to what we want to be.

Speaker Change: You know, growth and its benefits with the benefits of being able to keep things a little more stable and continue to make gains. I think there's no question that we are very, very small compared to what we want to be. At any point in time, you know, measuring the exact amount of latent demand is complicated because you even have to frame...

Sharon Zackfia: At any point in time, measuring the exact amount of latent demand is complicated because I think you even have to frame what that means kind of carefully. If you believe you have a business model with positive feedback, then as you unlock more demand, that more demand showing up leads to things like faster delivery times and broader selection and unlocks more demand again. So I think our eyes are on selling millions of cars and being the largest, most profitable automotive retailer and doing it as quickly and intelligently as we possibly can. We think things look very, very good right now and it's very, very exciting, but we always remain aware that there are always bumps along the way as well. I don't know.

Ernest Garcia: If you believe you have a business model of positive feedback, then as you unlock more demand, kind of that more demand showing up leads to things like faster delivery time and broader selection and unlocks more demand again. So I think our eyes are on selling millions of cars and being the largest, most profitable out of retailer and doing it as quickly and intelligently as we possibly can. We think things look very, very good right now, and it's very, very exciting. But we always remain aware that there's always bumps along the way as well.

Speaker Change: What that means, kind of carefully, you know, if you believe you have a business model with positive feedback, then as you unlock more demand, kind of, you know, that more demand showing up leads to things like...

Speaker Change: Faster Delivery Time, and Broader Selection, and Unlocks More Demand Again. So I think, you know, our eyes are on selling millions of cars, and being the largest and most profitable automotive retailer, and doing it as quickly and intelligently as we possibly can. We think, you know, things look very, very good right now, and it's very, very exciting.

Speaker Change: But we always remain aware that there's always bumps along the way as well, and so, I don't know. Things feel very good. They feel very good, and I think we just got to keep moving forward, and we'll see where it takes us.

Ernest Garcia: I don't know. Things feel very good. They feel very good, and I think we've got to keep moving forward, and we'll see where it takes us. You're right, Ernie.

Ernest C. Garcia: Things feel very good. They feel very good, and I think we've just got to keep moving forward, and we'll see where it takes us. You're right, Ernie, it was an unsatisfactory answer, so I will ask something maybe. Maybe you should call me out on that. Maybe for Mark instead.

Mark Jenkins: It's unsatisfying as an answer, so I will ask something, maybe. Maybe for Mark instead, as seasonality was mentioned earlier, and I just want to level set kind of GPU expectations. I mean, typically we would expect lower sequential GPU in the third quarter. Is that in keeping in what you're thinking?

Speaker Change: You're right Ernie, it was unsatisfying as an answer, so I will ask something maybe for Mark instead. Seasonality was mentioned earlier, and I just want to level set kind of GPU expectations. I mean, typically we would expect...

Mark Jenkins: As seasonality was mentioned earlier, and I just want to level set a kind of GPU expectations. I mean, typically, we would expect lower sequential GPUs and the third quarter is that in keeping with what you're saying. So on the question about seasonality, I think, you know, where we typically think of seasonality as being most prominent is really in the, you know, fourth quarter, first and foremost, and then maybe to an extent in the early first quarter as well. I think the form that that seasonality takes is typically, you know, softer overall used car market demand, as well as higher depreciation rates.

Speaker Change: lower sequential GPU in the third quarter. Is that in keeping with what you're thinking?

Mark Jenkins: Thanks. So on the question about seasonality, I think where we typically think of seasonality as being most prominent is really in the fourth quarter, first and foremost, and then maybe to an extent in the early first quarter as well. I think the form that that seasonality takes is typically, you know, softer overall, used car market demand as well as higher depreciation rates. And so that's industry seasonality that we see year after year. And I think where we see that most acutely is in the fourth quarter and sort of the early part of the first quarter.

Speaker Change: Thanks.

Mark Jenkins: So on the question about seasonality, I think, you know, what we typically think of seasonality is as...

Mark Jenkins: Being most prominent is really in the fourth quarter first and foremost, and then maybe to an extent in the early first quarter as well. I think the form that that seasonality takes is typically...

Mark Jenkins: You know, softer overall used car market demand, as well as higher depreciation rates. And so that, you know, that's industry seasonality that we see year after year. And I think where we see that most acutely is in the fourth quarter and sort of the early part of the first quarter.

Operator: Thank you.

Speaker Change: Thank you.

Seth Basham: The next question comes from Seth Basham, from Webhouse Security. Please go ahead. Thanks a lot, and good afternoon. My question is around other GPUs. If you could give us some sense of where you are today, where else you're going to be in a couple of years, and the key driver to get there, that would be helpful.

Seth Mckain Basham: And so that, you know, that's industry seasonality that we see year after year. And I think where we see that most acutely is in the fourth quarter and sort of the early part of the first quarter. The next question comes from Seth Basham from Ledbush Securities. Please go ahead. Thank you a lot and good afternoon. My question is about other GPUs.

Speaker Change: The next question comes from Seth Basham from Wed Bosch Securities. Please go ahead.

Mark Jenkins: If you could give us a sense of where you are today relative to where you think you'll be in a couple of years and the key drivers to get there, that would be helpful. Sure, I can take that one. So I do think, you know, we've had a strong quarter, we've had a strong first half on other GPUs. I think, you know, there are many drivers of that, including, you know, all the work that the teams do internally to, you know, optimize our platform, scoring, pricing, monetization, as well as we've made, you know, I think, you know, over time, we've had some nice I think, you know, as we look forward, you know, for opportunities. We do see opportunities to make fundamental gains in other GPUs.

Seth Mckain Basham: Thanks a lot and good afternoon. My question is around other GPUs. If you could give us a sense of where you are today relative to where you think you'll be in a couple of years and the key drivers to get there, that would be helpful.

Mark Jenkins: Sure, I can take that one. So I do think we've had a strong quarter; we've had a strong first half on other GPU. I think there are many drivers of that, including all the work that the teams do internally to optimize our platform, scoring, pricing, and monetization. And as well as we've made, I think over time, had some nice gains in the answer products part of that as well. I think as we look forward for opportunities, we do see opportunities to make fundamental gains in other GPU. I think some of the areas where we see opportunities are really the areas that I just listed.

Speaker Change: Sure, I can take that one. So, I do think, you know, we've had a strong quarter, we've had a strong first half.

Speaker Change: on other GPU.

Speaker Change: I think, you know, there are many drivers of that, you know, including, you know, all the work that the teams do internally to, you know, optimize our platform, you know, scoring, pricing, monetization, as well as we've made, you know, I think, you know, over time had some nice gains in the ancillary products part of that as well.

Speaker Change: I think, you know, as we look forward, you know, for opportunities,

Mark Jenkins: I think some of the areas where we see opportunities are really the areas that I just listed. So we're always seeking to take in more data and improve our scoring and pricing algorithms. We're always seeking to improve and streamline the customer experience to make using Carvana financing as easy as possible.

Speaker Change: We do see opportunities to make fundamental gains in other GPU. I think some of the areas where we see opportunities are really the areas that I just listed. So we're always seeking to take in more data and improve our scoring and pricing algorithms. We're always seeking to improve and streamline the customer experience to make using Carvana financing as easy as possible. We're always working to develop the most efficient funding sources for our loans. We're always looking to continue to improve attached rates on our ancillary products.

Mark Jenkins: So, we're always seeking to take in more data and improve our scoring and pricing algorithms. We're always seeking to improve and streamline the customer experience to make using Carvana Financing as easy as possible. We're always working to develop the most efficient funding sources for our loans. We're always looking to continue to improve, attach rates on our employer products. And so, those are areas where we've made gains historically, but absolutely areas where the teams are focused on continuing to make fundamental gains over time. That's helpful.

Mark Jenkins: We're always working to develop the most efficient funding sources for our loans. We're always looking to continue to improve attach rates on our ancillary products. And so those are areas where we've made gains historically, but absolutely areas where the teams are focused on continuing to make fundamental gains over time. That's helpful. Direction from here, could we see a step back because of some of the... timing elements associated with the strength you recently experienced before you get to the much higher levels that you expect?

Speaker Change: And so, those are areas where we've made gains historically, but absolutely areas where, you know, the teams are focused on continuing to make fundamental gains over time.

Mark Jenkins: A direction from here, could we see a step back because of some of the timing elements associated with the strength you recently experienced before you get to this much higher level that you expect in a couple of years? The callout that we had on Q2, I think Ernie mentioned as well, we saw about a 12 million favorable impact just due to timing effect, loan sale timing effects that rounded up to 0.4% of revenue. So, that would be the primary thing that I would call out as it relates to Q2.

Speaker Change: That's helpful. Direction from here, could we see a step back because of some of the timing elements associated with the strength you recently experienced before you get to the much higher levels that you expect in a couple of years?

Seth Mckain Basham: The call-out that we had on Q2, I think Ernie mentioned as well, we saw about a 12 million favorable impact just due to timing effects, loan sale timing effects, that rounded up to, you know, 0.4% of revenue. So that would be the primary thing that I would call out as it relates to Q2. Fair enough, thank you. The next question comes from Nick Jones from Citizens GMP. Please go ahead. Thanks for taking the questions.

Ernest C. Garcia: The call-out that we had on Q2, I think Ernie mentioned as well, you know, we saw about a 12 million favorable impact just due to timing effect, loan sale timing effects, that rounded up to, you know, 0.4% of revenue. So that would be the primary thing that I would call out as it relates to Q2.

Ernest Garcia: Ernie, thank you.

Speaker Change: Fair enough. Thank you.

Nicholas Jones: The next question comes from Nick Jones from Citizen's GNP.

Speaker Change: The next question comes from Nick Jones from Citizens GMP. Please go ahead.

Nicholas Jones: Please go ahead. Thanks for taking the questions. You've delivered a lot of efficiency gains over the last year. You're still talking a lot about a bunch more to be made as you try to deliver a much larger number of units than you're doing today.

Operator: You know, you've delivered a lot of efficiency gains over the last year, but you're still talking a lot about a bunch more to be made as you try to deliver, you know, a much larger number of units than you're doing today. How are you balancing this relentless focus on efficiency gains given the progress you've made versus, I guess, potentially new revenue opportunities that it sounds like you maybe had ambitions for if we go back to analyst day years ago?

Nicholas Freeman Jones: Thanks for taking the questions.

Speaker Change: You know, you've delivered a lot of efficiency gains over the last year. You're still talking a lot about...

Speaker Change: a bunch more to be made.

Speaker Change: as you try to deliver a much larger number of units than you're doing today. How are you balancing kind of this relentless focus on efficiency gains, given the progress you've made, versus, I guess, potentially new revenue opportunities, that it sounds like you maybe had ambitions for if we go back to the analyst's day years ago?

Ernest Garcia: How are you balancing this relentless focus on efficiency gains, given the progress you've made versus potentially new revenue opportunities that it sounds like you may be on ambitions where we go back to the annual stay years ago. As Carvana gets bigger, delivers this kind of new consumer experience that's differentiated. Our consumer is going to kind of increasingly look to Carvana for additional services or solutions, and is that a factored unlock kind of the volume you aim to get long term.

Operator: You know, as Carvana gets bigger and delivers this kind of new consumer experience that's differentiated, are consumers going to kind of increasingly look to Carvana for additional services or solutions, and is that a factor to unlock kind of the volume you aim to get long-term? Thanks.

Speaker Change: So, as Carvana gets bigger, delivers this kind of new consumer experience that's differentiated, are consumers going to kind of increasingly look to Carvana for additional services or solutions and is that a factor to unlock kind of the volume you aim to get long term? Thanks.

Nicholas Freeman Jones: Sure. So, I think one of the lessons that we have learned over the last couple of years is that focus is very valuable. And I think one of the things we learned about ourselves, I think we've assembled a team that is very ambitious and seeks to take on a lot of things. And I think that one of the battles that we constantly face internally is trying to make sure that we tackle the right number of things and we prioritize them properly. I think, given the creativity that we have inside of the walls of Carvana, I think we're never short of ideas. But that's never the case.

Ernest Garcia: I think one of the lessons that we learned over the last couple of years is that focus is very valuable. And I think one of the things we learned about ourselves, I think we've assembled a team that is very ambitious and seeks to take on a lot of things. And I think that one of the battles that we constantly face internally, I think, is trying to make sure that we tackle the right number of things; we prioritize them properly. I think, given the creativity that we have inside of the walls of Carvana, I think we're never short ideas; that's never the case.

Speaker Change: Sure. So, I mean, I think one of the lessons that we learned over the last couple of years is that focus is very valuable. And I think one of the things we learned about ourselves, I think we've assembled a team that is...

Speaker Change: Very ambitious and and seeks to take on a lot of things and I think that

Speaker Change: one of the battles that we constantly face.

Speaker Change: I think is trying to make sure that we tackle the right number of things and we prioritize them properly. I think, you know,

Speaker Change: Given the creativity that we have inside of the the walls of Carvana, I think

Ernest Garcia: And I think just trying to make sure that we're focusing on the right things in the right order to make the most progress that we can as quickly as possible is what we focus on. I think that that extends to efficiencies, growth, and other opportunities where we believe there are exciting areas. All three of those are very exciting areas.

Speaker Change: We're never short ideas, that's never the case, and I think just trying to make sure that we're focusing on the right things in the right order to make the most progress that we can as quickly as possible is what we focus on. I think that that extends to efficiencies, growth.

Ernest C. Garcia: And I think just trying to make sure that we're focusing on the right things in the right order to make the most progress that we can as quickly as possible is what we focus on. I think that that extends to efficiencies, growth, and other opportunities where we believe they're exciting areas. All three of those are very exciting areas.

Speaker Change: and other opportunities where, you know, we believe they're exciting areas. All three of those are very exciting areas. So I think we're trying to be as smart as we can there. Half of saying this out loud is a reminder to ourselves to try to stay focused because I think we remain in a place where there are more opportunities than we should intelligently take on. And we're trying to be as thoughtful as we can about which we take on and how.

Ernest Garcia: So I think we're trying to be as smart as we can there, half of saying this out loud as a reminder to ourselves to try to stay focused because I think we remain in a place where there are more opportunities than we should intelligently take on. And we're trying to be as thoughtful as we can about which we take on and how.

Nicholas Freeman Jones: So, I think we're trying to be as smart as we can there. Half of saying this out loud is a reminder to ourselves to try to stay focused because I think we remain in a place where there are more opportunities than we should intelligently take on. And we're trying to be as thoughtful as we can about which we take on and how. And maybe a follow-up. Thanks for that. And I guess on, you know, Carmack came up a couple times on the call. I think historically, competitors have maybe not been believers in, you know, Carvana's capabilities. Do you sense there might be a different urgency and a competitive reaction given your kind of recent and sustainable results? Sure.

Ernest Garcia: And maybe a follow up, thanks for that. And I guess on, you know, Carman has come up a couple of times on the call. I think historically competitors have maybe not been believers in, you know, Carman has capabilities. You said there might be a different urgency and a competitive reaction given your kind of recent and sustainable results. Thanks. Sure.

Speaker Change: And maybe a follow-up. Thanks for that. And I guess on, you know, Carmack's to come up a couple times on the call.

Speaker Change: I think historically competitors have maybe not been believers in Carvana's capabilities. Do you sense there might be a different urgency and a competitive reaction given your kind of recent sustainable results?

Ernest C. Garcia: So I'll respond to that maybe just generally. I mean, I think the view that we've always had and we've tried to continually share is that, as it relates to ourselves, we try not to be too focused on competition. We try to be focused on our customers. I think it's very easy for companies to follow each other in circles and believe that what the other company is doing is smart, and then they just kind of continually chase each other instead of listening to their customers.

Ernest Garcia: So, I mean, I'll respond to that maybe just generally. I mean, I think the view that we've always had and we've tried to continually share is that, as it relates to ourselves, we try to not be too focused on competition. We try to be focused on our customers. I think it gets very easy for companies to follow each other in circles and believe that what the other company is doing is smart. And then just kind of continually chase each other instead of listening to their customers. So what we try to do is listen to our customers.

Speaker Change: Sure, so I mean I'll respond to that maybe...

Speaker Change: Just generally. I mean, I think the view that we've always had and we've tried to continually share is that as it relates to ourselves, we try to not be too focused on competition. We try to be focused on our customers. I think it gets very easy for companies to

Speaker Change: to follow each other in circles and believe that what the other company is doing is smart, you know, and then just kind of continually chase each other instead of listening to their customers. So what we try to do is listen to our customers. That's our continual goal. And we will continue to do that.

Ernest C. Garcia: So what we try to do is listen to our customers. That's our continual goal. And we will continue to do that. I think that there's no question that whenever results are being put up that are high quality, people are going to take notice. And I think that'll be true of probably many in the industry. And that's fine. I think we never expected to be alone or be handed anything.

Ernest Garcia: That's our continual goal, and we will continue to do that. I think that there's no question that, you know, whenever results are being put up that are high quality, people are going to take notice. And I think that will be true of probably many in the industry. And, you know, that's fine. I think, you know, we never expected to be alone or be handed anything. We expected to come out here and compete for it and try to build something differentiated for our customers. And I think that's what we intend to continue to do.

Speaker Change: I think that there's no question that, you know, whenever results are being put up that are high quality, people are going to take notice. And I think that'll be true of probably many in the industry. And that's fine. I think, you know, we never expected to be alone or be handed anything. We expected to come out here and compete for it and try to build something differentiated for our customers.

Ernest C. Garcia: We expected to come out here and compete for it and try to build something differentiated for our customers. And I think that's what we intend to continue to do. I think, you know, something that, you know, putting on our very biased Carvana hat, something that we're just extremely excited about is, you know, we think that the things that we've built are really differentiated and take a long time and a lot of effort and are associated with a lot of risk.

Ernest Garcia: I think, you know, something that, you know, putting on our very biased carbon hat, something that we're just extremely excited about is, you know, we think that the things that we've built are really differentiated and take a long time and a lot of effort and are associated with a lot of risk. I think, you know, there are many examples. Ten to a dozen international examples of companies that have sought to do something very similar to us and put big dollars behind it. And I think it's pretty clear at this point that we are by far and away the most successful of those big swings.

Speaker Change: And I think that's what we intend to continue to do.

Speaker Change: Very biased Carvana hat something that we're just extremely excited about is we think that the things that we've built

Speaker Change: are really differentiated and take a long time and a lot of effort and are associated with a lot of risk. I think, you know, there are many examples, ten to a dozen international examples of companies that have sought to do something very similar to us and put big dollars behind it.

Ernest C. Garcia: I think, you know, there are many examples, 10 to a dozen international examples of companies that have sought to do something very similar to us and put big dollars behind it. And I think it's pretty clear at this point that we are by far and away the most successful of those big swings. And you know, success in the middle looked like down 99%. And so, you know, I think it's – this takes a lot to build. And I think that, you know, you're never competitively alone.

Speaker Change: And I think it's pretty clear at this point that we are by far and away the most successful of those.

Ernest Garcia: And, you know, success in the middle looks like down 99%. And so, you know, I think it takes a lot to build. And I think that, you know, you're never competitively alone. But I think the degree to which you are competitively differentiated is a function of time, money, effort, and difficulty. And we think there's a lot that separates us there. And so we're excited by that. But we will in no way, shape, or form be complacent. We're going to keep trying to put more space between us and everyone else and keep delivering for our customers.

Speaker Change: Big Swings.

Speaker Change: And, you know, success in the middle looked like down 99%. And so, you know, I think it's, it's, it, this, this takes a lot to build. And I think that, you know, you're never competitively alone, but I think the degree to which you are competitively differentiated is a function of.

Ernest C. Garcia: But I think the degree to which you are competitively differentiated is a function of time, money, effort, and difficulty. And we think there's a lot that separates us there. And so, we're excited by that. But we will, in no way, shape, or form, be complacent. We're going to keep trying to put more space between us and everyone else and keep delivering for our customers. Thanks, Ernie.

Speaker Change: Time, money, effort, and difficulty. And we think there's a lot that separates us there. And so we're excited by that, but we will in no way, shape, or form be complacent. We're going to keep trying to put more space between us and everyone else and keep delivering for our customers.

Operator: Thomas. Thank you, Ernie.

Ernest Garcia: Thank you.

Speaker Change: Thank you Ernie. Thank you.

John Colantuoni: The next question comes from John Colantuoni from Jeffrey.

Operator: Thank you. The next question comes from John Colantuoni from Jeffreys, please go ahead. Great, thanks for taking my question. I just wanted to go back to Ernie's comment about passing additional gains on to the consumer. Can you give me more detail on that comment?

Speaker Change: The next question comes from John Colantuoni from Jeffreys, please go ahead.

Ernest Garcia: Please go ahead. Great. Thanks for taking my questions. I just wanted to go back to Ernie's comment about passing additional gains onto the consumer. Can you just detail what you meant by that comment? I'm probably thinking about this wrong, but it sounded to me like you might expect GPUs to be more consistent with what they are today and over time, and then you can use any additional efficiency gains to drive faster growth. But please help clarify that for me. And then second question, the comment about the industry supporting, I think it was the kind of the industry can now support 1000 higher GPU.

John Robert Colantuoni: Great, thanks for taking my questions.

John Robert Colantuoni: I just wanted to go back to Ernie's comment about passing additional gains on to the consumer.

John Robert Colantuoni: I'm probably thinking about this wrong, but it sounded like today, time, and then you can use any faster growth, but, you know, please help clarify that for me. Second question, the comment about supporting, I think it was, the comment was that the industry can now support a thousand hired guns. Can you just talk about driving that and whether those underlying drivers Yes, so on your first question, I think you interpreted it correctly.

John Robert Colantuoni: Can you just detail what you meant by that comment? I'm probably thinking about this wrong, but it sounded...

Speaker Change: to me like you might, maybe you expect GPUs to be more consistent with what they are today and over time and then you can use any additional efficiency gains to drive faster growth. But you know, please help clarify that for me. And then second question, the comment about the industry supporting, I think it was the comment was the industry can now support a thousand higher GPU. Can you just talk about what specifically is driving that and whether those underlying drivers are transitory or sustainable? Thanks.

Mark Jenkins: Can you just talk about what specifically is driving that and whether those underlying drivers are transitory or sustainable? Thanks.

Mark Jenkins: Sure. So I think on your first question, I think you interpreted it correctly. I think what we define the fundamental gain is getting a dollar more efficient and any given function. And that means then you have this question of do you keep profitability the same and pass a dollar back to customers in the form of lower price or lower rate or higher bids on their car or more investment in their experience in whatever form you want to do. And I think, or you can obviously have that to show up as higher profits. We anticipate, in light of the scale of the additional fundamental gains that we see opportunity for from here.

Speaker Change: Sure, so I think, on your first question, I think you interpreted it correctly. I think, you know, what we define as a fundamental gain is...

John Robert Colantuoni: I think, you know, what we define as a fundamental gain is getting, you know, a dollar more efficient in any given function. And that means then you have this question of, do you keep profitability the same and pass the dollar back to customers in the form of a lower price or a lower rate or higher bids on their cars or more investment in their experience in whatever form you want to do?

Speaker Change: Getting a dollar more efficient in any given function and that means then you have this question of

Speaker Change: Do you keep profitability the same and pass the dollar back to customers in the form of lower price or lower rate or higher bids on their car or more investment in their experience in whatever form you want to do?

John Robert Colantuoni: And I think, you know, or you can obviously have that show up as higher profits. We anticipate that, in light of the scale of the additional fundamental gains that we see opportunity for from here, a significant portion of that will be passed back to customers, and we'll seek to do that as intelligently as we can. On the GPU comment, I think, you know, the point that we're just simply trying to make there is, I think, you know, the mental model that would have predicted the way things have turned out over the last four or five very volatile years, the best one, would have been that automotive retail is largely a cost plus business. And the costs are what cars cost at wholesale plus all the operating costs to deliver to a customer an experience where they get a car at the end of it.

Speaker Change: And I think, you know, or you can obviously have that to show up as higher profits. We anticipate in light of the scale of the additional...

Mark Jenkins: We anticipate that a significant portion of that will be passed back to customers and will seek to do that as intelligently as we can.

Speaker Change: Fundamental gains that we see opportunity for from here. We anticipate that a significant portion of that will be passed back to customers and we will seek to do that as intelligently as we can. On the GPU comment, I think the point that we are simply trying to make there is I think

Mark Jenkins: On the GPU comment, I think the point that we're just simply trying to make there is I think the mental model that would have predicted the way things have turned out over the last four or five very volatile years, the best would have been that automotive retail is largely a cost-plus business. And the costs are what do cars cost at wholesale plus what are all the operating costs to deliver to a customer and experience where they get a car at the end of it. And given that we've seen a lot of inflation in many areas of automotive retail and many of the different automotive retailers out there have expenses that are on the order of a thousand dollars higher today, it would stand a reason with that mental model that you would expect a thousand dollar higher retail GPUs.

Speaker Change: The mental model that would have predicted the way things have turned out over the last four or five very volatile years the best

Speaker Change: would have been that automotive retail is largely a cost-plus business.

Speaker Change: And the costs are, what do cars cost at wholesale, plus what are all the operating costs to deliver to a customer and experience where they get a car at the end of it.

Speaker Change: And given that we've seen a lot of inflation in many areas of automotive retail, and many of the different automotive retailers out there have expenses that are on the order of $1,000 higher today, it would stand to reason with that mental model that you would expect $1,000 higher retail GPUs.

Ernest C. Garcia: And given that we've seen a lot of inflation in many areas of automotive retail, and many of the different automotive retailers out there have expenses that are on the order of $1,000 higher today, it would stand to reason with that mental model that you would expect $1,000 higher retail GPUs. And that is approximately what we observe if you look at the average of many public retailers or if you look at the wholesale retail spreads.

Mark Jenkins: And that is approximately what we observe. If you look at the average of many public retailers or if you look at the wholesale retail spreads, and so it seems as if there has been inflating costs over the last several years, and then those inflating costs are being passed through to higher gross margins that are leading to somewhat similar EBITDA or operating or EPS margins.

Speaker Change: And that is approximately what we observe if you look at the average of many public retailers or if you look at the wholesale retail spreads.

Ernest C. Garcia: And so it seems as if there have been, you know, inflationary costs over the last several years, and then those inflationary costs are being passed through to higher gross margins that are leading to somewhat similar EBITDA or operating, or EPS margins. And so I think that that was the point that we were trying to make there. The next question comes from Marvin Fong from ETIG. Please go ahead.

Speaker Change: And so, it seems as if there has been, you know, inflating costs over the last several years, and then those inflating costs are being passed through to higher gross margins that are leading to somewhat similar EBITDA or operating or, like, EPS margins. And so I think that was the point that we were trying to make there.

Mark Jenkins: And so I think the last question comes from Marvin Fonson, PTIG. Please go ahead. Good evening, thanks for taking my questions. Congratulations on the results. So apologies that this was asked before I joined the call late, but in talking to some investors, I think last quarter you highlighted how quickly vehicles were selling on the site and that kind of limited depreciation and help GPUs that way. And just thought I'd ask about, do cars continue to sell ahead of the low 60-day kind of days to sale that you're targeting, or has that normalized? And then the second question, just to get about your ability to grow volumes, well aware that you have the capacity, but are there any dating factors whether it's hiring persons?

Speaker Change: The next question comes from Marvin Fong from PTIG. Please go ahead.

Operator: Good evening. Thanks for taking my questions. Congratulations on the results. So, apologies that this was asked before I joined the call late. But, you know, in talking to some investors, you know, I think last quarter, you highlighted how quickly vehicles were selling on the site and that kind of limited, you know, depreciation and helped GPUs that way. And just thought I'd ask about, you know, do cars continue to sell ahead of the low 60-day kind of days to sale that you're targeting or has that normalized?

Marvin Fong: Good evening. Thanks for taking my questions. Congratulations on the results.

Speaker Change: Apologies that this was asked before I joined the call late, but in talking to some investors, I think last quarter you highlighted how quickly vehicles were selling on the site.

Speaker Change: And that kind of limited the appreciation and helped GPUs that way.

Speaker Change: Do cars continue to sell, you know, ahead of the low 60 day kind of days to sale that you're targeting or has that normalized?

Operator: And then the second question, you know, just thinking about your ability to grow volumes, you know, well aware that you have the capacity, you know, but are there any gating factors, whether it's hiring personnel or getting the reconditioning throughput, you know, that would limit you from kind of achieving, you know, sequential unit growth, you know, better than what you achieved in the second quarter? I mean, could we see unit sales go up, you know, or is there any limiting factor that prevents you from selling 15,000 units a quarter or more, a quarter of a quarter or along those lines? Thanks. Sure, I can take the first one.

Speaker Change: And then second question, you know, just thinking about your ability to grow volumes, you know, well aware that you have the capacity, you know, but are there any gating factors, whether it's hiring personnel or just getting the reconditioning throughput, you know, that would limit you from kind of achieving, you know,

Mark Jenkins: Nell, or just getting the reconditioning throughput that would limit you from achieving sequential unit growth better than what you achieved in the second quarter. I think could we see unit sales go up, or is there any limiting factor that prevents you from selling 15,000 units a quarter or more a quarter of a quarter or along those lines? Thanks.

Speaker Change: sequential unit growth better than what you achieved in the second quarter? Could we see unit sales go up or is there any limiting factor that's preventing you from…

Speaker Change: selling 15,000 units a quarter or more, quarter over quarter or along those lines. Thanks.

Mark Jenkins: Sure, I can think of the first one. So average sales, you know, was again below sort of, you know, our typical target range in Q2. It was also below that range in Q1. You know, I do think, you know, we'll, you know, over time as we, you know, onboard production capacity. I think, you know, our goal continues to be in our, you know, target range versus tracking below that. And I think the reason for that is, you know, we, we prefer to make a bit more selection available to customers on the site than what we had, you know, in Q1 and Q2.

Mark Jenkins: So, average days to sale, you know, was again below sort of our typical target range in Q2. It was also below that range in Q1. You know, I do think, you know, over time, as we, you know, onboard production capacity, I think, you know, our goal continues to be in our, you know, target range versus tracking below that. And I think the reason for that is, you know, we prefer to make a bit more selection available to customers on the site than we had in Q1 and Q2. And then on your second question, I mean, I think you listed many of the gating factors. I think, you know, we buy cars from customers, from auction, from partners. We transport them to our reconditioning centers.

Speaker Change: Sure, I can take the first one. So, average needs to sale, you know, was again below sort of, you know, our typical target range in Q2. It was also below that range in Q1.

Speaker Change: You know, I do think, you know, we'll, you know, over time, as we, you know, onboard production capacity, I think, you know, our goal continues to be in our, you know, target range versus tracking below that.

Speaker Change: And I think the reason for that is, you know, we prefer to make a bit more selection available to customers on the site than what we had, you know, in Q1 and Q2.

Mark Jenkins: And then, on your second question, I mean, I think you listed many of the gating factors. I think you know, we buy cars from customers, from auction, from partners. We transport them to our reconditioning centers. We, we recondition them through our, our, our reconditioning process there. Customers go on our website. You know, we answer the questions that they've got. That means that we're answering phone calls. We're, we're handling different digital tools to, to resolve their questions. We attach financing. That means we have a verification function that we go through to, to make sure that everything associated with the loan is taken care of.

Speaker Change: And then on your second question, I mean, I think you listed many of the gating factors.

Speaker Change: We buy cars from customers, from auctions, from partners. We transport them to our reconditioning centers. We recondition them through our reconditioning process there. Customers go on our website. We answer the questions that they've got. That means that we're answering phone calls. We're handling different digital tools.

Ernest C. Garcia: We recondition them through our reconditioning process there. Customers go on our website. You know, we answer the questions that they've got. That means that we're answering phone calls. We're handling different digital tools to resolve their questions. We provide financing. That means we have a verification function that we go through to make sure that everything associated with the loan is taken care of.

Speaker Change: to resolve their questions. We attach financing, that means we have a verifications function that we go through to make sure that everything associated with the loan is taken care of. We've got title and registration. We've got delivery, long leg, and last mile. Those are the various operating groups. And I think every one of those groups, you know, we scale up together as we grow. I think, you know, made the point earlier that

Mark Jenkins: We've got title registration. We've got delivery, long leg, and last mile. Those are the various operating groups. And I think every one of those groups, you know, we, we scale up together as we grow. I think, you know, we're, we're, we're going to make the point earlier that in Q1, we grew more than we anticipated. That means that, you know, all of the groups were not positioned for the level of sales that we saw, but we started to see the demand. We started leaning that direction and, and all those groups simultaneously scaled up and, and they did some of the way that was very efficient and allowed.

Ernest C. Garcia: We've got title and registration. We've got delivery, the long leg, and the last mile. Those are the various operating groups.

Ernest C. Garcia: And I think every one of those groups, you know, we scale up together as we grow. I think, you know, I made the point earlier that, in Q1, we grew more than we anticipated. That means that all of the groups were not positioned for the level of sales that we saw, but we started to see the demand, and we started leaning in that direction, and all those groups simultaneously scaled up, and they did so in a way that was very efficient and allowed not only our fixed expenses to go down, but also our variable expenses to go down. The same thing was true again in the second quarter.

Speaker Change: In Q1 we grew more than we anticipated, that means that all of the groups were not positioned for the level of sales that we saw, but we started to see the demand and we started leaning in that direction and all those groups simultaneously scaled up and they did so in a way that was very efficient and allowed

Mark Jenkins: You know, not only our fixed expenses to lever, but also our very expensive variable expenses to go down. The same thing was true again in the second quarter. You know, we sold more cars than we expected. That means that all those same operating teams were given higher targets. And they went out and they got that done. So I think that's, that's exciting. I think that that's the continual march of building, you know, a complex machine that has lots of people and moving pieces in physical space associated with it. But I think that's, you know, that's something that we demonstrated that we know how to do over a pretty long period of time.

Speaker Change: You know, not only are fixed expenses a lever, but also are variable expenses to go down.

Ernest C. Garcia: We sold more cars than we expected. That means that all those same operating teams were given higher targets, and they went out, and they got that done. So I think that that's exciting. I think that it's the continual march of building a complex machine that has lots of people and moving pieces and physical space associated with it. But I think that's something that we've demonstrated that we know how to do over a pretty long period of time.

Speaker Change: The same thing was true again in the second quarter. You know, we sold more cars than we expected. That means that all those same operating teams were given higher targets. And they went out and they got that done. So I think that that's...

Speaker Change: That's exciting. I think that that's the continual march of building a complex machine that has lots of people and moving pieces and physical space associated with it. But I think that's something that we've demonstrated that we know how to do over a pretty long period of time. Took a little break there for 18 months, but I think for most of our company's life, that's something that we've really demonstrated that we know how to do. So I think we'll continue to do that as we continue this transition period.

Ernest C. Garcia: It took a little break there for 18 months, but I think for most of our company's life, that's something that we've really demonstrated that we know how to do. So I think we'll continue to do that as we continue this transition period. That's a great color.

Mark Jenkins: I took a little break there for 18 months. But I think for most of our companies like that, something that we've really demonstrated that we know how to do. So I think, you know, we'll, we'll continue to do that as we, as we continue this transition period.

Operator: That's a great color. Thanks.

Speaker Change: That's great color. Thanks, Sarah. Thanks, guys.

Mark Jenkins: The next question comes from Doug. After, with our research partners, please go ahead. Yeah, thanks. I just want to go back to the really strong retail GPU number. You list four or five factors that are, you know, pushing that up.

Operator: Thanks, guys. Thank you. The next question comes from Doug Arthur with Hubbard Research Partners. Please go ahead. Yeah, thanks. I just wanted to go back to the, uh, really, list four or five factors. I would assume that the, I guess question one is, how significant are the higher spreads between wholesale and retail market prices currently in that equation?

Speaker Change #100: Thank you.

Speaker Change #101: The next question comes from Doug Arthur with Hubbard Research Partners. Please go ahead.

Douglas Middleton Arthur: Yeah, thanks. I just wanted to go back to the really strong retail GPU number. You list four or five factors that are, you know, pushing that up.

Mark Jenkins: And I would assume that the, the, the, I guess question one is, how significant are the higher spreads between wholesale retail, market prices currently in that equation. And I know you're buying a lot from your customers. How? How much can you determine that over time as the market moves around price was? I think I would start with kind of the same figure that we discussed earlier, which is I do think that the market is supporting today approximately $1,000 more spread between wholesale and retail, and that's defined specifically as auction prices relative to the average prices offered at across many dealers.

Douglas Middleton Arthur: And I would assume that the, I guess question one is, how significant are the higher spreads between wholesale and retail market prices currently in that equation? And I know you're buying a lot from your customers. How...

Ernest C. Garcia: And I know you're buying a lot from your customers. Sure, so I think I would start with kind of the same figure that we discussed earlier, which is I do think that the market is supporting approximately $1,000 more spread between wholesale and retail, and that's defined specifically as auction prices relative to the average prices offered across many dealers. So I think our explanation for that is that dealer costs have gone up, and it's a cost plus business. Now, I think as we grow our business, I think we have many different avenues that we buy cars from, from a channel perspective. We buy them directly from customers; that's the majority.

Speaker Change #103: How much can you determine that over time as the market moves around price-wise?

Speaker Change #104: Sure, so I think I would start with kind of the same figure that we discussed earlier, which is I do think that the market is supporting today approximately $1,000 more spread between wholesale and retail, and that's defined specifically as auction prices relative to the average prices offered across many dealers.

Mark Jenkins: So I think our explanation for that is that dealer costs have gone up, and it's a cost-plus business.

Speaker Change #104: So I think our explanation for that is that dealer costs have gone up and it's a cost-plus business.

Mark Jenkins: Now I think, as we grow our business, I think we have many different avenues that we buy cars from. From a channel perspective, we buy them directly from customers; that's the majority. We buy many from auction, and then we do have partner inventory as well with partners like Hertz, where we're getting inventory. And I think then we also kind of in geography, we buy those cars in different places, and we try to be intelligent about the way that we mix cross channel and across location to go buy those cars as efficiently as possible. That's another area where we think that there are gains to be had.

Speaker Change #104: Now, I think, you know, as we grow our business, I think we have...

Speaker Change #104: Many different avenues that we buy cars from from a channel perspective. We buy them directly from customers. That's the majority we buy Many from auction and then we do have partner inventory as well with partners like Hertz where we're getting inventory And I think then we also kind of you know in in Geography we buy those cars in different places

Ernest C. Garcia: We buy many from auction, and then we do have partner inventory as well with partners like Hertz where we're getting inventory. And I think then we also kind of in geography; we buy those cars in different places, and we try to be intelligent about the way that we mix cross-channel and across locations to go buy those cars as efficiently as possible. That's another area where we think that there are gains to be had.

Speaker Change #104: And we try to be intelligent about the way that we mix cross-channel and across location to go buy those cars as efficiently as possible. That's another area where we think that there are gains to be had. We think there are many benefits.

Mark Jenkins: We think there are many benefits that are sort of inherent to our business model of having a very large, nationally available inventory. And we think those show up in many ways; they show up in the breadth of cars that we can buy, they show up in the ways that we can intelligently price those cars given the data that we see, and they show up in the ways that we can buy those cars across channel and space. And so I think we're trying to continually get better in all those different areas. But I think, as far as prediction goes, we think that generally speaking, the idea that automotive retailers cost plus has been very predictive over a very long period of time with a lot of volatility and also does kind of make sense.

Ernest C. Garcia: We think there are many benefits that are sort of inherent to our business model of having a very large nationwide available inventory, and we think those show up in many ways. They show up in the breadth of cars that we can buy. They show up in the ways that we can intelligently price those cars given the data that we see.

Speaker Change #104: that are sort of inherent to our business model of having a very large, nationally available inventory. And we think those, you know, those show up in many ways. They show up in the...

Speaker Change #104: The breadth of cars that we can buy, they show up in the ways that we can intelligently price those cars given the data that we see. They show up in the ways that we can buy those cars across channel and space. And so I think we're trying to continually get better in all those different areas.

Ernest C. Garcia: They show up in the ways that we can buy those cars across channels and space. And so I think we're trying to continually get better in all those different areas. But I think, you know, as far as prediction goes, we think that, you know, generally speaking, the idea that automotive retail is cost plus has been very predictive over a very long period of time with a lot of volatility and also just kind of makes sense. And so, absent, you know, big changes in average dealer expenses, I think our expectation would be that profit margins available on vehicles would be pretty similar over time.

Speaker Change #104: But I think, you know, as far as prediction goes, we think that, you know, generally speaking, the idea that automotive retail is cost plus has been very predictive over a very long period of time with a lot of volatility and also just kind of makes sense.

Mark Jenkins: And so absent, you know, big changes in average dealer expenses, I think our expectation would be that the profit margins available on vehicles would be pretty similar over time.

Speaker Change #104: And so absent, you know, big changes in average dealer expenses, I think our expectation would be that profit margins available on vehicles would be pretty similar over time.

Operator: Okay, great.

Douglas Middleton Arthur: Okay. Great. Thank you very much.

Operator: Thank you very much. Thank you.

Speaker Change #105: Okay, great. Thank you very much.

Operator: The next question comes from Rajat.

Operator: Thank you. The next question comes from Rajat Gupta with Jason Morgan. Please go ahead. Great. Thanks for taking my questions. I just had one question, one follow-up. Firstly, on seasonality, there were a couple of questions earlier.

Speaker Change #106: Thank you.

Operator: Good start with Jason Morgan, please go ahead. Great. Thanks for taking more questions. I just had one question, one follow-up on what was the answer is not any, and they've been a couple questions earlier. If you look at the business from here, you know, it was excluding 2022, 2023 when we're going through, you know, a period of restructuring. You've always grown units. You could have three kids, three kids, four kids. And I'm curious, like, you know, given your adding production now, you're hiring a lot of technicians, you're hiring market ops, fulfillment center employees. Why would the business, and given where your share is in the market, why should we still expect.

Speaker Change #106: The next question comes from Rajat Gupta with Jason Morgan. Please go ahead.

Rajat Gupta: So, great. Thanks for taking my questions. I just had one question, one follow-up. Firstly, on seasonality, there have been a couple of questions earlier.

Rajat Gupta: If you look at the business from here, you know, excluding 2022, 2023, when we're going through, you know, a period of restructuring, you've always grown. I'm curious, like, you know, given you're adding production now, you're hiring a lot of technicians, you're hiring market ops, and fulfillment center employees. Why would the business, and given where your share is in the market, why should we still expect... [inaudible] Sure. Well, I think, you know, we provide our outlook, so we're going to stick with that. I think seasonality is definitely an industry-wide thing.

Speaker Change #108: If you look at the business from here, it was excluding 2022, 2023, when we're going through a period of restructuring, you've always grown units.

Speaker Change #108: I'm curious, like, you know, given you're adding production now, you're hiring a lot of technicians, you're hiring market ops, fulfillment center employees.

Speaker Change #109: Why would the business, and given where your share is in the market, why should we still expect...

Ernest Garcia: Humanity, at least in the units, I mean, we understand the GPU seasonality, but why should there be seasonality in the units from here?

Speaker Change #109: [inaudible]

Ernest Garcia: And I have a follow up. Thanks. Sure. Well, I think, you know, we, we provide our outlook. So we're going to stick with that. I think seasonality is definitely an industry-wide thing. And then I think we're obviously focused on continually leaning through this transition to growth into more growth. And I think we'll try to be thoughtful of how we do that and the speed at which we do it. But I think we have to stick with our guidance on that one. So apologies for not being more helpful on that question. No worries.

Speaker Change #110: Sure. Well, I think, you know, we provide our outlook, so we're going to stick with that. I think seasonality is definitely an industry-wide thing. And then I think we're obviously focused on continually leaning through this transition to growth into more growth. And I think we'll try to be thoughtful about how we do that and the speed at which we do it. But I think we got to stick with our guidance on that one. So apologies for not being more helpful on that question.

Ernest C. Garcia: And then I think we're obviously focused on continually leaning through this transition to growth into more growth. And I think we'll try to be thoughtful about how we do that and the speed at which we do it. But I think we have got to stick with our guidance on that one. So apologies for not being more helpful on that question.

Rajat Gupta: And another one just on the long-term targets, you know, obviously, a lot of discussion around the cost loss nature of the cost of the GPUs, you know, the $1,000, you fully understand that. But curious, you know, with the experience over the last two years, you know, within the business. Are there other areas where you think the equation of pre-pandemic that informed your long-term targets is no longer relevant?

Ernest Garcia: Another one just on the long-term target, obviously a lot of discussion around the cost less nature now around the GPU, the $1,000 fully understand that, but curious with the experience of the last two years within the business, other areas where you think the equation of pre-pandemic that you know informed your long-term targets are no longer relevant, you know, maybe areas of the next DNA and like advertising or other areas that you might want to call out that might have changed. Thanks. I think first order, I think the simplest thing is just that I think the whole business model is kind of inflated with inflation is like a reasonable way to think about it.

Speaker Change #111: And another one just on the long-term target, you know, obviously a lot of discussion around the cost-plus nature, you know, around the GPUs, you know, the $1,000, you know, if we understand that, but curious, you know, with the experience over the last two years, you know, within the business.

Speaker Change #112: Are there other areas where you think the equation of pre-pandemic that informed your long-term targets are no longer relevant? Maybe areas within SG&A, like advertising, or other areas that you might want to call out that might have changed? Thanks.

Ernest C. Garcia: Maybe areas within SG&A, like advertising, or other areas that you might want to call out that might have changed? I think, um... First order, I think the simplest thing is just that I think the whole business model is kind of inflated with inflation. It's a reasonable way to think about it.

Speaker Change #113: I think, um...

Speaker Change #114: I think first order, I think the simplest thing is just that I think the whole business model is kind of inflated with inflation is like a reasonable way to think about it. I think, you know, we put out that long-term model five or six years ago.

Ernest Garcia: I think, you know, we put out that long-term model five or six years ago. You know, the reason that we were able to put that out and it's been fairly accurate is because this is a very mature industry, and so there's a lot of data that we could look at to see, you know, where were the various pockets of profitability, and we were able to reasonably accurately build up what we thought expenses would be. And so I think, you know, from a long-term perspective, I'm not sure that the model has changed all that much. It's certainly inflated, and I think most specifically it's inflated in retail GPU.

Ernest C. Garcia: I think, you know, we put out that long-term model five or six years ago. The reason that we were able to put that out and it was fairly accurate is because this is a very mature industry and so there's a lot of data that we could look at to see, you know, where the various pockets of profitability are, and we were able to reasonably accurately build up what we thought expenses would be. And so I think, you know, from a long-term perspective, I'm not sure that the model has changed all that much. It's certainly inflated, and I think, most specifically, it's inflated in the retail GPU market.

Speaker Change #114: You know, the reason that we were able to put that out and it's been fairly accurate is because this is a very mature industry and so there's a lot of data that we could look at to see, you know, where were the various...

Speaker Change #114: pockets of profitability and and we were able to reasonably accurately build up what we thought expenses would be.

Speaker Change #114: And so I think, you know, from a long-term perspective, I'm not sure that the model has changed all that much. It's certainly inflated, and I think most specifically it's inflated in retail GPU.

Ernest C. Garcia: I think the next thing that I would say is, you know, we acquired Odessa, and we further vertically integrated versus what was anticipated at that time, so that's another change. But otherwise, I think the fundamentals of the market are pretty similar, right? Productive dynamics are still pretty similar. There's, you know, consumer, you know, options are still pretty similar.

Ernest Garcia: I think the next thing that I would say is, you know, we acquired a DEFA, and we further vertically integrated versus what was anticipated at that time. So that's another change. But otherwise, I think the fundamentals of the market are pretty similar, right? Competitive dynamics are still pretty similar. There's, you know, consumer options are still pretty similar. So we think that that remains a reasonable way to think about it. I think in terms of our own execution, I think this last year has been, well, the last two years really have just been very, I think, exciting in terms of the speed at which we've been able to execute.

Speaker Change #114: I think the next thing that I would say is, you know, we acquired ADESA and we further vertically integrated versus what was anticipated at that time.

Speaker Change #114: So that's another change. But otherwise, I think the fundamentals of the market are pretty similar, right? Competitive dynamics are still pretty similar. There's, you know, consumer, you know...

Ernest C. Garcia: So we think that that remains a reasonable way to think about it. I think in terms of our own execution, I think this last year has been, well, the last two years really have just been very exciting in terms of the speed at which we've been able to execute. And I think also about the additional opportunities you see; every time you take a step forward, you tend to see a couple more opportunities.

Speaker Change #114: Options are still pretty similar.

Speaker Change #114: So, we think that that remains a reasonable way to think about it. I think in terms of...

Speaker Change #114: Our own execution, I think, this last year has been, well, the last two years really have just been very, I think, exciting in terms of the speed at which we've been able to execute, and I think also the additional opportunities you see. Every time you take a step forward, you tend to see a couple more opportunities.

Ernest Garcia: And I think also the additional opportunities you see every time you take a step forward, you tend to see a couple of more opportunities. And so I think that there's a lot of exciting opportunities in front of us, but I'm not sure that we're at a place where that should change our view on kind of like what we think is an attainable long-term EBITDA margin too much for the future. We'll keep you updated about changes, but I think high level, you know, we remain in a similar spot and we expect, you know, now to be at the high end of our long-term model.

Ernest C. Garcia: And so I think that there are a lot of exciting opportunities in front of us, but I'm not sure that we're at a place where that should change our view on kind of what we think is an attainable long-term EBITDA margin too much for the future. We'll keep you updated about changes, but I think, at a high level, you know, we remain in a similar spot, and we expect, you know, now to be at the high end of our long-term model. But I think we don't have a ton more updates than that to provide.

Speaker Change #114: I think that there's a lot of exciting opportunities in front of us, but I'm not sure that we're at a place where...

Speaker Change #114: That should change our view on on kind of like what we think is an attainable long-term EBITDA margin too much.

Speaker Change #114: for the future. We'll keep you updated about changes, but I think high-level, we remain in a similar spot, and we expect now to be at the high end of our long-term model, but I think we don't have a ton more updates than that to provide.

Ernest Garcia: But I think we don't have a ton more updates than that to provide.

Operator: Thank you for the call, and good luck. Thank you.

Rajat Gupta: I understand. Great. Thanks for the call, Aaron. Good luck.

Speaker Change #114: Understood. Great. Thanks for the call, Aaron. Good luck.

Operator: This concludes our question and answer session.

Operator: This concludes our question-and-answer session. I would like to thank you all for joining us today. Thank you. Thank you. Thank you. Thank you. Thank you, and back over to Ernest Garcia for any closing. Great.

Ernest Garcia: I would like to turn the conference back over to our neither CF or any closing remarks. Great, well thanks everyone for taking the time to be on the call. Thank you to all of our shareholders out there. You don't get to have that many quarters that are this fun and meaningful. And I think this is a pretty fun one for the team internally, and I hope with a fun one for many of the shareholders that have stuck with us over the last couple of years. I know there's been some ups and downs, but we're excited from here.

Speaker Change #114: This concludes our question and answer session. I would like to turn the conference back over to Ernie Garcia for any closing remarks.

Ernest C. Garcia: Well, thanks, everyone, for taking the time to be on the call. Thank you to all of our shareholders out there. You don't get to have that many quarters that are this fun and meaningful, and I think this is a pretty fun one for the team internally, and I hope it's a fun one for many of the shareholders that have stuck with us over the last couple of years.

Ernest C. Garcia: Great, well thanks everyone for taking the time to be on the call. Thank you to all of our shareholders out there. You don't get to have that many quarters that are this fun and meaningful and I think this is a pretty fun one for the team internally and I hope it's a fun one for many of the shareholders that have stuck with us over the last couple of years.

Operator: I know there have been some ups and downs, but we're excited from here. We hope that you are excited about these results and about the prospects that we have going forward. To everyone inside Carvana, I just cannot thank you guys enough. I hope that you are incredibly proud of the results that we've been able to put forward here. I think it's the coolest thing that I've ever been associated with getting beat up that badly by the whole world and then just coming together and fighting all the way back to this spot, and I hope we always remember that.

Ernest Garcia: We hope that you're excited about these results and about the prospects that we have going forward. To everyone inside Carvana, I just cannot thank you guys enough. I hope that you are incredibly proud of the results that we've been able to put forward here.

Ernest C. Garcia: Some ups and downs, but we're excited from here. We hope that you're excited about these results and about the prospects that we have going forward.

Speaker Change #115: To everyone inside Carvana, I just cannot thank you guys enough. I hope that you are incredibly proud of the results that we've been able to put forward here. I think it's the coolest thing that I've ever been associated with is getting beat up that bad by the whole world and then just coming together and fighting all the way back to this spot. And I hope we always remember that. I hope we always stay in that fighting stance.

Ernest Garcia: I think it's the coolest thing that I've ever been associated with is getting beat up that bad by the whole world and then just coming together and fighting all the way back to this spot, and I hope we always remember that. I hope we always stay in that fighting stance, and I hope we keep proving people wrong because it's been really fun, and I think that we can, and I think that we should. So thank you to all of you. Take a moment to be proud. We'll see you tomorrow. We'll be back at it. Thanks everyone.

Operator: I hope we always stay in that fighting stance, and I hope we keep proving people wrong because it's been really fun, and I think that we can, and I think that we should. So, thank you to all of you. Take a moment to be proud. We'll see you tomorrow. We'll be back at it. Thanks, everyone. This conference has now concluded. Thank you for attending today's presentation.

Ernest C. Garcia: And I hope we keep proving people wrong because it's been really fun and I think that we can and I think that we should. So thank you to all of you. Take a moment to be proud. We'll see you tomorrow. We'll be back at it. Thanks, everyone.

Operator: This conference has now concluded. Thank you for attending today's presentation.

Operator: You may now.

Ernest C. Garcia: ?? ??

Speaker Change #116: ?? ?? ?? ?? ??