Q1 2025 Carvana Co Earnings Call

May 7, 2025

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Operator 3: Good day, and welcome to Carvana's Q1 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Meg Kehan, Investor Relations. Please go ahead.

Operator: Good day, and welcome to Carvana's Q1 2025 Earnings Conference Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Meg Kehan, Investor Relations.

Speaker Change: Good day and welcome to Carvana's first quarter, 2025, earnings, conference hall. All participants will be in listen only mode. To do new assistance, please signal a conference specialist by pressing the star key followed by zero.

Speaker Change: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may Christar, then one on your telephone keypad.

To withdraw your question, please press star, then two.

Speaker Change: Please note, this event is being recorded. I would now like to turn the conference over to Meg Kehan and Restrelations. Please go ahead.

Operator: Please go ahead.

Meg Kehan: Thank you. Good afternoon, ladies and gentlemen, and thank you for joining us on Carvana's Q1 2025 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 Q1 shareholder letter is also posted on the IR website. Additionally, we posted a set of supplemental financial tables for Q1, 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.

Speaker Change: Thank you. Good afternoon, ladies and gentlemen, and thank you for joining us on Carvana's first quarter, 2025 Earnings Conference Call. Please note that this call will be simultaneously

Speaker Change: The first quarter shareholder letter is also posted on the IR website. Additionally, we've posted a set of supplemental financial tables for Q1 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.

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

Meg Kehan: 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 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. 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.

Speaker Change: Before we start, I would like to remind you that the following discussion contains four looking statements within the meaning of the federal securities laws, including but not limited to Carvana's market opportunities and future financial results, involve risks and uncertainties that make how actual results differ materially from those discussed here.

Meg Kehan: 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. 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.

Speaker Change: The 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 10K and forms 10Q.

Speaker Change: The forward-looking statements and risks in this conference call are based on current expectations as of today. The obligation to update or revise them, whether as a result of new developments or otherwise.

Meg Kehan: Unless otherwise specified, all references to GPU and SG&A will be to the non-GAAP metrics, and all references to EBITDA will be to adjusted 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. With that said, I'd like to turn the call over to Ernie Garcia. Ernie?

Speaker Change: Our commentaries say will include non-GAAP financial metrics. Unless otherwise specified, all references to GPU and SGNA will be to the non-GAAP metrics and all references to EBITDA will be to Adjustative.com.

Speaker Change: Our conciliations between Gap and non-GAAP metrics for our report of results can be found in our shareholder letter issue 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 Ernest Garcia, Ernie.

Ernie Garcia: Thanks, Meg, and thanks, everyone, for joining the call. In 2018, we held an analyst day where we walked through the long-term economics we believed our business model could deliver. That analysis resulted in us projecting a long-term EBITDA margin range of 8% to 13.5% at a time when our actual adjusted EBITDA margin was -9%. For the last four consecutive quarters, we have been in that range, and in Q1, in a seasonally weaker quarter, we were reporting 11.5%. This achievement is worth reflecting on, and it begs an important question. Why were we able to accurately forecast how our model would perform as a five-year-old, newly public company that was significantly subscale and 20% of revenue away from our margin target?

Thanks, Meg, and thanks everyone for joining the call.

Speaker Change: In 2018, we held an analyst day where we walked through the long-term economics we believed our business model could deliver. That analysis resulted in us projecting a long-term EBITDA margin range of 8-13.5% at a time when our actual adjusted EBITDA margin was negative 9%.

Speaker Change: For the last four consecutive quarters, we have been in that range, and in Q1, in a seasonally weaker quarter, we are reporting 11.5%.

Ernie Garcia: Why were we able to accurately forecast how our model would perform as a five-year-old, newly public company that was significantly subscale and 20% of revenue away from our margin target?

Speaker Change: Why were we able to accurately forecast how our model would perform as a five-year-old newly public company that was significantly sub-scale and 20% of revenue away from our margin target?

Ernie Garcia: The answer is that the automotive industry is simpler when you zoom out than it looks when you zoom in. It is a mature industry with mature unit economics. It is highly fragmented with many industry players using similar processes with similar goals and similar underlying economics. This reality provides a lot of stability and makes the key to understanding any given player about understanding where they are different from the rest of the industry. This is the method we used to determine our own long-term financial model in 2018. We went line by line using automotive retail history, simple mental models for the way our industry works, and a bottom-up analysis of the differences in costs and revenues of our business, given our novel approach.

Speaker Change: The answer is that the automotive industry is simpler when you zoom out than it looks when you zoom in. It is a mature industry with mature unit economics. It is highly fragmented with many industry players using similar processes with similar goals and similar underlying economics.

Speaker Change: This reality provides a lot of stability and makes the key to understanding any given player about understanding where they are different from the rest of the industry.

Speaker Change: This is the method we use to determine our own long-term financial model in 2018. We went line by line using automotive retail history, simple mental models for the way our industry works.

Ernie Garcia: We went line by line using automotive retail history, simple mental models for the way our industry works, and a bottom-up analysis of the differences in costs and revenues of our business, given our novel approach.

Speaker Change: and a bottom-up analysis of the differences in costs and revenues of our business given our novel approach.

Ernie Garcia: Zooming out has been predictive over the last seven years, and we expect it to be predictive in the future as well. When we went public in 2017, we opened our S-1 with a statement of our mission, to change the way people buy cars. What we meant by this is that we wanted to build a business so differentiated in selection, experience, and value that it just became the way people buy cars. We wouldn't have said that then if we didn't believe it. We've always believed it. Today it is much more apparent externally that our mission is achievable. What happens when we continue growing selection and benefiting from the other positive feedback in our business? What happens when we continue unlocking and sharing value with our customers, further separating our offering in speed, experience, and value?

Speaker Change: Zooming out has been predictive over the last seven years and we expect it to be predictive in the future as well. When we went public in 2017 we opened our S1 with the statement of our mission to change the way people buy cars.

Speaker Change: What we meant by this is that we wanted to build a business so differentiated in selection, experience, and value that it just became the way people buy cars.

Speaker Change: We wouldn't have said that then if we didn't believe it, we've always believed it, but today it is much more apparent externally that our mission is achievable.

Ernie Garcia: What happens when we continue growing selection and benefiting from the other positive feedback in our business? What happens when we continue unlocking and sharing value with our customers, further separating our offering in speed, experience, and value?

Speaker Change: What happens when we continue growing selection and benefiting from the other positive feedback in our business? What happens when we continue unlocking and sharing value with our customers, further separating our offering, speed, experience, and value? [inaudible]

Ernie Garcia: What happens when more people hear from their friends and family that buying a car from Carvana was fast, fun, and fair? What we think happens is that Carvana becomes the way people buy and sell cars. We are in an incredible position with an incredible business and an incredible team. In order to continue our rapid march toward fulfilling this mission, we are setting our next objective to grow to 3 million annual retail sales with 13.5% adjusted EBITDA margins in the next five to 10 years.

Speaker Change: What happens when more people hear from their friends and family that buying a car from Carvana was fast, fun and fair?

Speaker Change: What we think happens is the Carvana becomes the way people buy and sell cars.

Speaker Change: We are in an incredible position with an incredible business and an incredible team. In order to continue our rapid march toward fulfilling this mission, we are setting our next objective.

Speaker Change: To grow to three million annual retail sales with 13.5% adjusted EBITDA margins in the next five to ten years.

Ernie Garcia: Given the position we're in and the fundamental gains we see in front of us, the path to that goal, which we currently view as both very exciting and very achievable, is that we continue marching straight to 13.5% EBITDA margin and rapidly grow to 3 million units while sharing significant additional value with our customers along the way. While we believe this is a likely path, we are too young a company that is too early in taking advantage of our opportunity, and five to 10 years is too long of a time to not have flexibility available to us. Accordingly, it is important to communicate our priorities.

Speaker Change: Given the position we're in and the fundamental gains we see in front of us, the path to that goal which we currently view is both very exciting and very achievable is that we continue marching straight to 13.5% EBITDA margin and rapidly grow to 3 million units while sharing significant additional value with our customers along the way.

Speaker Change: While we believe this is a likely path, we are two young accompany that is too early and taking advantage of our opportunity, and five to ten years is too long of a time to have flexibility available to us.

Ernie Garcia: Accordingly, it is important to communicate our priorities.

Ernie Garcia: Over the next five to 10 years, we plan to prioritize growth over margin within reasonable margin ranges and plan to manage the speed of our growth to ensure we continue to deliver exceptional customer experiences and that we maintain high-quality, efficient operations. There are 40 million used cars sold every year in the US. There are an additional 16 million new cars sold every year. Adding this up and using last quarter's unit sales annualized, we are still just about 1% of this market. It's very early in the Carvana story, and we are firmly on the path to becoming the way people buy and sell cars. Mark?

Speaker Change: Accordingly, it is important to communicate our priorities. Over the next five to 10 years, we plan to prioritize growth over margin within reasonable margin ranges and plan to manage the speed of our growth to ensure we continue to deliver exceptional customer experiences and that we maintain high quality, efficient operations.

Speaker Change: That there are 40 million used cars sold every year in the US. They're an additional 16 million new cars sold every year. Adding this up and using last quarter's unit sales annualized, we are still just about 1% of this market. It's very early in the Carvana story and we are firmly on the path to becoming the way people buy and sell cars. Mark.

Ernie Garcia: It's very early in the Carvana story, and we are firmly on the path to becoming the way people buy and sell cars. Mark?

Mark Jenkins: Thank you, Ernie, and thank you all for joining us today. Our Q1 results were outstanding and driven by our team's ability to achieve further fundamental gains and operating efficiencies while also delivering significant year-over-year growth. For the fifth consecutive quarter, we earned positive net income, and we set new records for retail units sold, revenue, adjusted EBITDA, GAAP operating income, and GAAP operating margin. Unless otherwise noted, all further comparisons will be on a year-over-year basis. Retail units sold totaled 133,898 in Q1, an increase of 46% and a new company record. Revenue was $4.232 billion, an increase of 38%, and also a new company record.

Mark Jenkins: Thank you, Ernie, and thank you all for joining us today. Our first quarter results were outstanding and driven by our team's ability to achieve further fundamental gains and operating efficiencies while also delivering significant year-to-year growth.

Mark Jenkins: For the fifth consecutive quarter, we earned positive net income, and we set new records for retail units sold, revenue, adjusted EBITDA, gap operating income, and gap operating margin.

Mark Jenkins: Unless otherwise noted, all further comparisons will be on a year-to-year basis. [inaudible]

Mark Jenkins: Retail units sold totaled 133,898 in Q1, an increase of 46% and a new company record. Revenue was $4.232 billion, an increase of 38%, and also a new company record.

Mark Jenkins: Retail Unit Sold, totaled 133,898 in Q1, an increase of 46% and a new company record.

Mark Jenkins: Revenue was $4.232 billion, an increase of 38% and also a new company record.

Mark Jenkins: Consistent with past quarters, our growth in Q1 was driven by our three long-term drivers of growth, a continuously improving customer offering, increasing awareness, understanding, and trust, and increasing inventory selection and other benefits of scale. We believe as we continue on our path of profitable growth, each driver will improve, creating more positive feedback in our model. Our strong profitability results in Q1 were again driven by sustained and fundamental improvements in GPU and operations expenses, as well as levering our overhead expenses. Non-GAAP retail GPU was $3,308, an increase of $97. Year-over-year changes were primarily driven by reductions in reconditioning, inbound transport costs, and lower retail depreciation rates, partially offset by lower spreads between wholesale and retail market prices. Non-GAAP wholesale GPU was $964, a decrease of $189.

Mark Jenkins: Consistent with past quarters, our growth in the first quarter was driven by our three long-term drivers of growth, a continuously improving customer offering, increasing awareness understanding and trust, and increasing inventory selection and other benefits of scale.

Mark Jenkins: We believe as we continue in our path of profitable growth, each driver will improve creating more positive feedback in our model.

Mark Jenkins: Our strong profitability results in Q1 were again driven by sustained and fundamental improvements in GPU and operations expenses, as well as levering our overhead expenses. Non-GAAP retail GPU was $3,308, an increase of $97. Year-over-year changes were primarily driven by reductions in reconditioning, inbound transport costs, and lower retail depreciation rates, partially offset by lower spreads between wholesale and retail market prices. Non-GAAP wholesale GPU was $964, a decrease of $189.

Mark Jenkins: Our strong profitability results in Q1 were again driven by sustained and fundamental improvements in GPU and operations expenses as well as leveraging our overhead expenses.

non-GAAP Retail GPU was $30308, an increase of $97.

Mark Jenkins: Yearbeer changes were primarily driven by reductions in reconditioning and inbound transport costs and lower retail depreciation rates, partially offset by lower spreads between wholesale and retail market prices. [inaudible]

Mark Jenkins: non-GAAP Wholesale GPU was $9.64, a decrease of $189. Year-be-year changes were primarily driven by faster growth in retail units than wholesale vehicle and wholesale marketplace units and higher wholesale vehicle depreciation rates.

Mark Jenkins: Year-over-year changes were primarily driven by faster growth in retail units than wholesale vehicle and wholesale marketplace units, and higher wholesale vehicle depreciation rates. Non-GAAP other GPU was $2,868, an increase of $430.

Ernie Garcia: Year-over-year changes in other GPU were primarily driven by higher spreads between origination interest rates and funding costs, as well as a higher attachment rate on vehicle service contracts. Non-GAAP SG&A expense was $468 million, an increase of 20%. Q1 was another strong quarter for demonstrating the power of our model to lever SG&A expenses. Our 46% growth in retail units sold led to a $750 reduction in non-GAAP SG&A expense per retail unit sold. The Carvana operations portion of SG&A expense totaled $1,658 for retail units sold, a decrease of $192, driven by our operational efficiency initiatives. The overhead portion of SG&A expense totaled $160 million, an increase of $9 million, and a decrease of $449 on a per retail unit basis.

Mark Jenkins: Year-over-year changes in other GPU were primarily driven by higher spreads between origination interest rates and funding costs, as well as a higher attachment rate on vehicle service contracts. Non-GAAP SG&A expense was $468 million, an increase of 20%. Q1 was another strong quarter for demonstrating the power of our model to lever SG&A expenses. Our 46% growth in retail units sold led to a $750 reduction in non-GAAP SG&A expense per retail unit sold.

Mark Jenkins: Year-rear changes in other GPU were primarily driven by higher spreads between origination interest rates and funding costs as well as a higher attachment rate on vehicle service contracts.

non-GAAP S-GNA expense was 468 million, an increase of 20%.

Mark Jenkins: Q-1 was another strong quarter for demonstrating the power of our model to lever S-U-D expenses.

Mark Jenkins: Our 46% growth in retail units sold led to a $750 reduction in non-GAAP SGNA expense per retail units sold.

Mark Jenkins: The Carvana operations portion of SG&A expense totaled $1,658 for retail units sold, a decrease of $192, driven by our operational efficiency initiatives. The overhead portion of SG&A expense totaled $160 million, an increase of $9 million, and a decrease of $449 on a per retail unit basis.

Mark Jenkins: The Carvana Operations portion of SGNX Ben totaled $16.58 per retail unit sold, a decrease of $192, driven by operational efficiency initiatives.

Mark Jenkins: The overhead portion of SGNA Expans total 160 million, an increase of 9 million, and a decrease of $449 on a per retail unit basis.

Ernie Garcia: We continue to see opportunities for significant improvement in per-unit SG&A expenses over time and as we scale, driven by both continued efficiency in operational expenses as well as leverage in the fixed components of our cost structure. Adjusted EBITDA was $488 million in Q1, an increase of $253 million and a new company record. Adjusted EBITDA margin was 11.5% in Q1, a 3.8 percentage point increase. Our adjusted EBITDA margin of 11.5% was industry-leading and is well within our long-term financial model EBITDA margin range of 8% to 13.5%. Our adjusted EBITDA is very high quality compared to many rapidly growing companies due to our relatively low non-cash expenses.

Mark Jenkins: We continue to see opportunities for significant improvement in per-unit SG&A expenses over time and as we scale, driven by both continued efficiency in operational expenses as well as leverage in the fixed components of our cost structure. Adjusted EBITDA was $488 million in Q1, an increase of $253 million and a new company record. Adjusted EBITDA margin was 11.5% in Q1, a 3.8 percentage point increase.

Mark Jenkins: We continue to see opportunities for significant improvement in per unit SG&A expenses over time and as we scale, driven by both continued efficiency and operational expenses, as well as leverage in the fixed components of our cost structure.

Thank you.

Mark Jenkins: Adjusted EBITDA was 488 million in Q1, an increase of 253 million and a new company record. Adjusted EBITDA margin was 11.5 percent in Q1, a 3.8 percentage point increase.

Mark Jenkins: Our adjusted EBITDA margin of 11.5% was industry-leading and is well within our long-term financial model EBITDA margin range of 8% to 13.5%. Our adjusted EBITDA is very high quality compared to many rapidly growing companies due to our relatively low non-cash expenses.

Mark Jenkins: Our adjusted EBITDA margin of 11.5% was industry leading and as well within our long-term financial model EBITDA margin range to 13.5%.

Mark Jenkins: Our adjusted EBITDA is very high quality compared to many rapidly growing companies due to our relatively low non-cash expenses.

Ernie Garcia: We converted approximately 80% of adjusted EBITDA into $394 million of GAAP operating income and a 9.3% GAAP operating margin in Q1, leading the public auto retail industry. As previously noted, we currently carry many expenses that support retail unit sales capacity of over 1,000,000 units and expect our GAAP operating income to grow faster than adjusted EBITDA over time. Q1 was a record quarter that again demonstrated the significant power of our business model. Assuming the environment remains stable, looking toward Q2, we expect a sequential increase in both retail units sold and adjusted EBITDA, leading to all-time company records on both metrics. We remain on track to deliver significant growth in both retail units sold and adjusted EBITDA in FY 2025.

Mark Jenkins: We converted approximately 80% of adjusted EBITDA into $394 million of GAAP operating income and a 9.3% GAAP operating margin in Q1, leading the public auto retail industry. As previously noted, we currently carry many expenses that support retail unit sales capacity of over 1,000,000 units and expect our GAAP operating income to grow faster than adjusted EBITDA over time. Q1 was a record quarter that again demonstrated the significant power of our business model.

Mark Jenkins: We converted approximately 80% of adjusted EBITDA into 394 million of gap operating income and a 9.3% gap operating margin in Q1 leading the public auto retail industry.

Mark Jenkins: As previously noted, we currently carry many expenses that support retail unit sales capacity of over 1 million units and expect our gap operating income to grow faster than adjust to the EBITDA over time.

Mark Jenkins: Q1 was a record quarter that again demonstrated the significant power of our business model. Assuming the environment remains stable, looking toward Q2, we expect a sequential increase in both retail units sold and adjusted EBITDA, leading to all-time company records on both metrics.

Mark Jenkins: Assuming the environment remains stable, looking toward Q2, we expect a sequential increase in both retail units sold and adjusted EBITDA, leading to all-time company records on both metrics. We remain on track to deliver significant growth in both retail units sold and adjusted EBITDA in FY 2025.

Mark Jenkins: We remain on track to deliver significant growth in both retail units sold and the Adjusted EBITDA in FY 2025.

Ernie Garcia: In conclusion, our results in Q1 were exceptional, and we remain highly motivated by our opportunity to continue driving significant profitable growth. Thank you for your attention. We will now take questions.

Mark Jenkins: In conclusion, our results in Q1 were exceptional, and we remain highly motivated by our opportunity to continue driving significant profitable growth. Thank you for your attention. We will now take questions.

Mark Jenkins: In conclusion, our result in Q1 were exceptional and we remain highly motivated by our opportunity to continue driving significant profitable growth. Thank you for your attention, we will now take questions.

Operator 3: We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. The first question comes from Ron Josey with Citi. Please go ahead.

Operator: We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then two. The first question comes from Ron Josey with Citi. Please go ahead.

Mark Jenkins: We will now begin the question and answer session. To ask a question, you may press star than one on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time, your question has been addressed and you would like to withdraw your question, please press star than two.

Mark Jenkins: The first question comes from Ron Josie with City. Please go ahead.

Ron Josey: Great. Thanks for taking the question. I have two. Ernie, in the letter, we talked a lot about a lot of things in the letter, but specifically talked about very clear visibility to continued financial performance. The first part of this question is talk to us a little bit about macro, about how tariffs fit in very short term, I know, and I know you just gave long-term guidance, but wanted to hear your thoughts on the here and now and how things are going, how you're thinking about the impact. The second question is more on pricing and on GPUs.

Ron Josey: Just wondering when you're managing the business and do you manage the business between retail GPUs and total GPUs, meaning that as you can benefit from improving retail GPUs, does that go into lower pricing, maybe impacting the retail GPU, but yet financing GPUs are better? I'm trying to understand how we're taking these efficiencies, pushing it to greater growth, and how that rolls up to overall profitability of the company. Hopefully, that made sense. Thank you.

and how we're taking these efficiencies

Mark Jenkins: pushing it to greater growth and now how that rolls up to overall profitability company. Hopefully that made sense. Thank you.

Ernie Garcia: Thank you. Okay, I'll try to be quick on the first one because I don't know that we have as much interesting stuff to say as others might. I think as it relates to tariffs, I think, you know, we've heard reasonable arguments that I think are directionally correct, that if tariffs, you know, drive up car prices all else constant, that's bad. I think we've heard reasonable arguments that it would be more likely they would drive up new car prices by more than used car prices. It may be a directional benefit to used cars.

Thank you.

Ernie Garcia: It may be a benefit to business models that are able to offer value to consumers, which is a business model that, you know, we think we fit in that box. We'll see how that works. I think the general approach that we try to take to this, and I think this has been true since the beginning, is, you know, we believe what matters in this industry is what are your expenses compared to everyone else? What are your revenues compared to everyone else? What is the experience you deliver compared to everyone else? If you're better in those three things, then you're gonna win. The question is degree, and the question is time. Because it is a competitive industry. It's a mature industry. It's an industry that's very large.

Mark Jenkins: and maybe a benefit to business models that are able to offer value to consumers, which is a business model that we fit in that box.

Mark Jenkins: So we'll see how that works. I think the general approach that we try to take to this and I think it's been true since the beginning is we believe what matters in this industry is what are your expenses compared to everyone else? What are your revenues compared to everyone else and what is the experience you deliver compared to everyone else?

Ernie Garcia: If you're better in those three things, then you're gonna win. The question is degree, and the question is time. Because it is a competitive industry. It's a mature industry. It's an industry that's very large.

Ernie Garcia: It's an industry where many of the other players have shared economics. We try really hard to put all of our energy into those three things because you can kinda chase, you know, a macro environment in circles. You know, that said, we pay attention. I think the good news is we have an adaptive system. Our system inherently adapts to what it sees. If customers start to prefer less expensive cars, we'll automatically start buying less expensive cars. If the reverse is true, then we'll react in the opposite way. I think, you know, we've seen, you know, little gyrations over the last month or so. I think when tariffs were first announced, we saw a small pull forward of demand, and, you know, we reacted accordingly.

Jennifer, less expensive cars. First.

Mark Jenkins: We'll automatically start buying less expensive cars if the reverse is true, then we'll react in the opposite way. I think...

Ernie Garcia: I think, you know, we've seen, you know, little gyrations over the last month or so. I think when tariffs were first announced, we saw a small pull forward of demand, and, you know, we reacted accordingly.

Mark Jenkins: We've seen little gyrations over the last month or so. I think when tariffs were first announced, we saw a small pull forward of demand. And we reacted accordingly. We like to try to keep sales approximately on our plan. It keeps operations very smooth. So we pulled some levers to try to keep sales on our plan. And despite that little increase in demand. And then we saw probably a little bit of a trough thereafter. And it feels like it's stabilized since. And I think overall our expectations remain the same. So I don't think we have too much that's interesting.

Ernie Garcia: We like to try to keep sales approximately on our plan because it keeps operations very smooth. We pulled some levers to try to keep sales on our plan and, you know, despite that little increase in demand. We saw probably a little bit of a trough thereafter, and it feels like it's stabilized since. I think overall, our expectations remain the same. I don't think we have too much that's interesting there, but that's how we've been reacting. I think as it relates to pricing in general, I think, you know, we've continually used this term fundamental gains, and I think the last couple of years have been pretty exceptional in this regard.

Ernie Garcia: I think as it relates to pricing in general, I think, you know, we've continually used this term fundamental gains, and I think the last couple of years have been pretty exceptional in this regard.

Mayor, but that's what we've been reacting. Thank you.

Mark Jenkins: I think as it relates to pricing in general, I think we've continually used this term fundamental gains and I think the last couple of years have...

Ernie Garcia: I think, you know, we've demonstrated a lot of improvement in every expense line item, in every revenue line item, and we've done that while, you know, giving customers improving experiences with improving NPS and similar value. I think that that's very exciting and we think, you know, we tend to have kind of our annual planning around this time, and we're setting our targets now for, you know, Q4 this year and for Q2 of next year. I think looking at the opportunities in every group, they're again, very large and very exciting. I think the hardest thing that we have to do is decide which things we're gonna do and which things we're not gonna do to try to stay focused and ensure that we get the most out of our effort along the way.

I've been pretty exceptional in this regard. I think we've...

Mark Jenkins: Demonstrated a lot of improvement in every expense line item, in every revenue line item, and we've done that well, you know, giving customers improving experiences with improving MPS.

Mark Jenkins: and similar value. And I think that that's very exciting. And we think we tend to have kind of our annual planning around this time. And we're setting our targets now for Q4 this year and for Q2 of next year. And I think looking at the opportunities in every group.

Ernie Garcia: I think the hardest thing that we have to do is decide which things we're gonna do and which things we're not gonna do to try to stay focused and ensure that we get the most out of our effort along the way.

Mark Jenkins: There again, very large and very exciting, and I think the hardest thing that we have to do is decide which things we're going to do and which things we're not going to do to try to stay focused and ensure that we get the most out of our effort along the way. But we still think there are very significant fundamental gains, and we think that in aggregate, across the various line items,

Ernie Garcia: We still think there are very significant fundamental gains. We think that in aggregate across the various line items, we're likely to take those fundamental gains and seek to share the significant majority of them with our customers to further separate our offering over time. We think that we're in a position to do that because we think the economics are very strong. You know, just to give a quick walk, which is to some degree in the shareholder letter, you know, we were 11.5% this quarter in a traditionally seasonally weak quarter. We think that that's very strong to begin with. We think there's a couple points of fixed cost leverage from there.

Mark Jenkins: We're likely to take those fundamental gains and seek to share the significant majority of them with our customers to further separate our offering over time. And we think that we're in a position to do that because we think the economics are very strong. So just to give a quick walk, which is to some degree in the shoulder letter, we are 11.5% this quarter in a traditionally seasonally weak quarter. And so we think that that's very strong to begin with. Thank you.

Ernie Garcia: We think that that's very strong to begin with. We think there's a couple points of fixed cost leverage from there.

Ernie Garcia: Um, you know, e-even in marketing, which is not a huge line item at this point, um, our older, more mature markets with larger market shares are a couple hundred dollars better than, uh, than our average. And we still think that there's very significant fundamental gains to be had. And I think when you start doing the mental math on that, it gets you well beyond our thirteen point five percent target. Uh, but we view that as exciting because we think that that's fuel, uh, for future growth that we can share with customers. And, and we think we'll share it in many ways. It could be economic, it could be additional investments and experience. Um, you know, you've seen some of the stats we put in the shareholder letter. We're delivering cars materially faster. We're answering phones more quickly.

Ernie Garcia: And, and we think we'll share it in many ways. It could be economic, it could be additional investments and experience. Um, you know, you've seen some of the stats we put in the shareholder letter. We're delivering cars materially faster. We're answering phones more quickly.

Investments in Experience.

Mark Jenkins: You've seen some of the stats we put the show in the letter. We're delivering cars materially faster. We're answering phones more quickly. We're getting fewer calls from customers because we've invested in digital tools that answer questions for them. So we're just becoming more efficient as a business overall, and I think that we will seek to continue to do that and to take these gains that we expect you'll get, but that we're going to have to work hard to go get.

Ernie Garcia: We're getting fewer calls from customers 'cause we've invested in digital tools that answer questions for them. We're just becoming more efficient as a business overall, and I think that we'll seek to continue to do that, and to take these gains that we expect to go get, but that we're gonna have to work hard to go get, share them with our customers, and see where that takes us. We think the road in front of us is very clear and it's up to us to execute, but we think we've got huge opportunity.

Mark Jenkins: Show them with our customers and see where that takes us but we think the road in front of us is very clear and it's up to us to execute but we think we've got huge opportunity. Thank you very much.

Operator 2: Super clear. Thanks, Ernie. Appreciate it.

Ron Josey: Super clear. Thanks, Ernie. Appreciate it.

Ernie Garcia: Thank you.

Superclair, thanks, I certainly appreciate it. Thank you.

Operator 3: The next question comes from Brian Nagel with Oppenheimer. Please go ahead.

Operator: The next question comes from Brian Nagel with Oppenheimer. Please go ahead.

Speaker Change: The next question comes from Brian Nagel with Openheimer. Please go ahead.

Brian Nagel: Hi, good afternoon. First off, congratulations on another very, very nice quarter. Congrats.

Brian Nagle: Good afternoon. My first off congratulations to me, another very, very nice sport, so congrats. Thank you. We really do appreciate that, and we do keep track over here. Just we're over coming up next.

Ernie Garcia: Thank you. We really do appreciate that. We do keep track over here. Just for whoever's coming up next.

Brian Nagel: Two questions. I'll put them together. I mean, first off, you know, as part of their superior performance, you've been managing your retail GPU very well. I guess the question I have is, you know, as you look at it from here, you know, how should we think about, you know, from your standpoint, the trajectory there, kind of the puts and takes both near and maybe longer term on that retail GPU? My second question, the longer-term engagement. You know, you introduced today the kind of new longer-term financial goals for the company.

Sixty-a-two questions, I'll put them together. I mean, first off.

Brian Nagle: You know, as part of their superior performance, you've been managing your retail GPU very well. But I guess the question I have is, you know, if you look at it from here.

Brian Nagle: You know, how should we think about, you know, from your standpoint, the trajectory there kind of puts in takes [inaudible]

Both Nier and maybe Larger Term on that retail GPU. [inaudible]

Brian Nagle: And then my second question, the longer term in nature, you know, you're introduced today, the kind of newer, new longer term financial goals for the company. So as we think of it, I've been recognizing the numbers you put out there over a longer time. Thanks.

Brian Nagel: As we think about that, recognizing the numbers you put out there over a long period of time, what type of incremental investment are you starting to think about in the business to support those type of volumes, and when will we start to see that, you know, that newer capacity, so to say, come online?

Brian Nagle: What type of incredible investment are you starting to think about in a business to support those type of volumes and when will we start to see that, you know, that newer capacity so to say, come online.

Ernie Garcia: Sure. Um, so, so I think, you know, as it relates to, to the various GPU line items, I mean, the way that we think about it first order is we try to break it down. We say, what are the various inputs? So in retail GPU, you've got inbound transport, you've got your acquisition cost, you've got reconditioning, um, you've got the price that, that we put in front of customers, uh, which is driven by how well we're merchandising, um, a-and, and how, how, uh, effectively we're driving demand, uh, to those cars. And so those are various areas where we, we have goals, um, and we have projects that we're trying to tackle in every one of those areas, and we try to get better. And so I think, you know, first and foremost, we try to get fundamentally better.

Brian Nagle: Sure. So I think, you know, as it relates to the various GPU lines, I mean, the way that we think about its first orders, we try to break it down, we say what are the various inputs. So in retail GPU, you've got inbound transport, you've got your acquisition cost, you've got reconditioning, you've got the price that we put in front of customers, which is driven by how well we're merchandising and how effectively we're driving demand to those cars. And so those are various areas where we have goals. And we

Ernie Garcia: And so those are various areas where we, we have goals, um, and we have projects that we're trying to tackle in every one of those areas, and we try to get better. And so I think, you know, first and foremost, we try to get fundamentally better.

Brian Nagle: We have projects that we're trying to tackle in every one of those areas. And we try to get better. And so I think, you know, first and foremost, we try to get fundamentally better. And if we get fundamentally better, then we've got good options. You know, one option is you show that in the bottom line, one option is you pass it back to customers, either in price itself or in some other form of investment and drive incremental demand. And so, you know, generally speaking, I think that, you know, we feel like we're in a pretty good spot from an overall GPU perspective. Thank you.

Ernie Garcia: If we get fundamentally better, then we've got good options. You know, one option is you show that in the bottom line, and one option is you pass it back to customers either in price itself or in some other form of investment and drive incremental demand. You know, generally speaking, I think that, you know, we feel like we're in a pretty good spot from an overall GPU perspective. It's driving us to this place where, you know, the EBITDA economic walk that we did a moment ago, you know, gets you to very, very exciting places. I think we're gonna be managing kind of, you know, across the economics of the business to try to make sure that we're in a great overall margin spot.

Brian Nagle: and it's driving us to this place where the EBITDA economic walk that we did a moment ago gets you to very, very exciting places. So I think we're going to be managing across the economics of the business to try to make sure that we're in a great overall margin spot. And we're going to try to get better in every subline of every revenue line item and every expense line item. And we think we have visibility to do that and we'll seek to continue doing that. [inaudible]

Ernie Garcia: I think we're gonna be managing kind of, you know, across the economics of the business to try to make sure that we're in a great overall margin spot.

Ernie Garcia: We're gonna try to get better in every sub-line of every revenue line item and every expense line item. We think we have visibility to do that, and we'll seek to continue doing that. I think as it relates to investments to keep going from here, I think, you know, we are in a pretty unique and exciting position. You know, we acquired ADESA, you know, several years back now. Through that acquisition, you know, we got access to a lot of real estate. We've been methodically opening up our mega sites which support both auction capabilities and reconditioning capabilities. We also have underutilized inspection centers ourself. I think we're positioned very well to kind of grow into that infrastructure.

Brian Nagle: I think as it relates to investments that keep going from here, I think we are in a pretty unique and exciting position.

Brian Nagle: We acquired a desert, several years back now, and through that acquisition, we got access to a lot of real estate. We've been methodically opening up our mega sites, which support both auction capabilities and recondition capabilities. Thank you very much.

Ernie Garcia: We've been methodically opening up our mega sites which support both auction capabilities and reconditioning capabilities. We also have underutilized inspection centers ourself. I think we're positioned very well to kind of grow into that infrastructure.

and then we also have underutilized. [inaudible]

Brian Nagle: inspection centers ourselves. So I think we're positioned very well to to kind of grow into that infrastructure. I think of course along the way there will be investments you know Mark's given some CapEx guidance for this year I'm sure over time we'll continue to provide that but I think relative to most companies with this kind of opportunity I think there's a lot of kind of pre-purchased

Ernie Garcia: I think, of course, along the way, there will be investments. You know, Mark's given some CapEx guidance for this year. I'm sure over time, we'll continue to provide that. I think relative to most companies with this kind of opportunity, I think there's a lot of kind of pre-purchased infrastructure that we get the benefit of growing into. I think we're in a great spot there, and we're excited about it, and we'll work hard to unlock it.

Brian Nagle: Infrastructure that we get the benefit of growing into. So I think we're in a great spot there and we're excited about it and we'll work hard to unlock it.

Brian Nagel: Thanks, Ernie. Appreciate all the color.

Ernie Garcia: Thank you.

Thanks, Sharon, you appreciate all the color. Thank you.

Operator 3: The next question comes from Rajat Gupta with JPMorgan. Please go ahead.

Operator: The next question comes from Rajat Gupta with JPMorgan. Please go ahead.

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

Rajat Gupta: Great. Thanks for taking the question. I had one question just, you know, on the macro. You know, we've had several questions being asked over the last few months around, you know, how is Carvana positioned to tackle, you know, another recession, you know, maybe a severe recession. Could you help us, you know, understand like what's different now in the business versus, you know, 2021, 2022? You know, how should we think about, you know, the challenges you might face, you know, just in the lending markets, you know, gain on sale margins, et cetera?

Rajat Gupta: Great. Thanks for taking the question. I have one question just you know on the macro and.

Speaker Change: You know, you have several questions being asked. We'll ask three months around, you know, how is Carvana positioned to tackle, you know, another recession, you know, maybe a severe recession. Could you, could you help us, you know,

Speaker Change: on the stand like what's different now in the business versus 21-22.

Rajat Gupta: You know, how should we think about, you know, the challenges you might face, you know, just in the lending markets, you know, gain on sale margins, et cetera?

Speaker Change: Now, how should we think about the challenges you might face in the lending markets, you know, gain until Marching the Tecra.

Rajat Gupta: You know, if you could just like walk us through like some of maybe two or three top aspects, you know, that was very different from 2022, which puts you in a better position to navigate a downturn. I have a quick follow-up. Thanks.

Speaker Change: You know, if you could just walk us through like some of maybe two or three job aspects, you know, that was very different from for 2022, which puts in a better position to navigate the downturn. I have a quick follow up.

Ernie Garcia: Sure. Okay. Well, you started that question with a great and then you didn't follow it up. Was that great that it was your turn or was that great quarter? Just so we can keep our stats on this side.

Thank you.

Speaker Change: Sure, okay, you started that question with a great, and then you didn't you didn't follow it up so was that great that it was your turn or was that great quarter just so we can keep our staff on this side.

Rajat Gupta: Both.

Ernie Garcia: Okay. Thank you. Okay, good. Mark that one down. Well, here's what I would answer. I think it's a good and fair question. I think the way that we would try to answer that one would be to point to the automotive industry in general. I think that, you know, we were a very different company in many respects, you know, heading into 2022, right? We were not a money-making company. We were an extremely high-growth company that was sprinting full speed at an opportunity. You know, we felt at the time like we were, you know, supported by investors in that mission. I think we ran into, you know, our own issues.

Speaker Change: [inaudible] I think the way that we would try to answer that one would be to point to the automotive industry in general. Well, I think that, you know, ever.

We were a very, very different company in many respects.

Speaker Change: Heading into 22, right? We were not a money making company. We were an extremely high growth company that was sprinting full speed and opportunity and we felt in the time that we were supported by investors in that mission. And then I think we ran into our own issues. We saw interest rates shoot up in a way that was very unique. We saw car prices shoot up over a full year in a way that was unique. And we were in a position where we had to dramatically change our strategy. And so I think there's just a lot of threads that came together at a single

Ernie Garcia: You know, we felt at the time like we were, you know, supported by investors in that mission. I think we ran into, you know, our own issues.

Ernie Garcia: We saw interest rates shoot up in a way that was very unique. We saw car prices shoot up over, you know, a full year in a way that was unique. We were in a position where we had to dramatically change our strategy. I think there's just a lot of threads that came together at a single time there that, you know, can give the impression of a pattern that we don't really think is predictive of where the future is likely to be. I think where we are today is, you know, we're the most profitable automotive retailer by a pretty long way. I think as measured by adjusted EBITDA margin, you know, we're approximately twice as profitable as the average public automotive retailer.

Thank you.

Ernie Garcia: I think as measured by adjusted EBITDA margin, you know, we're approximately twice as profitable as the average public automotive retailer.

Ernie Garcia: That puts us in a very different position. You know, we've got, you know, significant margin to work with. We've got significant cash balances. We're simultaneously growing very quickly. I think that that suggests that our ability to absorb, you know, variation in the macro environment is very, very different. I think it's likely to look more like other automotive retailers that were profitable heading into downturns in the past. In general, when you go back and look at that history, the changes were not very severe. I think you can also, you know, in any of these line items, you can look at the history that we've generated over our relatively short life as a company.

Speaker Change: very you can look at the history that we've generated over our relatively short life as a company. We've been through some real storms in finance GPU, for example, which I think is one of the areas that people tend to look at first.

Ernie Garcia: I think you can also, you know, in any of these line items, you can look at the history that we've generated over our relatively short life as a company.

Ernie Garcia: You know, we've been through some real storms in finance GPU, for example, which I think is one of the areas that people tend to look at first when they ask these sorts of questions. You know, we went through COVID, and we saw finance GPU go down a little bit but recover a quarter later. You know, we went through 2022 and 2023 when you couldn't read a nice thing about us online if you searched, you know, over and over again. I think that, you know, we saw GPU go down a little bit, but not all that much. You know, generally speaking, we are in a competitive market. You know, everyone else sees the same things that we see. If consumer credit gets worse, that gets priced in.

Speaker Change: when they asked these sorts of questions. We went through COVID and we saw a financier if you go down a little bit but recover a quarter later. We went through 22 and 23 when you couldn't read a nice thing about us online if you searched over and over again. I think that we saw if you go down a little bit but not all that much.

Ernie Garcia: You know, generally speaking, we are in a competitive market. You know, everyone else sees the same things that we see. If consumer credit gets worse, that gets priced in.

Speaker Change: You know, generally speaking, we are in a competitive market. You know, everyone else sees the same things that we see. If consumer credit gets worse, that gets priced in. If interest rates go up, that gets priced in. If, you know, car prices go up or down, that generally gets priced in.

Ernie Garcia: If interest rates go up, that gets priced in. If, you know, car prices go up or down, that generally gets priced in. I think, you know, our expectation would be that it would be much more like other highly profitable automotive retailers have dealt with difficult environments in the past than it would be like 2022 or 2023. We'll, you know, do our best to make sure that that's the case.

Speaker Change: and so I think our expectation would be that it would be much more like other highly profitable automotive retailers have dealt with difficult environments in the past than it would be like 22 or 23, and we'll do our best to make sure that that's the case.

Rajat Gupta: Got it. Just a follow-up on just like the lending backdrop. I mean, you added like a new partner last year. Curious where you are in discussions, you know, potentially adding more partners. Do you see yourself having more partners or additional partners this year? Where are we in those discussions today? Thanks.

John Colantuoni, John Healy,

Speaker Change: Got it, got it, and just follow up on just like the landing, that crop, and you added like a new partner last year.

Speaker Change: I'm curious where you are in discussions, potentially adding more partners. Do you see yourself having more partners? No additional partners this year? Where are we in those discussions today?

Ernie Garcia: Yeah, sure. I think we're stronger than we've ever been by a long way. I think our securitization program is stronger than it's ever been. I think we have more support in the residual sale portion of that, which is kind of, you know, more of the almost whole loan risk-taking portion of those securitizations. We've got more buyers that are kind of recurring buyers than we've ever had. We've got, you know, obviously our Ally arrangement, which has been great for us over a long period of time and, you know, hopefully great for them as well. We've also had, you know, large, like, pooled loan sales that we've done. We added another large pool buyer this quarter.

Thank you.

Speaker Change: Yes, sir, I think we're stronger than we've ever been by a long way. I think our security program is stronger than it's ever been. I think we have more support.

Speaker Change: in the residual sale portion of that, which is kind of more of the almost whole-known risk-taking portion of those currentizations, we've got more buyers that

Ernie Garcia: We've also had, you know, large, like, pooled loan sales that we've done. We added another large pool buyer this quarter.

Ernie Garcia: I think in general, we feel like we're in a really strong position there. We generate very high-quality assets that have predictable cash flows and high yields relative to a lot of other assets that are available in the market. In general, I would say that, you know, that feels as good as it's ever felt, and I think that that's reflected in the results that you see this quarter, where we had exceptional finance GPU this quarter. In general, it's been an improving trend over the last year and a half, plus. I think that that's reflective of those trends.

Speaker Change: predictable cash flows and high yields relative to a lot of other assets that are available in the market. And so in general I would say that you know, that feels as good as it's ever felt and I think that that's reflected in the results that you see this quarter. We had an exceptional financial CPU this quarter and in general, it's been an improving trend over the last year and a half.

Plus, so I think that that's reflected to those trends. [inaudible]

Rajat Gupta: Understood. No, great. Thanks for all the color, and good luck.

Ernie Garcia: Thank you. Appreciate it.

Anderson. Great. Thanks for all the colors. Good luck. Thank you. Appreciate it.

Operator 3: The next question comes from Chris Bottiglieri with BNP Paribas. Please go ahead.

Operator: The next question comes from Chris Bottiglieri with BNP Paribas. Please go ahead.

Speaker Change: The next question comes from Chris Potiglieri with the N.P. Pirebus. Please go ahead.

Chris Bottiglieri: Yeah, thanks for taking the questions. First one, I'm not sure if I heard you correctly, but it sounded like you recast the TAM to the 40 million used plus new, and now you're 1% of that TAM. Just in context of acquiring that, you know, that small dealership that you bought in the franchise space, just currently thinking, wanna, you know, hear how you're thinking about the new vehicle opportunity.

Chris Bottiglieri: Hey, thanks for taking the questions. First one, not sure I heard you correctly, but it sounded like you recast the Tam to the 40 million used plus new and now you're 1% of that Tam.

Chris Bottiglieri: So just in context of acquired in that small dealership that you bought in the franchise space, just currently thinking, you know, you're thinking about the new vehicle opportunity.

Ernie Garcia: Sure. Well, we, you know, we bought that dealership. I think that begs a series of intriguing questions, but it's also very early. I think we're just in the process now of experimenting and learning. I think it's a bit early to share much more than that, but stay tuned.

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Chris Bottiglieri: Sure. We bought that dealership. I think that that begs the series of intriguing questions, but it's also very early. I think we're just we're just in the process now of experimenting and learning. And so I think it's a bit early to share much more than that, but stay tuned.

Sharon Zackfia: Okay. That's fair. I was hoping to dig in on the ramp. You provided some interesting context in the shareholder letter. You can get to 3 million in five years versus 10, and what that implies for the weekly production capacity. I mean, to do it in five, you'd have to almost probably start that, you know, this year or this coming year to do that. I guess, what are the steps you do differently to hit it in five years versus 10? How does that change your capacity needs? It's the same facilities, but I guess, what do you do differently to do it in five versus 10? Is it more demand-based, or is it more like how you approach investment and scale it up more quickly?

Chris Bottiglieri: Okay. That's fair. I was hoping to dig in on the ramp. You provided some interesting context in the shareholder letter. You can get to 3 million in five years versus 10, and what that implies for the weekly production capacity. I mean, to do it in five, you'd have to almost probably start that, you know, this year or this coming year to do that. I guess, what are the steps you do differently to hit it in five years versus 10? How does that change your capacity needs? It's the same facilities, but I guess, what do you do differently to do it in five versus 10?

Douglas Arthur.

Speaker Change: and then, I was hoping to dig it on the ramp. You provided some interesting context. Make sure to hold her letter.

Speaker Change: Like, you can get to three million five years versus ten and then what that implies to like the weekly production capacity. I mean, to do it in five, you'd have to almost probably start that this, you know, this year it was coming year to do that, but. [inaudible]

Speaker Change: I guess what are the steps you do differently to hit it in five versus ten? Like how does that change your capacity needs? It's the same facilities, but I guess what do you do differently to do it in five versus ten? Is it more demand-based, or is it more like how you approach investment and scale it up quick more quickly?

Chris Bottiglieri: Is it more demand-based, or is it more like how you approach investment and scale it up more quickly?

Ernie Garcia: Sure. Well, I think you referenced some data that we put in the letter that hopefully was helpful. I think, you know, over the last 12 months, we've been simultaneously growing sales quite a bit and growing inventory. That means that we've been growing production pretty quickly. If you break that down, you know, to what have we been doing weekly, it means that over the last 12 months, we've averaged increasing our production by about 80 units per week. We've done that very consistently over that period of time. It's been a tremendous undertaking by the team. I think they've done an unbelievable job. I think it also bodes very well for our future.

Speaker Change: Sure, you referenced some data that we've put in the letter that hopefully was helpful, but I think over the last 12 months we've been simultaneously growing sales quite a bit and growing inventory. That means that we've been growing production pretty quickly. And so if you break that down to what have we been doing weekly, it means that over the last 12 months we've averaged increasing our production by about 80 units per week. And we've done that very consistently over that period of time. It's been a tremendous undertaking by the team.

Ernie Garcia: It's been a tremendous undertaking by the team. I think they've done an unbelievable job. I think it also bodes very well for our future.

Meem, I think they've done an unbelievable job. [inaudible]

Ernie Garcia: That is kind of like the real, you know, fundamental operating unit that underlies, you know, growing, at least production, which is, you know, our most complex and difficult to scale operational component of our business. If you look at that pace, you know, we really don't have to increase it by very much. You know, we estimate that we'd have to increase it to about 90 units per week over a 10-year period to hit 3 million sales.

Speaker Change: But I think it also bodes very well for our future because if you, that is kind of like the real, you know, fundamental operating unit that underlies growing, at least production, which is our most complex and difficult to scale operational component of our business.

Speaker Change: And so if you look at that pace, you know, we really don't have to increase it by very much, you know, we estimate that we'd have to increase it to about 90 units per week over a 10 year period to hit 3 million sales.

Ernie Garcia: That feels very achievable, and we'd need to be at about 180 units per week to hit 3 million sales in five years, which sounds a bit further away, but I think it's also important to note that, you know, over the last year, we had on average about 23 locations that we were producing cars out of, and we expect over time to have about 60 locations that we're producing cars out of. You know, production growth happens at a facility level and requires organization, leadership, and hiring at all those levels. It's something that is made easier certainly by adding more facilities. You know, we think that operationally it's very achievable.

Speaker Change: So that feels very chief, and we need to be at about 180 units per week.

Speaker Change: to hit three million sales in five years, which sounds a bit further away, but I think it's also important to note that over the last year we had on average about 23 locations that we were producing cars out of, and we expect over time to have about 60 locations that were producing cars out of, and production growth happens at a facility level and requires organization and leadership and hiring all those levels, but it's something that is made easier, certainly, by adding more facilities. [inaudible]

Ernie Garcia: It's something that is made easier certainly by adding more facilities. You know, we think that operationally it's very achievable.

Ernie Garcia: It's gonna be a lot of work, and there are other parts of the kind of operational chain that we've got to make sure we expand as well. It's the kind of work that we think that we can do, and it's a scale of that work that we believe we, you know, we've achieved in the past or at least have been close to in the past. I think that's pretty exciting. I think, you know, our goal is gonna be to go unlock that as quickly as we can, subject to delivering great customer experiences with highly efficient operations to go get fundamental gains and share those with our customers and have that drive demand.

Speaker Change: So we think that operationally it's very achievable. It's going to be a lot of work and there are other parts of the kind of operational chain that we've got to make sure we expand as well. But it's the kind of work that we think that we can do and it's a scale of that work that we believe we've achieved in the past.

Ernie Garcia: I think, you know, our goal is gonna be to go unlock that as quickly as we can, subject to delivering great customer experiences with highly efficient operations to go get fundamental gains and share those with our customers and have that drive demand.

Or at least have been close to in the past. [inaudible]

Speaker Change: And so I think that's pretty exciting. And so I think our goal is going to be to go unlock that as quickly as we can, subject to delivering great customer experiences with...

Ernie Garcia: I think, you know, generally speaking, if you look at the sum total of our life, you know, we've had an offering that has been pretty consistent over time, and that very consistent offering has driven a lot of demand growth over an extended period of time. We think looking forward, we're gonna, you know, benefit from that same offering. We plan to make it better as we unlock additional fundamental gains. We think that should provide an ample amount of demand to get us to that level. 'Cause again, you know, 3 million units is a big number. It's relative to, you know, the used market of 40 million units. You know, that's 7.5% in kind of, you know, other retail verticals.

Speaker Change: Generally speaking, if you look at the sum total of our life...

Speaker Change: We had an offering that has been pretty consistent over time and that very consistent offering has driven a lot of demand growth over an extended period of time.

Speaker Change: And we think looking forward, we're going to benefit from that same offering and we plan to make it better as we unlock additional fundamental gains. And so we think that should provide an ample amount of demand to get us to that level.

Ernie Garcia: It's relative to, you know, the used market of 40 million units. You know, that's 7.5% in kind of, you know, other retail verticals.

Ernie Garcia: It is not abnormal in the least to have a player have at least that market share and generally significantly larger. We think with the business model that's, you know, twice as profitable as the average of the other public automotive retailers and growing at 46%, you know, we absolutely have that ability, and so we're gonna go chase it down.

in kind of you.

Speaker Change: Other retail verticals, it is not abnormal in the least to have a player have at least that market share and generally significantly larger. And we think with the business model that's twice as profitable, the average of the other public automotive retailers and growing at 46%. We absolutely have that ability and so we're going to go chase it down. And so we're going to go ahead and see what we're going to do.

Sharon Zackfia: Gotcha. Good. Thanks, Ernie. Appreciate it.

Chris Bottiglieri: Gotcha. Good. Thanks, Ernie. Appreciate it.

Ernie Garcia: Thank you.

Thanks Ernie, appreciate it. Thank you.

Operator 3: The next question comes from Sharon Zackfia with William Blair. Please go ahead.

Operator: The next question comes from Sharon Zackfia with William Blair. Please go ahead.

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

Sharon Zackfia: Hi. I feel a lot of pressure to say congratulations, so I will do so because I know you're keeping track.

Sharon Zaxia: Hi, I feel a lot of pressure to say congratulations, so I will do so, because I know you're keeping ground. Yeah, that felt forced, we're still going to count it. It felt a little forced, it's a long day, it's long out here. So I guess I wanted to kind of drill back into the idea of re-investing the gains. [inaudible]

Ernie Garcia: Yeah, that felt forced. We're still gonna count it.

Sharon Zackfia: It felt a little forced. It's a long day. It's long out here. I guess I wanted to kind of drill back into the idea of reinvesting the gains with your customers in the future. I wanna level set that that means future gains and we're not expecting kind of a retrenchment in GPU anytime soon because I'm getting pinged on that. Just if you could clarify that. Secondarily, as you think about reinvesting kind of further gains with the consumer, how are you prioritizing where to reinvest that? Are there certain areas where there's just a really quick ROI that you know will catalyze, you know, conversion or catalyze traffic?

Sharon Zaxia: with your customers in the future. I want to level set that that means future gains and we're not expecting kind of a retrenchment.

Sharon Zaxia: in GPU anytime soon because I'm getting pinged on that, so just if you could clarify that. And then secondarily, as you think about reinvesting kind of further...

Sharon Zaxia: Gaines with a consumer. How are you prioritizing where to reinvest that? I mean, are there certain areas where there's just a really quick ROI that you know will catalyze, you know, conversion or catalyze traffic? [inaudible]

Sharon Zackfia: Are there certain areas where there's just a really quick ROI that you know will catalyze, you know, conversion or catalyze traffic?

Sharon Zackfia: Are there areas where you have like certain return thresholds that you're thinking about when you're thinking about this reinvestment? I think it's just the whole construct. I think you said reasonable margin ranges. I need you to define reasonable for me, Ernie.

Speaker Change: Are there areas where you have certain return thresholds that you're thinking about when you're thinking about this reinvestment? I think it's just a whole construct and I'd love to know what I think you said reasonable margin ranges. I need you to define reasonable for me, Ernie. [inaudible]

Ernie Garcia: Oh, you know, we're not gonna do that. Okay. Let's start with the first question. I think, you know, we put in the letter and said early in the call that we'll prioritize growth over margin within reasonable ranges. I think that does then beg this very reasonable question of like, okay, are margins going backwards? Is that the plan? Just to be crystal clear, we think, you know, five to 10 years is a long time, and it's important when you're a company that's 1% of the market to have flexibility.

Speaker Change: Oh, you know we're not going to do that. But okay, so let's start with the first question. So I think um...

Ernie Garcia: We're on a very good path right now, and we are not, you know, creating this long-term plan with kind of reasonable flexibility built into it to set ourselves up for, you know, imminent reduction in margin. That is not our plan. We feel like we're on a very good path and are extremely excited by that. I think, you know, our plan going forward is to continue to unlock fundamental gains, and we think those fundamental gains are still significant. You know, year-over-year, if you just look at the change in our EBITDA margin, you know, that was about another $1,000, give or take, per unit of value that we unlocked. You know, if you can unlock that much that fast, there is likely more left.

The envelope

Ernie Garcia: You know, year-over-year, if you just look at the change in our EBITDA margin, you know, that was about another $1,000, give or take, per unit of value that we unlocked. You know, if you can unlock that much that fast, there is likely more left.

Ernie Garcia: We, you know, anticipate and will seek to go get more of that. We think that, you know, we will share that with customers. I think when we share with customers, there's a number of ways you can do it. You know, our goal is a simpler, faster, you know, more fun way to buy a car where we offer more value. I think when you talk about margins going backwards, I think everyone's head goes, you know, first to the value side, and they imagine lowering prices, lowering rates, increasing bids on cars we buy from customers. All of that is certainly possible and on the table, and I think we will look to share value with our customers in the most intelligent ways we can over time.

Speaker Change: and we anticipate and we'll seek to go get more of that and then we think that we will share that with customers and I think when we share with customers there's a number of ways you can do it.

Ernie Garcia: All of that is certainly possible and on the table, and I think we will look to share value with our customers in the most intelligent ways we can over time.

Ernie Garcia: I think that, you know, simple, faster, and fun are also areas that are worthy of investment. That's the kind of areas that I think that we've invested in over the last year or two that are driving NPS to, you know, near three-year highs and, you know, leading to the statistics that we put in the letter and we discussed earlier. Generally speaking, I think if you make investments in customer offering, it is usually more work, and it is harder, and you're not only kind of, you know, you're generally investing focus, I would say, more so than dollars. I think in the best case scenario, we'll seek to invest as much focus as we can to keep making, you know, the experience even better because we think that really matters.

Joe Areas, that are worthy of investment. [inaudible]

Speaker Change: and so that's the kind of areas that I think that we've invested in over the last year or two that are driving NPS to, you know, near three-year highs and leading to the statistics that we put in the letter and we discussed earlier. Generally speaking, I think if you make investments in customer offering, it is usually more work and it is harder and you're not only kind of, you know, you're generally investing focus, I would say, more so than dollars. And I think in the best case scenario, we'll seek to invest as much focus in this week.

Ernie Garcia: I think in the best case scenario, we'll seek to invest as much focus as we can to keep making, you know, the experience even better because we think that really matters.

Ernie Garcia: Oftentimes that's more efficient than dollars. We're clearly in a spot where if you look at, you know, reasonable expectations of additional opportunities we can unlock, it is relatively large dollars, and we think that that's exciting, and we'll try to invest it intelligently going forward.

Speaker Change: Opportunities, we can unlock. It is relatively large dollars and we think that that's exciting and we'll try to invest it intelligently going forward.

Jeff Lick: Okay, can I follow up on that? As you're starting to kind of embark on these kinds of investments, are those things you're gonna outline to us on the street so that we're aware of kind of where you're prioritizing that investment?

Sharon Zackfia: Okay, can I follow up on that? As you're starting to kind of embark on these kinds of investments, are those things you're gonna outline to us on the street so that we're aware of kind of where you're prioritizing that investment?

Speaker Change: Can I follow up on that? Is that as you're starting to kind of embark on these kinds of investments? Are those things you're going to outline to us on the street so that we're aware of kind of where you're prioritizing that investment?

Ernie Garcia: I think I don't wanna, you know, sit here and talk about the exact forms that we'll discuss that in the future. I mean, I think we likely will. I think the areas that we discussed earlier, where, you know, all the service levels across the entire business are getting better, those are, I think, areas where we put effort over the last 12 months. I think it's showing up in the numbers, and we're discussing them today.

Speaker Change: I don't want to sit here and talk about the exact forms that we'll discuss that in the future, but I think we likely will. I think we discussed earlier, where all the service levels across the entire business are getting better. Those are I think areas where we put effort over the last 12 months, and I think it's showing up in the numbers and we're discussing them today. Okay.

Jeff Lick: Okay, great. Thank you.

Sharon Zackfia: Okay, great. Thank you.

Ernie Garcia: Thank you.

Great, thank you. Thank you.

Operator 3: The next question comes from Michael Montani with Evercore ISI. Please go ahead.

Operator: The next question comes from Michael Montani with Evercore ISI. Please go ahead.

Speaker Change: The next question comes from Michael Montani with Evercore ISI. Please go ahead.

Michael Montani: Hey, thanks. I appreciate you taking the question. Just wanted to ask, if I could, about some of the work that you all have been doing with respect to third-party marketplace selling. If you could give us an update on that and how it's going. Also if there's anything that we should be keeping in mind as we build out models and so forth with respect to, you know, the potential for ancillary revenue streams, whether it's third-party logistics or reconditioning. That was the question I had.

Michael Montani: Hey, thanks. I appreciate you taking the question. Just wanted to ask if I could about some of the work that you all have been doing with respect to their party marketplace selling, if you could give us an update on that and how it's going.

Michael Montani: and then also, if there's anything that we should be keeping in mind as we build out models and so forth with respect to, you know, the potential for ancillary revenue streams, whether it's a third party logistics or reconditioning, so that was the question I had.

Ernie Garcia: Sure, I can hit both of those. You know, I think the, you know, offerings that we've been developing related to, you know, either wholesale or retail marketplace, I think are going well. You know, I think we've talked a bit before about some of the fundamental opportunities we see to create a better offering for commercial sellers that gives them options to, you know, send a car to Carvana and, you know, either wholesale it through a physical auction at ADESA, wholesale it through our new digital auction offering that, you know, has been expanding this year at ADESA Clear, or to sell it, you know, via our retail marketplace offering.

Mark Jenkins: Sure, I can hit both of those. You know, I think the, you know, offerings that we've been developing related to, you know, either wholesale or retail marketplace, I think are going well.

Michael Montani: Sharkin at both of those. So, you know, I think the, you know, offerings that we've been developing related to.

Michael Montani: You know, either wholesaler retail marketplace, I think you're going well. You know, I think we've talked a bit before about some of the fundamental opportunities we see to create a better offering for commercial sellers that gives them options to, you know, send a card of Carvana and, you know, either wholesale it through a physical auction that's a...

Mark Jenkins: You know, I think we've talked a bit before about some of the fundamental opportunities we see to create a better offering for commercial sellers that gives them options to, you know, send a car to Carvana and, you know, either wholesale it through a physical auction at ADESA, wholesale it through our new digital auction offering that, you know, has been expanding this year at ADESA Clear, or to sell it, you know, via our retail marketplace offering.

Michael Montani: Holesail it through our new digital auction offering that has been expanding this year at Arthur Clear, or to sell it via our retail marketplace offering. And so that's something where we see

Ernie Garcia: You know, that's something where we see, you know, real fundamental gains in the time it takes to get a car from a commercial seller into the hands of the ultimate customer and also an opportunity to cut out costs out of the system in doing that same thing. I'd say we're, you know, incredibly early in, you know, that story and thinking about what that can ultimately be. I do think that, you know, it's a place in the industry where we see real fundamental opportunity for a faster and lower cost offering that makes everybody better. I do think it's something that we're, you know, excited about, but it's very, very early days, you know, and really, you know, thinking about what that can ultimately be.

Mark Jenkins: You know, that's something where we see, you know, real fundamental gains in the time it takes to get a car from a commercial seller into the hands of the ultimate customer and also an opportunity to cut out costs out of the system in doing that same thing. I'd say we're, you know, incredibly early in, you know, that story and thinking about what that can ultimately be. I do think that, you know, it's a place in the industry where we see real fundamental opportunity for a faster and lower cost offering that makes everybody better.

Michael Montani: You know, real fundamental gains in the time it takes to get a car from a commercial seller into the hands of the ultimate customer and also an opportunity to cut out costs out of the system.

Michael Montani: in doing that same thing. I would say we're incredibly early in that story and thinking about what that can ultimately be.

Michael Montani: But I do think that, you know, it's a place in the industry where we see real fundamental opportunity for a faster and lower cost offering that makes everybody better. And so I do think it's something that we're, you know, exciting, excited about, but it's very, very early days, you know, and really, you know, think about what that can ultimately be. In terms of your question about, you know, what should I put into the model on? [inaudible]

Mark Jenkins: I do think it's something that we're, you know, excited about, but it's very, very early days, you know, and really, you know, thinking about what that can ultimately be.

Ernie Garcia: In terms of your question about, you know, what should I put into the model on ancillary revenue streams, and you know, mentioned a couple, you know, around, you know, third-party reconditioning or logistics services. I think certainly we see opportunities in those areas. Those areas are not a near-term focus. I think our near-term focus is, you know, starting from where we are today as, you know, roughly 1% player in this industry and really, you know, continuing to grow the key offering of, you know, selling cars to more and more customers. I think that's really where our focus is gonna be. You know, I think there are ancillary opportunities like the ones that you pointed to, but they're not a near-term focus.

Mark Jenkins: In terms of your question about, you know, what should I put into the model on ancillary revenue streams, and you know, mentioned a couple, you know, around, you know, third-party reconditioning or logistics services. I think certainly we see opportunities in those areas. Those areas are not a near-term focus. I think our near-term focus is, you know, starting from where we are today as, you know, roughly 1% player in this industry and really, you know, continuing to grow the key offering of, you know, selling cars to more and more customers.

Ancillary Rubinou Streams,

Michael Montani: and you mentioned a couple around third-party reconditioning or logistics services. I think certainly we see opportunities in those areas.

Michael Montani: Those areas are not a near-term focus. I think our near-term focus is...

Michael Montani: You know, starting from where we are today is, you know, roughly 1% player in this industry and really, you know, continuing to grow the key offering of, you know, selling cars to more and more customers. And I think that's really where our focus is going to be. And, you know, I think there are insular opportunities like the ones that you pointed to, but they're not in near-term focus.

Mark Jenkins: I think that's really where our focus is gonna be. You know, I think there are ancillary opportunities like the ones that you pointed to, but they're not a near-term focus.

Michael Montani: Thank you.

Thank you.

John Colantuoni, Brian Nagel,

Operator 3: The next question comes from Jeff Lick with Stephens Inc. Please go ahead.

Operator: The next question comes from Jeff Lick with Stephens Inc. Please go ahead.

Speaker Change: The next question comes from Jeff Lick. Let's Steven's ink. Please go ahead.

Jeff Lick: I'll add my congratulations and throw a tremendous in for the quarter.

Speaker Change: I'll add my congratulations and throw a tremendous end for the quarter. So our first tremendous thank you.

Ernie Garcia: It's our first. Tremendous. Thank you.

Jeff Lick: No problem. Well, I'm always trying to be a trendsetter. A question for Mark. Mark, I was wondering if you could just mention something in the data this quarter that surprised you. For Ernie, you know, we're really only, call it, four years into COVID, you know, past COVID, where, you know, you mentioned, you know, recurring customers. You know, we see all these tremendous volumes that you're putting up. The reality is, you know, the people really don't know you that well yet. I mean, we're still all operating under this pretense over the last 40 to 50 years that you buy cars at a dealership.

Speaker Change: No problem, well, I'm always trying to be a trendsetter. A question from Mark, and then Mark, I was wondering if you could just say something in the data of this quarter.

Speaker Change: That surprised you, and then for Ernie, we're really only call it four years into past COVID where you mentioned recurring customers, you know we see all these tremendous. Thank you.

Jeff Lick: The reality is, you know, the people really don't know you that well yet. I mean, we're still all operating under this pretense over the last 40 to 50 years that you buy cars at a dealership.

Volumes that you're putting up but the reality is...

You know the

Speaker Change: People really don't know you that well yet, I mean, and we're still all...

Speaker Change: Operating under this pretense over the last 40 to 50 years that you buy cars at a dealership and so it still feels like you're very early in the adoption and I could be curious to know how you think about that and things that you're looking at in the data that says hey well maybe work. [inaudible]

Jeff Lick: It still feels like you're very early in the adoption, and I'd be curious to know how you think about that and things that you're looking at in the data that says, hey, well, you know, where we are in the adoption curve.

where we are in the adoption curve.

Mark Jenkins: Sure. Yeah, on the thing this quarter that surprised me the most, I have to say the aftermarket reaction initially to our earnings release today was probably the biggest surprise. I mean, we think we had an unbelievable quarter, set records across almost every key metric. I think the numbers that we're putting up here with 46% retail unit sales growth in a roughly flat, you know, industry. I think the, you know, leading the industry on adjusted EBITDA margin by nearly 2x, you know, while growing at that 46% year-over-year growth rate. You know, having very strong conversion of adjusted EBITDA to GAAP operating income, I think making us look, you know, very favorable on that metric compared to other many high-growth technology companies. I think we're just really excited about all these metrics. We think Q1 was an incredible quarter.

Terp

Speaker Change: Yes, on the thing is quarter, but surprisingly the most I have to say. Thank you.

Mark Jenkins: You know, having very strong conversion of adjusted EBITDA to GAAP operating income, I think making us look, you know, very favorable on that metric compared to other many high-growth technology companies. I think we're just really excited about all these metrics. We think Q1 was an incredible quarter.

Speaker Change: You know, while growing at that 46% year of year growth rate, you know, having very strong conversion of adjusted EBITDA to gap operating income.

Speaker Change: I think making us look very favorable on that metric, compared to other many high growth technology companies.

Speaker Change: I think we're just really excited about all these metrics. We think Q-1 was an incredible quarter. We're expecting sequential growth and retail units sold and adjusted even thought in Q-2 as well. And so we're excited about that. And so, you know, I just think,

Mark Jenkins: We're expecting, you know, sequential growth in retail units sold and adjusted EBITDA in Q2 as well. We're excited about that. You know, I just think the way we feel like we're positioned right now, the numbers that we're putting up, the way we're executing, I think we're very, very excited about. Was certainly surprised to see that first few minutes reaction to our earnings print.

Speaker Change: The way we feel like we're positioned right now, the numbers that we're putting up, the way we're executing, we're very, very excited about. So, was certainly surprised to see that first few minutes reaction to our Erick's print. Thank you very much.

Ernie Garcia: Well, yeah, if you ask me that question, I have another answer after what we just heard. To your second question, I think and I hope that you're right. I think that there's a lot of evidence that you're right. I think, you know, one of the many ways that we try to get customer feedback is every couple of weeks. We have, you know, customer calls where we'll just call, you know, two customers, give or take three customers for half an hour and just talk through their entire experience. We try to, you know, pair it where it's different kind of customers.

Speaker Change: If you ask me that question, I have another answer, but to your second question, I...

Speaker Change: I think and I hope that you're right and I think that there's a lot of evidence that you're right I think you know one of the many ways that we try to get customer feedback is every couple of weeks we have you know customer calls we'll just call you know two customers give or take three customers for half an hour and just talk through their entire experience and and we try to you know parent where it's different kind of customers maybe you know one week it's customers that bought an EV and one week it's customers that are repeat purchasers or customers that didn't have a perfect experience so whatever it is [inaudible]

Ernie Garcia: Maybe, you know, one week it's customers that bought an EV, and one week it's customers that are repeat purchasers or customers that didn't have a perfect experience or whatever it is. Something that I would say is you learn a lot in those conversations because you're talking live with a person who made a choice to buy a $20,000 thing on a website. You definitely hear the stories of, oh, you know, my friend or neighbor told me that it was great, and so I went and did it. I would say we hear more of these stories that are more like, well, I was searching online. I had kind of, you know, seen your logo before and knew that it was a thing.

Speaker Change: and something that I would say is you learn a lot in those conversations because you're talking live with a person who made a choice to buy a $20,000 thing on a website.

Speaker Change: And you definitely hear the stories of, oh, my friend or neighbor told me that it was great and so I went and did it.

Ernie Garcia: I would say we hear more of these stories that are more like, well, I was searching online. I had kind of, you know, seen your logo before and knew that it was a thing.

Speaker Change: And you also definitely hear stories that are more like, and I would say we hear more of these stories that are more like while I was searching online, I had kind of seen your logo before and knew that it was a thing, the car looks good, the price looks good, and I kind of searched around and I saw a picture of a vending machine that seemed like it was real, so I figured you guys were a real company and I decided to go for it.

Ernie Garcia: You know, the car looks good, the price looks good. You know, I kinda searched around and I saw a picture of a vending machine, and that seemed like it was real. I figured you guys were a real company, and I decided to go for it. To me, that's, you know, that's a bit of a bummer from, like, a brand-building perspective, but I think it's incredibly exciting from an opportunity perspective. 'Cause I do think that, you know, if we wanna become the way that people buy cars, the way that you do that is it no longer is a friend of a friend that, you know, heard that Carvana is a pretty great way to buy a car.

Speaker Change: and to me, that's a bit of a bummer from a brand building perspective, but I think it's incredibly exciting from an opportunity perspective, because I do think that

Ernie Garcia: 'Cause I do think that, you know, if we wanna become the way that people buy cars, the way that you do that is it no longer is a friend of a friend that, you know, heard that Carvana is a pretty great way to buy a car.

Speaker Change: You know, if we want to become the way that people buy cars, the way that you do that is it no longer is a friend of a friend that you know heard that Carvana is a pretty great way to buy a car. It's three or four friends and you know a neighbor and a family member who say just go to Carvana, it's easy like why would you do anything else?

Ernie Garcia: It's three or four friends and, you know, a neighbor and a family member who say just go to Carvana. It's easy. Like, why would you do anything else? I think, you know, because this market is so big and people buy cars, you know, once every five or six years, I think it takes time to build the kind of brand that we wanna build. The most important input is deliver great experiences to customers one at a time and give them an offering that's truly differentiated, and we think that we're doing that. I think that it is still early, and we're excited.

Speaker Change: and I think because this market is so big and people buy cars...

Speaker Change: You know, once every five or six years, I think it takes time to build the kind of brand that we want to build.

Speaker Change: But the most important input is deliver great experiences to customers one at a time and give them an offering that's truly differentiated and we think that we're doing that so I think that it is it is still early and we're excited and I think that you know one of the frameworks that we try to use to evaluate that question is

Ernie Garcia: And I think that, you know, one of the frameworks that we try to use to evaluate that question is, you know, there's always kind of like the awareness question, which is, you know, you can always hit people up on surveys and try to get a sense of what is awareness. I think in awareness, we're generally, you know, pretty good. A-and to put it into, you know, this customer discussion language, I think that oftentimes means, you know, I saw your logo before, right? I have some sense that, that you're a thing in the world. Um, and so I kinda know that you exist. And then there's understanding. You know, do they really know that we've got a broad selection? Do they really know that the first experience is very simple? Do they really know that they can get financing, uh, in minutes?

Speaker Change: You know, there's always kind of like the awareness question, which is, you know, you can always hit people up on surveys and try to get a sense of what is awareness.

Speaker Change: I think in awareness we're generally pretty good and to put it into this customer discussion language, I think that all times means...

Speaker Change: You know, I saw your logo before, right? I have some sense that you're a thing in the world. And so I kind of know that you exist.

Ernie Garcia: Um, and so I kinda know that you exist. And then there's understanding. You know, do they really know that we've got a broad selection? Do they really know that the first experience is very simple? Do they really know that they can get financing, uh, in minutes?

Speaker Change: and then there's understanding, you know, do they really know that we've got a broad selection? They really know that the Perse experience is very simple. They really know that they can get financing in minutes. They can get a value for their car and attach the trade and have it delivered to their door. Do they really know that they have a seven day return policy? And I think that understanding is where I think, you know, we tend to have lower levels of understanding. I think that's a real opportunity for us. And I think that's a real opportunity for us.

Ernie Garcia: They can get a value for their car and attach the trade and have it delivered to their door. Do they really know that they have a seven-day return policy? I think that understanding is where I think, you know, we tend to have lower levels of understanding. I think that's a real opportunity for us. I think the last thing is, you know, when you click buy, it comes down to trust. You know, do you believe that you're gonna get a high-quality car, and if there's something wrong with it, you'll really be able to return it. To me, that's friends and family and neighbors. All that points in the same direction. It says we just gotta keep delivering great experiences.

Speaker Change: And then I think the last thing is, when you click by it, it comes down to trust. [inaudible]

Speaker Change: You know, do you believe that you're going to get a high quality car? And if there's something wrong with it, you'll really be able to return it. [inaudible]

Ernie Garcia: To me, that's friends and family and neighbors. All that points in the same direction. It says we just gotta keep delivering great experiences.

Speaker Change: and to me, that's friends and family and neighbors. And all that points in the same direction, it says we just got to keep delivering great experiences. And I think all of the data.

Ernie Garcia: I think all of the data is pretty exciting around that as well because, you know, we do see that adding up. We see that our older markets have higher market shares than our newer markets. We don't see that our growth story today is newer markets catching up to older markets. We see that all markets continue to grow at rates that are pretty exciting. I think, you know, versus our previous best Q1 at the company level, our sales are up about 25%. If you look at our, you know, two of our larger markets where we've historically had very large market shares, Atlanta and Phoenix in both those markets, they're up about 25% versus their previous, you know, Q1 high.

Speaker Change: is pretty exciting around that as well because we do see that adding up. We see that our older markets have higher market shares than our newer markets. And we don't see that our gross story today is newer markets catching up to older markets. We see that all markets continue to grow at rates that are pretty exciting. I think versus our previous best. [inaudible]

Ernie Garcia: If you look at our, you know, two of our larger markets where we've historically had very large market shares, Atlanta and Phoenix in both those markets, they're up about 25% versus their previous, you know, Q1 high.

Speaker Change: Q1. At the company level, our sales are up about 25%. If you look at our, you know, two of our larger markets, where we've historically had very large market shares, Atlanta and Phoenix and both those markets. [inaudible]

Ernie Garcia: I think that suggests that, you know, even later in life, we are continuing to build awareness, understanding, and trust in these markets. You know, we're excited by that and think we have a long runway in front of us.

Speaker Change: They're up about 25% versus their previous first quarter high and so I think that suggests that even later in life we are continuing to build awareness understanding and trust in these markets and we're excited by that and think we have a long runaway in front of us. [inaudible]

Mark Jenkins: Well, just as a quick follow-up. In your advertising, you never really lean into just how much better the experience is over the status quo. To your point about quality, you really haven't ever shown people just how these cars are reconditioned relative to what they might be buying, you know. I'm curious why you haven't done that.

Jeff Lick: Well, just as a quick follow-up. In your advertising, you never really lean into just how much better the experience is over the status quo. To your point about quality, you really haven't ever shown people just how these cars are reconditioned relative to what they might be buying, you know. I'm curious why you haven't done that.

Speaker Change: Well, this is a quick follow-up. In your advertising, you never really lead into...

Speaker Change: Just how much better the experience is over the status quo and into your point about quality. You really haven't ever shown people just how these cars are reconditioned relative to what they might be buying. So I'm curious why you haven't done that. [inaudible]

Ernie Garcia: I think, you know, I think we have an incredible marketing team that puts together incredible creative assets, and we've got a very thoughtful quantitative marketing team that does a great job trying to get those assets in front of people. I think that we've tried a lot. What I'll say is, you know, if you go back in, like, the Wayback Machine and look at the first version of our website, it was basically five bullet points about why we thought it was the right way for consumers to buy cars. It turns out it was a surprise to me, but it turns out that, you know, five bullet points about the economics of car buying don't end up being that persuasive to consumers.

Speaker Change: So, I think we have an incredible marketing team that puts together incredible creative assets, and we've got a very thoughtful quantitative marketing team that does a great job trying to get those assets in front of people. And I think that we've tried a lot. What I'll say is, if you go back in like the way back machine and look at the first version of our website, it was basically five bullet points about why we thought it was the right way for consumers to buy cars.

Ernie Garcia: What I'll say is, you know, if you go back in, like, the Wayback Machine and look at the first version of our website, it was basically five bullet points about why we thought it was the right way for consumers to buy cars. It turns out it was a surprise to me, but it turns out that, you know, five bullet points about the economics of car buying don't end up being that persuasive to consumers.

Speaker Change: Five bullet points about the economics of car buying, don't it being that persuasive to consumers. I think you know, marketing is one of these very, very difficult and very important problems where it's hard to get someone's attention and get them to open their mind to hear a message that is a little bit different. But we've got great teams that work hard to do that. And then I think very importantly, we've got the sum of the car bottom team that works incredibly hard to make sure that when a customer does decide to buy from us. We've got a lot more to do. We've got a lot more to do. We've got a lot more to do.

Ernie Garcia: I think, you know, marketing is one of these very, very difficult and very important problems where it's hard to get someone's attention and get them to open their mind to hear a message that is a little bit different. We've got great teams that work hard to do that. I think very importantly, we've got the sum of the Carvana team that works incredibly hard to make sure that when a customer does decide to buy from us, they've got a story to tell, and that story is compelling. That we're very confident, you know, works over time. I think we'll continue to try to tell our story. We'll try to tell the vehicle quality story. I think you're right.

Speaker Change: They've got a story to tell and that story is compelling and that we're very confident works over time. So I think we'll continue to try to tell our story. We'll try to tell the vehicle quality story. I think you're right. If someone wants to give us 10 or 15 minutes or maybe even two or three minutes of attention, I think we can tell a very compelling story about vehicle quality and many of you have seen that out at our inspection centers. But that's not super easy with millions of consumers. It's hard to get their attention to how that story. And I think you're right.

Ernie Garcia: I think we'll continue to try to tell our story. We'll try to tell the vehicle quality story. I think you're right.

Ernie Garcia: If someone wants to give us 10 or 15 minutes or maybe even two or three minutes of attention, I think we can tell a very compelling story about vehicle quality, and many of you have seen that out at our inspection centers. That's not super easy with millions of consumers. It's hard to get their attention to tell that story. I think trying to explain experience ease, you know, we'll continue to work on. I think that we've got some great swings at it in the past. We've got some great ideas. We've got, you know, fun ads that are coming out all the time, and I would encourage you to take a look at those.

Speaker Change: I'm trying to explain experience ease. We'll continue to work on. I think that we've got some great swings out in the past. We've got some great ideas. We've got fun ads that are coming out all the time. And I would encourage you to take a look at those. But yeah, that's a recurring problem that I think will take a long time. And I think it bodes well. We'll continue to work on that. We'll continue to work on that.

Ernie Garcia: We've got, you know, fun ads that are coming out all the time, and I would encourage you to take a look at those.

Ernie Garcia: Yeah, that's a recurring problem that I think will take a long time, and I think it bodes well.

Jeff Lick: Awesome. Well, congrats, and the stock's still up, so we'll talk to you soon.

Speaker Change: Awesome. Well, congrats on the stock still up, so we'll talk to you soon. Mess it up, yeah, thanks.

Ernie Garcia: Makes sense, yeah. Thanks.

Operator 3: The next question comes from Daniela Haigian with Morgan Stanley. Please go ahead.

Operator: The next question comes from Daniela Haigian with Morgan Stanley. Please go ahead.

Speaker Change: The next question comes from Daniela Higgien with Morgan Stanley . Please go ahead.

Daniela Haigian: Hi, Ernie and team. Thanks for taking the question. On the financing side, I appreciate your comments on the additional whole loan buyers added to the platform. In that vein, can you comment on gain on sale? It looks like it increased sequentially to over 11% of receivables sold this quarter. Impressive, considering the market backdrop. Can you speak to your various loan monetization channels, profitability across each, what's driving the higher gain?

Hi, Ernie and team. Thanks for taking the question.

Speaker Change: On the financing side, I appreciate your comments on the additional whole loan buyers added to the platform. In that vein, can you comment on gain on sale? It looks like it increased sequentially to over 11% of receivable sold this quarter.

Speaker Change: Impressive considering the market backdrop. Can you speak to your various loan monetization channels, profitability across each, what's driving the higher gain? [inaudible]

Ernie Garcia: Sure. I can talk about that. I mean, other GPU is one of the places, and this would include finance GPU, where we're really focused on continuing to make fundamental gains. I think those fundamental gains take a couple of different forms. One is just, you know, improving the platform itself. You know, that's continuing to make improvements to our credit scoring and pricing and underwriting and, you know, using more and more data and continuing to optimize and just get smarter and smarter on the lending side of the platform. In addition, fundamental gains means, you know, doing things to lower our cost of funds. I think that can be, you know, things like bringing new buyers to the platform, for example. I think that can have a positive impact.

Mark Jenkins: Sure. I can talk about that. I mean, other GPU is one of the places, and this would include finance GPU, where we're really focused on continuing to make fundamental gains. I think those fundamental gains take a couple of different forms. One is just, you know, improving the platform itself. You know, that's continuing to make improvements to our credit scoring and pricing and underwriting and, you know, using more and more data and continuing to optimize and just get smarter and smarter on the lending side of the platform.

Speaker Change: Sure, so I can talk about that. I mean, other GPU is one of the places and this would include finance GPU where we're really focused on continuing to make fundamental gains.

Speaker Change: and I think those fundamental gains take a couple of different forms. [inaudible]

Speaker Change: One is just improving the platform itself so that's continuing to make improvements to our credit scoring and pricing and underwriting and using more and more data and continuing to optimize and just get smarter and smarter on the landing side of the platform.

Mark Jenkins: In addition, fundamental gains means, you know, doing things to lower our cost of funds. I think that can be, you know, things like bringing new buyers to the platform, for example. I think that can have a positive impact.

in addition to fundamental gains, means...

Speaker Change: You know, doing things to lower our cost of funds. And I think that can be, you know, things like bringing new buyers to the platform, for example. And so I think that can have a positive impact.

Ernie Garcia: You know, I think we've made lots of gains in both of those areas and still see meaningful opportunities for further fundamental gains in both of those areas. That's certainly a place where we will be looking to continue to make further fundamental gains. In terms of some of the more specifics, you know, on the quarter, if you look year-over-year, for example, I do think, you know, benchmark rates moved around a bit, and our, you know, spread of origination rates to benchmark rates was a little wider this quarter than it was in some previous quarters. I think that's a driver as well.

Mark Jenkins: You know, I think we've made lots of gains in both of those areas and still see meaningful opportunities for further fundamental gains in both of those areas. That's certainly a place where we will be looking to continue to make further fundamental gains.

Speaker Change: You know, I think we still, we've made lots of gains in both of those areas and still see meaningful opportunities for further fundamental gains in both of those areas. And so that's certainly a place where we will be looking to continue to make further fundamental gains.

Mark Jenkins: In terms of some of the more specifics, you know, on the quarter, if you look year-over-year, for example, I do think, you know, benchmark rates moved around a bit, and our, you know, spread of origination rates to benchmark rates was a little wider this quarter than it was in some previous quarters. I think that's a driver as well.

Speaker Change: in terms of some of the more specifics, you know, on the quarter, if you look...

year-over-year, for example, I do think...

Speaker Change: Benchmark Rates, Benchmark Rates moved around a bit in our spread of origination rates, the Benchmark Rates was a little wider, this quarter than it was in some previous quarters, so they got the driver as well, but I think most importantly,

Ernie Garcia: I think most importantly, the most important driver is, you know, our teams are just working to make continued fundamental gains, both on the lending side of the platform as well as on the monetization side.

Mark Jenkins: I think most importantly, the most important driver is, you know, our teams are just working to make continued fundamental gains, both on the lending side of the platform as well as on the monetization side.

Speaker Change: The most important driver is, you know, our teams are just working to make continued fundamental gains both on the landing side of the platform as well as on the monetization side.

Daniela Haigian: Thanks.

Ernie Garcia: Thank you.

Thanks.

Operator 3: The next question comes from Marvin Fong with BTIG. Please go ahead.

Operator: The next question comes from Marvin Fong with BTIG. Please go ahead.

Thank you.

Marvin Phuong: The next question comes from Marvin Phuong with BTIG. Please go ahead.

Marvin Fong: All right. Great. Thanks for taking my questions. Congratulations on that strong quarter. You know, obviously you guys are producing like crazy here. You know, how should we think about your ability to continue to, you know, source, I think it's 80%, 85% of your retail units from consumers? You know, are you gonna be able to sustain that? Do you feel like your access to the wholesale marketplace can help you satisfy the demand there? A second question, you know, just to go to maybe an old school metric, but looks like your conversion rates are doing quite well. You know, on roughly the same traffic, your unit sales are up.

Marvin Phuong: All right, great. Thanks for taking my questions. Congratulations on that on that strong quarter.

Marvin Phuong: I would like to obviously, you guys are producing like crazy here, how should we think about your ability to continue to source, I think it's 85% of your retail units from consumers?

Marvin Phuong: Are you able to sustain that? Do you feel like your access to the wholesale marketplace can help you satisfy the demand there?

Marvin Fong: A second question, you know, just to go to maybe an old school metric, but looks like your conversion rates are doing quite well. You know, on roughly the same traffic, your unit sales are up.

Marvin Phuong: And a second question, you know, just to go to maybe an old school metric, but it looks like your conversion rates are doing quite well.

Marvin Phuong: You know, on roughly the same traffic, your unit sales are up, and now I'm just wondering if you could...

Marvin Fong: I was just wondering if you could, you know, double-click on that. Is it being driven by, you know, the improved delivery availability and things you're doing on that front that you've talked about in the past? Was there something about this quarter with tariffs and the urgency there that, on the consumer part, I know you mentioned there wasn't much there, but that potentially had some noticeable impact on the numbers? Just anything you could provide on conversion rates would be great. Thanks.

Marvin Phuong: Double-click on that. Is it being driven by? Bye.

Marvin Phuong: You know, the improved, the improved delivery availability and things you're doing on that front that you talked about in the past.

Marvin Phuong: Or was there something about this quarter with terrorists and the urgency there that on the consumer part? I know you mentioned there wasn't much there, but potentially had some noticeable impact on the numbers. If anything, you could provide on conversion rates would be great. Thanks.

Ernie Garcia: Great. Yeah. I think you asked the question specifically with respect to sourcing inventory, which I think is a good question. I think I can imagine similar questions being asked about you know, the price we pay for inventory and what does that mean for retail GPU, or, you know, what about our ability to sell loans at ever-increasing scales, and would that put pressure on GPU? I think that, you know, when we sit here and try to imagine being six times bigger, I think those are all reasonable questions to ask.

Marvin Phuong: Great, yeah, so let me, I think you asked the question specifically with respect to sourcing inventory, which I think is a good question and I think I can imagine similar questions being asked about the price we pay for inventory and what does that mean for retail GPU or what about our ability to sell loans that ever increasing scales and with that put pressure on GPU and I think that when we sit here and try to imagine being six times bigger, I think those are all reasonable questions to ask.

Ernie Garcia: I think one way to evaluate that is to look back to, you know, when we were 1/6 of our current size, which was around, you know, six years ago, give or take, six and a half years ago, maybe. We were approximately, you know, 1/6 of our current size. I think, you know, since then, generally speaking, our offering has been very similar. I think we have added some capabilities, so our economics have gotten better.

Marvin Phuong: I think one way to evaluate that is to look back to, you know, when we were one-sixth of our current size, which was around, you know, six years ago give or take, six and a half years ago maybe, we were approximately, you know, one-sixth of our current size.

Marvin Phuong: and I think since then, generally speaking our offering has been very similar. I think we have added some capability so our economics have gotten better. But for the most part, I think the simplest explanation would be the mental model that this industry has very stable economics across the sum of the transactions when you add up retail and finance and wholesale and everything that's available. I think that mental model has held up tremendously well and has been very predictive and is why we were able to put together a long-term firm.

Ernie Garcia: For the most part, I think the simplest explanation would be, you know, the kind of mental model that, you know, this industry has very stable economics across the sum of the transactions. When you add up, you know, retail and finance and wholesale and everything that's available, I think that mental model has held up tremendously well and has been very predictive and is why we were able to put together that long-term financial model and then hit it seven years later. I think when we look forward, we expect the same to be true. I mean, 40 million transactions is, you know, just consumers that own 270 million cars trading with each other every six or seven years. That's what 40 million transactions is.

Bashamodel, and then hit it seven years later. So I think when we look forward…

Ernie Garcia: I mean, 40 million transactions is, you know, just consumers that own 270 million cars trading with each other every six or seven years. That's what 40 million transactions is.

Marvin Phuong: We expect the same to be true. I mean, 40 million transactions is, you know, just consumers that own 270 million cars trading with each other every six or seven years. That's that's what 40 million transactions is and the machine that we're trying to build the some of buying cars from customers, plus selling cars to customers, plus having access through our, that's the platform and additional key bills we're building out with the death of clear is about playing a big role in that system and and our growth has generally come from, you know, [inaudible]

Ernie Garcia: The machine that we're trying to build, the sum of buying cars from customers, plus selling cars to customers, plus having access through our ADESA platform and additional capabilities we're building out with ADESA Clear, is about playing a big role in that system. Our growth has generally come from, you know, taking market share and displacing others in that system. The economics that the system offers have remained remarkably stable over a long period of time, and we expect them to continue to remain stable. I think, you know, we'll continue to grow in the same ways that we have. I think, you know, generally speaking, things have been very stable and that's our expectation going forward as well for, I think, deep fundamental reasons.

Ernie Garcia: I think, you know, we'll continue to grow in the same ways that we have. I think, you know, generally speaking, things have been very stable and that's our expectation going forward as well for, I think, deep fundamental reasons.

Mark Jenkins: That's great. Thanks so much, Ernie. I appreciate the insight.

Marvin Fong: That's great. Thanks so much, Ernie. I appreciate the insight.

John Colantuoni.

Ernie Garcia: Thank you.

Speaker Change: That's great. Thanks so much, Ernie. I appreciate the insight. Thank you.

Operator 3: The next question comes from Alex Potter with Piper Sandler. Please go ahead.

Operator: The next question comes from Alex Potter with Piper Sandler. Please go ahead.

Speaker Change: The next question comes from Alex Porter with Piper Sandler, please go ahead.

Alex Potter: Perfect. Thank you. Great quarter. Wow. It actually was a very good quarter. I don't wanna be facetious.

Perfect. Thank you. Great quarter. Wow.

Ernie Garcia: Appreciate it. We appreciate the wow too and the pause. A little drama in that.

Speaker Change: It actually was a very good corner. I don't want to be suspicious. Appreciate it. I would appreciate the wow, too, and in the past, little drama. So I'll just keep it to one question here. Obviously, it's exciting to see this new framework.

Alex Potter: Yeah. I'll just keep it to one question here. Obviously, it's exciting to see this new framework. Once you get into the millions of units, presumably you're gonna be reaching down market in terms of pricing. Obviously, if it's a 15 or a 20-year-old car that's selling for a couple thousand dollars on Craigslist or something, that counts as a transaction. Presumably the economics aren't as attractive or might be less sort of ancillary finance VSC type stuff and more pure retail GPU. If you can comment on how you expect your own economics to evolve over time as you reach down into those lower price points, that would be very interesting. Thanks a lot.

Speaker Change: Once you get into the millions of units, presumably you're going to be reaching down market in terms of pricing obviously if it's a 15 or a 20 year old car that's selling for a couple thousand dollars on Craigslist or something that counts as a transaction but presumably the economics.

Speaker Change: aren't as attractive or might be less sort of ancillary finance VSC type stuff and more pure retail GPU. So if you can comment on how you expect your own economics

Alex Potter: If you can comment on how you expect your own economics to evolve over time as you reach down into those lower price points, that would be very interesting. Thanks a lot.

Speaker Change: To evolve over time as you reach down into those world price points that would be very interesting. Thanks a lot.

Ernie Garcia: Yeah, sure. Well, what I would say is I think we don't necessarily expect to need to evolve all that much in terms of the distribution of cars that we're selling. I think that that's an opportunity for us, but it's not obvious that it's a need. I think if you look at used cars sold in the US, the significant majority are less than 10 years old, which is a subset of cars that we're selling today. I think it's something on the order of 85%, give or take. That number, you know, might not be exactly right, of cars sold are less than 10 years. Today, if you go to our website, you know, we're selling cars across that spectrum.

Ernie Garcia: Today, if you go to our website, you know, we're selling cars across that spectrum.

Less than 10 years. [inaudible]

Speaker Change: And so today, if you go to our website, we're selling cars across that spectrum. I think you can break those sales and other ways as well. Franchise dealers generally have about a third of the 40 million transactions called that kind of 14 independent dealers generally have around a third give or take and then private party has around a third and I think those numbers from different sources can vary a little bit, but you're talking about millions and millions of transactions in all of those buckets. [inaudible]

Ernie Garcia: I think you can break, you know, those sales in other ways as well. You know, franchise dealers generally have about 1/3 of the 40 million transactions, call that kind of 14. Independent dealers generally have around 1/3, give or take, and private party has around 1/3. I think, you know, those numbers from different sources can vary a little bit, but you're talking about millions and millions of transactions in all of those buckets. I think, you know, we're currently, you know, reasonably broad, but I think there is room for us to go both up market, where I think we have a decent amount of opportunity and I think a little bit down market.

Ernie Garcia: I think, you know, we're currently, you know, reasonably broad, but I think there is room for us to go both up market, where I think we have a decent amount of opportunity and I think a little bit down market.

Ernie Garcia: I think this market is just very big, and the opportunity is significant. I think as we head from here to 3 million, it's not obvious that our average sale needs to move all that much. We think that what we're selling today is likely to be pretty reflective of what we'll be selling at that point.

Alex Potter: Super helpful. Thanks a lot, guys.

of what we'll be selling at that point.

Ernie Garcia: Thank you.

Super helpful. Thanks a lot guys. Thank you.

Operator 3: The next question comes from Michael McGovern with Bank of America. Please go ahead.

Operator: The next question comes from Michael McGovern with Bank of America. Please go ahead.

Speaker Change: The next question comes from Michael McGovern with Think of America. Please go ahead.

Speaker 20: Hey, guys. Thanks for taking my question. I have two. First, do you expect any impact from the auto part tariffs on your reconditioning costs or on retail GPU? Second, I guess more broadly, do you still expect similar seasonality this year in retail GPU to what we've seen in the past where you might have Q4 and then Q1 be a little bit lower and then have some normal seasonal uplift in Q2? Thank you.

Michael McGovern: Hey, guys. Thanks for taking my question. I have two. First, do you expect any impact from the auto part tariffs on your reconditioning costs or on retail GPU? Second, I guess more broadly, do you still expect similar seasonality this year in retail GPU to what we've seen in the past where you might have Q4 and then Q1 be a little bit lower and then have some normal seasonal uplift in Q2? Thank you.

Hey guys, thanks for taking my questions. I have two.

Speaker Change: First, do you expect any impacts from the auto part tariffs on your reconditioning costs or on retail GPU?

Speaker Change: And then second, I guess more broadly, do you still expect similar seasonality this year in retail GPU 12 we've seen in the past where you might have Q4 and then Q1 be a little bit lower and then have some normal seasonal uplift in Q2. Thank you.

Mark Jenkins: Let me start with the second one of those questions. I think, you know, the seasonal pattern in retail GPU, typically, we think of, you know, Q4 and Q1 being the lower quarters of the year and Q2 and Q3 being the higher quarters of the year. I think that's a reasonable expectation for, you know, this year, based on what we're seeing as well. You know, that's sort of the normal seasonal pattern and no reason to, you know, think that this year would be any different on that front at this time. I think on your question about, you know, tariffs and parts impacting recon costs, you know, I think we'll see. I think, you know, we'll see exactly, you know, how these tariffs end up playing out.

Speaker Change: Let me start with the second, one of those questions, so. Let's go.

Speaker Change: I think, you know, the seasonal pattern in retail GPU, typically...

Speaker Change: We think of Q4 and Q1 being the lower quarters of the year.

Speaker Change: and Q2 and Q3 being the higher quarters of the year. And I think that's a reasonable expectation for this year based on what we're seeing as well. So that's sort of the normal seasonal pattern and no reason to think that this year would be any different on that front at this time.

Mark Jenkins: I think on your question about, you know, tariffs and parts impacting recon costs, you know, I think we'll see. I think, you know, we'll see exactly, you know, how these tariffs end up playing out.

Speaker Change: I think on your question about, you know, tariffs and parts, impacting, impacting recon costs.

Speaker Change: You know, I think we'll see, I think, you know, we'll see exactly, you know, how these tariffs end up playing out, but, you know, I think, you know, beyond, you know, taking a weight and see approach, you know, I think we're not, you know, making any particular prediction about that at this point. [inaudible]

Mark Jenkins: You know, I think, you know, beyond, you know, taking a wait-and-see approach, you know, I think we're not, you know, making any particular prediction about that at this point.

Ernie Garcia: The one thing that I would add there is I think the mental model that has been reasonably predictive is that we're in a competitive market with others that share similar costs to us. To the extent there's, you know, some input cost that changes, generally speaking, the way that that is played out is that that input cost is passed through. I think the simplest way to see that that is the case is just to look at, like, the retail GPUs of all of the various automotive retailers over a long period of time, where, you know, over the last five or six years, we've seen enormous swings in car prices. We've generally seen pretty stable retail GPUs.

Speaker Change: And the one thing that I would add there is, I think, the- The- The- The- The- The-

Speaker Change: The mental model that has been reasonably predictive is that we're in a competitive market with others that share similar cost to us.

Speaker Change: and so to the extent there's some input cost to changes generally speaking the way that has played out is that that input cost has passed through. I think this...

Ernie Garcia: I think the simplest way to see that that is the case is just to look at, like, the retail GPUs of all of the various automotive retailers over a long period of time, where, you know, over the last five or six years, we've seen enormous swings in car prices. We've generally seen pretty stable retail GPUs.

Speaker Change: The simplest way to see that that is the case is just to look at the retail GPUs of all of the various automotive retailers over a long period of time, where over the last five or six years we've seen enormous swings in car prices. We've generally seen pretty stable retail GPUs, and I think any other shared cost is

Ernie Garcia: I think any other shared cost is more likely than not to have that same kind of relationship in the future.

Speaker Change: More likely than not to have that same kind of relationship in the future.

Operator 2: Got it. Thank you.

Michael McGovern: Got it. Thank you.

Ernie Garcia: Thank you.

Thank you. Thank you.

Operator 3: The next question comes from John Colantuoni with Jefferies. Please go ahead.

Operator: The next question comes from John Colantuoni with Jefferies. Please go ahead.

Speaker Change: And that question comes from John Colantuoni, Jeffrey, please go ahead.

Speaker 21: Great. Wanted to ask a high-level question. If I look at the 3 million target, it implies 250 to 500,000 incremental units each year, which is, at the high end, about three times more incremental units than you've ever added historically. I'm curious how you plan to unlock that much incremental consumer demand for your offering and also how you can expand units that much without inefficiencies popping back up into the business. Thanks.

John Colantuoni: Great. Wanted to ask a high-level question. If I look at the 3 million target, it implies 250 to 500,000 incremental units each year, which is, at the high end, about three times more incremental units than you've ever added historically. I'm curious how you plan to unlock that much incremental consumer demand for your offering and also how you can expand units that much without inefficiencies popping back up into the business. Thanks.

Great. I want to ask a high level question.

Speaker Change: So, if I look at the 3 million target, it implies 250 to 500,000 incremental units each year, which is...

Speaker Change: at the high end about three times more incremental units than you ever added historically.

Speaker Change: I'm curious how you plan to unlock that much incremental consumer demand.

Speaker Change: for your offering and also how you can expand units that much without inefficiencies popping back up into the business. Thanks.

Ernie Garcia: Sure. Well, I think, you know, we gave kind of our long explanation of, you know, the way the operation's been working over the last year, which I think is one helpful way to think about what we've been able to unlock over the last year. I think, you know, I'm gonna give one more operational, and then I'll swing back to demand. I think, you know, another thing to keep in mind is, you know, operationally, I think that we've produced on a per facility basis at significantly higher rates, and we've grown significantly faster per facility than we did over the last year in the past.

Ernie Garcia: I think, you know, another thing to keep in mind is, you know, operationally, I think that we've produced on a per facility basis at significantly higher rates, and we've grown significantly faster per facility than we did over the last year in the past.

Speaker Change: and I think that there is plenty of data in our history to suggest that we can execute at that level.

Ernie Garcia: In 2018 through 2021, we had significantly fewer facilities, and we were ramping sales at a very fast rate. If you kinda do the math on a per facility basis, then, you know, we were growing pretty quickly. I think that there is, you know, plenty of data in our history to suggest that we can execute at that level. I think, you know, on the demand side, I think, you know, generally speaking, we've had an offering that's been very stable, and we've moved through, you know, several orders of magnitude as we've grown the business. I think generally speaking, our economics have been very stable across several orders of magnitude, and our consumer offering has been very stable across several orders of magnitude.

Speaker Change: and then I think, you know, on the demand side, I think you know... [inaudible]

Speaker Change: Generally speaking, we've had an offering that's been very stable and we've moved through several orders of magnitude as we've grown the business. And I think generally speaking our economics have been very stable across several orders of magnitude and our consumer offering has been very stable across several orders of magnitude. Thank you very much.

Ernie Garcia: I think generally speaking, our economics have been very stable across several orders of magnitude, and our consumer offering has been very stable across several orders of magnitude.

Ernie Garcia: We think that that's because we have an offering that customers love, that is very simple, and gives them a broad selection and great value. As we grow, there is positive feedback just directly in the system, even as it relates to just conversion of existing customers. As you have more cars, the odds that a customer finds a car they're looking for go up. As you have, you know, more cars at more inventory pools, you can deliver cars faster, and so there's some benefits there to conversion. I think historically, you know, demand has not been the governor on our growth. Generally speaking, it has been more of our ability to operationally handle it.

Speaker Change: and we think that that's because we have an offering the customer's love that is very simple and gives them a broad selection and great value and as we grow there is positive feedback just directly in the system even as it relates to just conversion of existing customers as you have more cars the the odd that a customer finds a car they're looking for go up as you have you know more cars at more inventory pools you can deliver cars faster and so there's some benefits there to conversion so I think historically you know demand has

Ernie Garcia: I think historically, you know, demand has not been the governor on our growth. Generally speaking, it has been more of our ability to operationally handle it.

has already told us about.

Ernie Garcia: I think looking forward at a market of this size, I think, you know, we'll work hard to make sure that we're delivering great experiences that in turn turn into demand. We'll work hard to make sure that we're operationally fulfilling that demand as best we can. We certainly think that the 3 million is a very achievable number over time.

Speaker Change: as best we can, but we certainly think that the 3 million is a very achievable number over time.

Speaker 21: Oh, great. Thank you.

John Colantuoni: Oh, great. Thank you.

Ernie Garcia: Thank you.

Okay, thank you. Thank you.

Operator 3: This concludes the question and answer session. I would like to turn the conference back over to Ernie Garcia for any closing remarks. Please go ahead.

Operator: This concludes the question and answer session. I would like to turn the conference back over to Ernie Garcia for any closing remarks. Please go ahead.

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

Ernie Garcia: Thank you. All right. Well, thanks, everyone, for joining the call. Really appreciate it. Carvana team, another awesome quarter. Thank you guys so much. I really do think these results have just been kind of a hit parade over the last several quarters. I hope you're incredibly proud of what you're building. I hope you take a moment to be proud, but you don't let it go to your head, and we keep fighting 'cause we got a lot of building left to do. We got new goals. I think we have every opportunity to go chase them down. Thank you all so much, and let's go do it. Thanks, everyone.

Ernie Garcia: Thank you. All right, well, thanks everyone for joining the call. Really appreciate it. Carvana team, another awesome quarter. Thank you guys so much. I really do think these results.

Ernie Garcia: have just been kind of a hit parade over the last several quarters and I hope you're incredibly proud of what you're building and I hope you take a moment to be proud but you don't let it go to your head and we keep fighting because we got a lot of building left to do we got new goals and and I think we have every opportunity to go chase them down so thank you all so much and let's go do it thanks everyone

Ernie Garcia: Thanks, everyone.

Operator 3: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Operator: The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Ernie Garcia: The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.

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