Q2 2025 Carvana Co Earnings Call

Conference Operator: Good afternoon and welcome to the CARVANA second quarter 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.

Good afternoon and welcome to the carvana second quarter 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 1 on your telephone keypad. If you wish to cancel your request, please press star then 2.

Please note this event is being recorded.

Meg Kehan: Thank you. Good afternoon, ladies and gentlemen, and thank you for joining us on CARVANA's second quarter 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 second quarter shareholder letter is also posted on the IR website. Additionally, we posted a set of supplemental financial tables for Q2, which can be found on the events and presentations page of our IR website. Joining me on the call today are Ernie Garcia, Chief Executive Officer, and Mark Jenkins, Chief Financial Officer. Before we start, I would like to remind you that the following discussion contains forward-looking statements within the meanings of 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.

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

Thank you. Good afternoon ladies and gentlemen and thank you for joining us on. Carvana's second quarter 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.com carvana.com.

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

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 sections of CARVANA's most recent form, 10-K and forms 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. 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. And with that said, I'd like to turn the call over to Ernie Garcia. Ernie?

I would like to remind you that the following discussion contains forward-looking statements within the meanings 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 factor sections of carvana's, most recent form 10 K, informs 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,

Ernie Garcia: Thanks, Meg, and thanks everyone for joining the call. The second quarter was another exciting quarter for CARVANA. There are many financial highlights that we hit in the letter and we will hit throughout the call, but I want to spend this time focusing on a subset and to discuss their implications for the future. We were once again the fastest growing and most profitable automotive retailer, again by significant margins. Based on our best available data, the market grew by less than 5% in units in the quarter compared to our growth rate of 41%. We believe this growth rate speaks clearly to the desirability of our offering and our team's ongoing execution. When looking at our adjusted EBITDA margin, we once again set a new record for automotive retail and improved by 200 basis points year over year.

Our commentary today 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 ibaa will be to adjust the IBA 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 our website. And with that said, I'd like to turn the call over to Ernie Garcia Ernie.

Thanks, Meg, and thanks everyone for joining the call. The second quarter was another exciting quarter for Carvana. There are many financial highlights that we hit in the letter, and we will hit throughout the call. But I want to spend this time focusing on a subset and discussing their implications for the future. We were once again the fastest growing and most profitable automotive retailer, again by significant margins. Based on our best available data, the market grew by less than 5% in units in the quarter compared to our growth rate of 41%. We believe this growth rate speaks clearly to the desirability of our offering and our team's ongoing execution.

Ernie Garcia: This makes our model twice as profitable as other publicly reporting automotive retailers on this basis. Excitingly, not only are we the most profitable by adjusted EBITDA margin, but for the first time, we are also the most profitable as measured by GAAP operating income and net income dollars, another significant milestone along our path to becoming the largest and most profitable automotive retailer. Hitting these milestones and rapidly moving through the various definitions of profitability carries significant meaning. It means that when we set a completely different course for automotive retail 12 years and $10 billion ago, our underlying belief was correct. Customers were ready for something new, and something tailor-made to serve their modern preferences generates a completely different customer response and completely different financial performance. That alone is extremely exciting and positions us very well for the future. But there's more to the story.

When looking at our adjusted Ava on margin, we once again set a new record for automotive retail and improved by 200 basis points a year over year.

This makes our model twice as profitable as other publicly reporting automotive retailers on this basis.

Excitingly.

Ernie Garcia: Part of what is enabling this rapid growth at a scale of $4.8 billion of quarterly revenue and $500 million of quarterly GAAP operating income is that the market we are changing is enormous. We are currently about 1.5% of the US used car market and approximately 1% of the total US car market. We are also excited by the long runway and incredible potential we have. In addition, we benefit from unique competitive dynamics. Despite being so early in our maturation, we are already the second largest retailer of used cars, with our eyes fixed firmly on becoming the largest soon. Our industry has structurally different and more favorable competitive dynamics than other large verticals, and we believe this bodes well for our ability to play a very outsized role in our industry in the long run. And lastly, what we are doing is hard.

Not only are we the most profitable by adjusted evida margin but for the first time we are also the most profitable as measured by gaap operating income and net income dollars. Another significant Milestone, along our path to becoming the largest and most profitable Automotive retailer hitting. These milestones and rapidly moving through. The various definitions of profitability carry significant. Meaning it means that when we set a completely different course for automotive retail 12 years and 10 billion dollars ago, our underlying belief was correct. Customers were ready for something new and something tailor made to serve their modern preferences. Generates a completely different. Customer response and completely different financial performance. That alone is extremely exciting and positions us very well for the future. But there's more to the story.

Part of what is enabling this rapid growth at a scale of $4.8 billion of quarterly revenue and $500 million of quarterly GAAP operating income is the market. The change we are currently experiencing is enormous. We are currently about 1.5% of the U.S. used car market and approximately 1% of the total U.S. car market. We are also excited by the long runway and incredible potential. We have.

In addition we benefit from unique competitive Dynamics, despite being so early in our maturation, we are already the second largest retailer of used cars with our eyes, fixed firmly on becoming the largest soon.

Our industry has structurally different and more favorable competitive Dynamics than other large verticals. And we believe this boats, well for our ability, to play a very outsized role in our industry in the long run.

Ernie Garcia: Hard is the ultimate competitive mode. Our business requires a complex mix of highly varied capabilities to deliver a simple and efficient customer experience. The difficulty of our business was a liability when we started, but today it's a valuable asset. Big swings have always had that property, and we have always taken big swings. To drive our success over the long term, there are three primary areas where we will be putting our focus. Number one, driving significant growth over a long period of time. Number two, constantly improving the machine through fundamental gains across all areas of the business. Over time, we plan to share the majority of these gains with our customers, the same way many great consumer brands have before us.

And lastly, what we are doing is hard, hard is the ultimate competitive mode our business requires a complex mix of, Highly varied capabilities to deliver a simple and efficient customer experience.

The difficulty of our business was a liability when we started. But today, it's a valuable asset. Big swings have always had that property, and we have always taken big swings.

To drive our success over the long term. There are 3 primary areas where we will be putting our Focus.

Number 1 driving significant growth over a long period of time. Number 2,

Ernie Garcia: Number three, building additional foundational capabilities that will make our platform even stronger and will help us drive remarkable outcomes for our customers, our partners, and ourselves over the long term. These efforts will continue to drive us toward our next goal of selling 3 million cars per year, 13.5% adjusted EBITDA margin in the next 5 to 10 years. The path from here is straightforward. To call in the metaphor, we have made it from zero to one. Now we're focused on a very big N. To get there, we'll remain ambitious. We'll remain focused on giving customers the simplest, most efficient, most fun, and most satisfying experience we can give them, and we'll continue to work hard with people that we're proud to work alongside. The march continues. Mark?

Constantly improving the machine through fundamental gains across all areas of the business. Over time, we plan to share the majority of these gains with our customers, the same way many great consumer brands have before us. Number 3: building additional foundational capabilities that will make our platform even stronger and will help us drive remarkable outcomes for our customers, our partners, and ourselves over the long term.

Mark Jenkins: Thank you, Ernie, and thank you all for joining us today. Our second quarter results once again showcased our team's ability to deliver fundamental improvements in operating efficiencies while also driving significant year-over-year growth. For the sixth sequential quarter, we earned positive net income, and we set new records for retail units sold, revenue, adjusted EBITDA, adjusted EBITDA margin, GAAP operating income, and GAAP operating margin. Unless otherwise noted, all comparisons will be on a year-over-year basis. Retail units sold totaled 143,280 in Q2, an increase of 41% and a new company record. Revenue was 4.84 billion, an increase of 42% and also a new company record. Consistent with past quarters, our growth in the second quarter was driven by our three key long-term drivers of growth: a continuously improving customer offering, increasing awareness, understanding, and trust, and increasing inventory selection and other benefits of scale.

These efforts will continue to drive us toward our next goal of selling 3 million cars per year, 13.5% adjusted. But on margin in the next 5 to 10 years, the path from here, is straight forward to call on the metaphor. We have we've made it from 0 to 1. Now we're focused on a very big end to get there. We'll remain ambitious, we will remain focused on giving customers, the simplest, most efficient, most fun, and most satisfying experience, we can give them and we'll continue to work hard with people that were proud to work. Alongside the March continues mark

Thank you, Ernie, and thank you all for joining us today. Our second quarter results once again showcased our team's ability to deliver fundamental improvements and operating efficiencies, while also driving significant year-over-year growth for the sixth sequential quarter. We earned positive net income and set new records for retail units sold, revenue, adjusted EBITDA, adjusted EBITDA margin, GAAP operating income, and GAAP operating margin.

Unless otherwise noted, all comparisons will be on a year-over-year basis.

Full total 143,280 in Q2 and increase of 41%, and a new company record.

Revenue was 4.84 billion and increase of 42% and also a new company record.

Mark Jenkins: We believe as we continue on our path of profitable growth, each driver will improve, creating more positive feedback in the model. Our strong profitability results in Q2 were again driven by sustained and fundamental improvements in GPU and operations expenses, as well as levering our overhead expenses. Non-GAAP retail GPU increased by $195. This change was primarily driven by reductions in reconditioning and inbound transport costs and an approximately $100 benefit from tariff-related impacts. Non-GAAP wholesale GPU decreased by $85. This change was primarily driven by faster growth in retail units sold than wholesale marketplace units, partially offset by lower wholesale vehicle depreciation rates. Non-GAAP other GPU increased by $126. This change was primarily driven by better cost of funds, as well as a higher attachment rate on vehicle service contracts, partially offset by a positive impact of approximately $100 in Q2 2024 from selling additional loans.

Consistent with past quarters are growth. In the second quarter was driven by our 3 key. 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 the model.

Our strong profitability results in Q2 were, again, driven by sustained and fundamental improvements in GPU and operations expenses, as well as leveraging our overhead expenses.

Non-gaap retail GPU increased by 195. This change was primarily driven by reductions in reconditioning and inbound transport costs and an approximately $100 benefit from tariff related impacts.

Non-GAAP wholesale GPU decreased by $85. This change was primarily driven by faster growth in retail units sold and wholesale marketplace units, partially offset by lower wholesale vehicle depreciation rates.

Non-gaap other GPU increased by 126 dollars. This change was primarily driven by better cost of funds as well as a higher attachment rate on vehicle service contracts.

Mark Jenkins: Q2 was another strong quarter for demonstrating the power of our model to lever SG&A expenses. Our 41% growth in retail units sold led to a $460 reduction in non-GAAP SG&A expense per retail unit sold. The CARVANA operations portion of SG&A expense decreased by $147 per retail unit sold, driven by our operational efficiency initiatives. The overhead portion of SG&A expense decreased by $328 per retail unit sold, driven by higher retail units sold. Advertising expense increased by $29 million, or $44 per retail unit sold. On a sequential basis, advertising increased by $12 million. We believe we are still in the early days of automotive e-commerce adoption, and there is a significant opportunity to further invest in building awareness, understanding, and trust of our customer offering. As such, we expect a larger sequential increase in advertising spend in Q3 versus Q2.

Partially offset by a positive impact of approximately $100 in Q2 2024 from selling additional loans.

Q2 was another strong quarter for demonstrating the power of our model to lever sgna expenses, our 41% growth in retail units, sold led to a 460 dollar reduction in non-gaap sgna expense for retail units, sold

The Carvana operations portion of SG&A expense decreased by $147 per retail unit sold, driven by our operational efficiency initiatives.

the overhead portion of sgna expense decreased by 328 per retail unit sold driven by higher retail units, sold

Advertising expense increased by 29 million or 44 dollars per retail unit sold.

on a sequential basis, advertising increased by 12 million,

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. We continue to pair industry-leading growth with industry-leading profitability, not only by adjusted EBITDA, but also for the first time by GAAP operating income and net income. Net income was $308 million, an increase of $260 million. Net income margin increased 5.0 year over year to an industry-leading 6.4%. GAAP operating income was $511 million, an increase of $252 million, and a new company record. GAAP operating margin was 10.6%, a 3 percentage point increase, and a new company record. Adjusted EBITDA was $601 million in Q2, an increase of $246 million, and a new company record.

We believe we are still in the early days of Automotive e-commerce adoption. And there is a significant opportunity to further invest in building awareness, understanding and Trust of our customer offering as such. We expect a larger sequential increase in advertising, spend in Q3 versus Q2.

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

We continue to pair industry-leading, growth with industry-leading profitability, not only by adjusted Eva, but also for the first time by gaap operating income and net income.

Net income was 308 million and increase of 260 million.

Net income, margin increased. 5 Points, a year every year to an industry-leading 6.4%.

Gap's operating income was $511 million, reflecting an increase of $252 million and setting a new company record.

Gap. Operating margin was 10.6% a 3 percentage Point increase and a new company record.

Mark Jenkins: Adjusted EBITDA margin was 12.4% in Q1, a 2 percentage point increase, and a new company record. As previously discussed, our adjusted EBITDA is very high quality compared to many rapidly growing companies due to our relatively low non-cash expenses, which will continue to lever with scale. We converted approximately 85% of adjusted EBITDA into GAAP operating income in Q2. This compares to adjusted EBITDA to GAAP operating income conversion of 73% in Q2 2024. As previously noted, we currently carry many expenses that support retail unit sales capacity of over 1 million units and expect our GAAP operating income to grow faster than adjusted EBITDA over time. Our results in Q1 and Q2 position us well for a strong Q3 and Q4.

Adjusted EBA was $601 million in Q2, an increase of $246 million and a new company record. Adjusted EBIT margin was 12.4% in Q1, a 2 percentage point increase and a new company record.

As previously discussed, our adjusted EBITDA is of very high quality compared to many rapidly growing companies, due to our relatively low non-cash expenses, which will continue to leverage with scale.

We converted approximately 85% of adjusted ibaa into Gap, operating income in Q2.

This compares to adjusted IBA to gaap. Operating income conversion of 73% in Q2 2024.

As previously noted, we currently carry many expenses that support retail unit sales capacity.

Of over 1 million units and expect our gaap operating income to grow faster than adjusted EBA over time.

Mark Jenkins: Looking forward, we expect the following as long as the environment remains stable: a sequential increase in retail units sold in Q3 compared to Q2, and adjusted EBITDA of 2.0 to 2.2 billion for the full year 2025, an increase from 1.38 billion last year. In conclusion, our results in Q2 were exceptional. Our team's focus is unwavering, and our opportunity remains clear. Thank you for your attention. We will now take questions.

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

Looking forward. We expect the following as long as the environment remains stable, a sequential increase in retail units, sold in Q3 compared to Q2 and adjusted ibaa of 2.0 to 2.2 billion for the full year, 2025 and increase from 1.38 billion last year.

In conclusion, our results in Q2 were exceptional. Our team's focus is unwavering and our opportunity for remains clear.

Conference 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 are using a speakerphone, please pick up your handset before pressing the keys. To withdraw your question, please press star, then two. Our first question today is from Daniella Hagan with Morgan Stanley. Please go ahead.

Thank you for your attention. We will now take questions.

We will now begin the question and answer session.

to ask a question, you may press star then 1 on your telephone keypad,

To withdraw your question. Please. Press star. Then 2

Our first question today is from Danielle, excuse me, Daniela. Hagen with Morgan Stanley, please go ahead.

Daniella Haigian: Hi, thanks for taking the question. So my first question comes from incremental adjusted EBITDA margin. It came in at over 17% this quarter. Is there any reason why that wouldn't be indicative of future incremental margins?

Hi, thanks for taking the question. So my first question comes from incremental adjusted EBITDA margin. It came in at over 17% this quarter. Is there any reason why that wouldn't be indicative of future incremental margins?

Ernie Garcia: Hey, Daniella. I think that's obviously a great number, and I think it reflects the general leverage in the business and the improvement that we've had. As discussed, we improved EBITDA margin year over year by about 200 basis points while growing at 41%. And I think, you know, when that's true, your incremental margins, I think, have to be in a pretty good spot, and that was clearly the case. I think our goal is absolutely focused on getting to 3 million units and 13.5% EBITDA margin, and I think we're excited by the potential of the business to keep getting fundamental gains, to continue to print great margins, and also to have significant value to share with our customers. So that's the plan, and we'll keep marching to it.

Daniella Haigian: Great. And then, Ernie, second one, a bit more of a longer-term question. I'm sure you saw Avis announce a partnership with Waymo this week as an autonomous mega fleet manager. While there's obvious synergies with Robotaxi and rentals and logistics, maintenance, and infrastructure, Adessa gives you hub and spoke network across the country. You've built out real reconditioning chops with digital integration. Do you see opportunity for CARVANA's TAM to expand beyond used cars?

Hey Daniela. Um, I think uh, that's obviously a great number and I think it reflects the the general leverage in the business and the Improvement that we've had, uh, you as discussed. We improved even on margin year-over-year by by about 200 basis points. Uh, while growing at 41% and I think you know, when that's true, your incremental margins, I think have to be uh in a pretty good spot and that was clearly the case. I think our goal is absolutely focused on getting to 3 million units and 13 and a half percent. But our margin and I think we're excited by the potential of the business to keep getting fundamental gains to uh, to continue to print great margins and also to have significant value to share with our customers. So that's the plan and we'll keep marching to it.

Great. And then, Ernie, second 1, a bit of more of a longer term question. I'm sure. You saw Avis announced a partnership with whmo this week as an autonomous Mega fleet manager. Well, there's obvious synergies with Robo taxi and rentals and Logistics maintenance and infrastructure Adesa gives you Hub and spoke Network across the country. You've built out real. Reconditioning chops with digital integration, you see opportunity,

For Carvana to expand beyond used cars.

Ernie Garcia: I think part of the sickness that I think we probably have is we always see opportunity everywhere, but I think part of what we try to do is stay focused and figure out where's the best place to put our energy. So I think we're extremely excited by what we see in front of us that just requires blocking and tackling and continually making the customer experience better and getting more efficient all the time. So that is absolutely our primary focus. We'll always be paying attention to everything else, but that's what we're focused on.

um, I I think

part of part of the, the sickness that that I think we probably have is, we always see opportunity everywhere but I think part of what we we try to do is stay focused and figure out, where is the best place to put our energy. So I I think we're extremely excited by what we see in front of us that just requires blocking and tackling and continually making the customer experience better uh and getting more efficient all the time. So that is absolutely our primary focus. Uh, we'll always be paying attention to everything else but that's what we're focused on.

Daniella Haigian: Thank you.

Ernie Garcia: Thank you.

Thank you.

Conference Operator: The next question is from Jeff Lick with Stevens. Please go ahead.

Thank you.

Jeff Lick: Absolutely, magnificent quarter. You guys are keeping track of that. So in our work, it appears this quarter you did some experimenting or did some toggling with APR, raising price, and I was wondering if you could talk about that and if that's indeed true and what you're seeing there.

The next question is from Jeff Lick with Stevens. Please, go ahead.

Uh, absolutely magnificent quarter if you guys are keeping track of that. Um,

You did some experimenting or just some toggling with, um, you know, APR, raising price. Um, and I was wondering if you could talk about that. And if that's indeed true, what you're seeing there?

Ernie Garcia: Sure. I mean, I would say I think the way that we try to focus on this is, you know, we've built a vertically integrated machine that I think has a lot of levers, and then I think we try to put a lot of effort into making sure that we're building intelligence into those levers that make intelligent decisions in any given environment and try to make sure that we're always moving forward, and then we try to always make those levers a little bit smarter and make the business a little bit better. I think you can see some movement sometimes in the various GPU line items, but I think the goal is to always make progress, and I think that's where we would kind of push your attention.

Sure. I mean, I would say I think the way that we try to, to focus on this is, is, you know, we've built a vertically integrated machine that I think has a lot of a lot of levers. And then, I think, we try to put a lot of effort into making sure that we're building intelligence into those levers, that, that make Intelligent Decisions in any given environment and try to, uh, try to make sure that we're always moving forward and then we try to always make those levers. A a little bit smarter and make the business a little bit better. I think, uh, you you can see some movement sometimes in.

Ernie Garcia: I think quarter to quarter you can see things jump around, but the overall result is what we're focused on.

Jeff Lick: And Mark, a question for you. You know, our work kind of shows you've got about a 300 to 400 basis point higher APR, but you're only, you know, maybe costing you 60 bits of, you know, 61-day plus delinquency. I'm just curious, you know, why, I guess, how are you doing that and, you know, what are the metrics that help you deliver that?

In the various, uh, GPU line items. But I think the goal is always make progress. And I think that's, uh, that's where we would kind of push your attention. I think quarter and quarter, you can see things jump around, but the, the overall results is is what we're focused on.

then Market question for you, you know, you know, our work kind of shows you've got about a

You know, 300 to 400 basis points higher APR. But you're only, it's, you know, maybe costing you 60 bits of, you know, 61-day plus delinquency. I'm just curious, you know what, I guess, how are you doing that? And, you know, what are the metrics that help you deliver that?

Unknown Executive: Well, I think what you're asking is, you know, about the strength of our vertically integrated finance platform, and I do think the, you know, I think one of the things that we've been excited about for a long time is by vertically integrating finance and other parts of the transaction, it affords a lot of advantages about, you know, versus a non-vertically integrated model. We've talked about some of those advantages over time. You know, we intimately know the car that we're selling to the customer. We, you know, done a 150-point inspection on that, ensured its quality, also added a 100-day limited warranty to make sure it's a great car that every customer is getting. We intimately know the customer because we're interacting with them directly rather through, you know, an intermediary, like is often the case in indirect finance.

well, I I

think what you're

About the strength of our vertically, integrated Finance platform. And I do think the, you know, I think 1 of the things that we've been excited about for a long time is,

Unknown Executive: And so intimately knowing the customer is a powerful component of our vertically integrated business model as it relates to financing. You know, I think obviously, you know, we take great, we've invested a great deal in making the best possible use of our data. So, you know, we're rapidly growing. You know, the number of transactions that we've executed and, you know, all of the data in our finance platform is growing. That leads to better models over time, and that's a place where we've, you know, really placed a lot of focus. And so, you know, I think there's some real, you know, meaningful advantages of being vertically integrated, being very large scale, and those can lead to very strong outcomes in something like the finance platform.

By vertically integrating finance and other parts of the transaction. It affords, a lot of advantages about you know versus a non-vertical integrated model, we've talked about some of those advantages over time. You know we intimately know the car um that we're selling to the customer we you know, done 150 point inspection on that um ensured its quality also added a 100 day limited warranty to make sure it's a great car that every customer is getting, we intimately know the customer because we're interacting with them directly rather through uh, you know, an intermediary like is often the case in indirect finance and so intimately, knowing the customer is a powerful component of our vertically integrated business model. Uh, as it relates to the financing, you know, I think

You know, meaningful advantages of being vertically, integrated being very large scale uh and those can lead to very strong outcomes and something like the finance platform.

Jeff Lick: Great. Well, the results don't lie. Congratulations and best of luck in the next quarter.

Unknown Executive: Thanks, Jeff.

Oh, great. Well, the results don't lie. Congratulations, and best of luck in the next quarter.

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

Thanks Jeff.

Jeff Lick: Hey, guys. Great quarter. Congratulations. Very nice.

The next question is from Brian Nagel with Oppenheimer. Please go ahead.

Ernie Garcia: Thank you.

Jeff Lick: The question I have, we talk about this a lot, but, you know, as we're looking at the volumes here continue to, you know, strengthen, if you will. I mean, how should we think about, you know, or in particular the balance of, you know, this year, the new reconditioning capacity coming online, you know, whether, you know, what you're doing at your, you know, legacy IRCs or with these converted Adessa centers. So, I mean, how should we think about the pace or the cadence of that? And then any, you know, commentary as we look at just recent trends that, you know, as the capacities come on, you know, to what extent that's helping to satisfy demand, bolster sales?

Hey guys. Great quarter. Congratulations very nice. Thank you.

Is we're looking at, you know, the, the, the volume here continue to, you know, strengthen, if you will. I mean, how should we think about, you know, or in particular the balance of you know, this year, the new reconditioning capacity coming online? You know, whether uh, you know what you're doing at your your legacy irc's, or with these converted Adesa centers. So how I mean, how what, how should we think about the pace of the Cadence of that and then any, you know, commentary is we look at this recent trends that, you know, as a capacity, come on, you know, to what extent that's helping to satisfy. Demand, both bolster sales.

Ernie Garcia: Sure. Well, I think at a high level, I think the simple answer is we're on plan. We feel very good about it. We grew sales by 41% year over year. We grew inventory available for our customers by 50%. So we're obviously growing production a little faster than we're growing sales. You know, we now have 12 sites integrated with Adessa. We've been doing that at a pretty quick clip. We've been averaging, you know, on the order of three per quarter, give or take. I think we have a number of sites left to continue to integrate. I think the team is executing exceptionally well. You continue to see improvements across many parts of what they do that is leading to the gains that we're seeing in retail GPU. So, and I think excitingly, I think there's a lot more for them to do.

Sure, uh, well, I I think at a high level. I think the the simple answer is, is we're on plan. We feel very good about it. We grew sales, by 41% year-over-year. We grew, um, inventory available for our customers by 50%. So we're obviously growing production a little faster than we're growing sales. Um you know we we now have 12 um sites integrated with Adesa. Um, we've been doing that at a pretty quick clip. We've been averaging, you know, on the order of 3 per quarter, give or take um I I think we have a number of sites left to continue to answer

Ernie Garcia: I think, you know, we have this planned cadence where we aim for Q2 and we set a new set of projects, a new set of goals, and we aim for the next Q2. And I think looking forward, you know, in our reconditioning group and in all the groups across the company, I think we continue to have ambitious but achievable and exciting goals that are clearly articulated with clear underlying projects behind them. So I think we feel like we're on path. We've got our eyes focused on the field at the 3 million goal, and we're just going to keep moving as fast as we can toward that milestone.

Integrate. Uh I think the team is executing exceptionally. Well, you can continue to see improvements uh across uh, many parts of of of what they do. That is leading to the gains that we're seeing in, in retail GPU. So, um, and I think excitingly, I think there's a lot more for them to do. I think, you know, we have this planning Cadence where we, uh, we aim for Q2 and we said that you set a project and you set a goals and we aim for the next Q2. And I think looking forward, um, you know, in our in, our reconditioning, uh, group. And in all the groups, cross the company, I I think we continue to have ambitious but achievable and exciting goals, uh, that are clearly articulated with clear underlying projects behind them. So I, I think we feel like we're on path. Um, we've got our eyes focused on the field at the 3 million goal, um, and we're just going to keep moving as fast as we can toward that milestone.

Jeff Lick: That's helpful, and I appreciate it. And then one quick follow-up, and I don't know if you addressed this in your comments or I maybe I read it in the letter too, but was there any, did you notice any type of demand choppiness? You know, this is consumers maybe reacting one way or another to the tariff environment?

But that's helpful and we appreciate it. And then 1, quick follow-up and I I don't know if you address this in your comments or I maybe I read it in the letter too but was there any did you notice any type of, you know, demand um topics, you know, just as consumers may be reactive 1 way or another to to the Tariff environment.

Ernie Garcia: I would say it was at a high level, I think what matters the most is probably pretty consistent. I think we put a chart in our shareholder letter that shows that, you know, I think for the other public automotive retailers, the growth year over year was about 1% on average. I think last quarter that same number was about flat. So I think that suggests that kind of the, you know, for the full quarter, the seasonal trends were pretty consistent. I think there was a little bit of kind of pull forward and then maybe, you know, a little slowness immediately thereafter, but I think for the most part it was relatively flat. We called out a $100 retail GPU impact due to some pricing changes we made as we were riding through that period.

um, I I would

The most is probably pretty consistent. I I think we put a chart, um, in our shareholder letter. That that shows that, you know, I I think for the other public Automotive retailers, the growth year-over-year was about 1% on average, I think last quarter that same number was about flat. Um, so I think that suggests that kind of the, you know, for the full quarter, the seasonal Trends were were pretty consistent. Um, I think there was a little bit,

There was kind of a pull forward and then maybe, you know, a little slowness immediately thereafter. But I think for the most part, it was relatively flat. We called out.

Ernie Garcia: I think our goal there was to make sure the machine was just operating in as balanced a way as we possibly could keep it. I think, you know, there will be, you know, other dynamics and catalysts and little moves, you know, quarter to quarter in the future as well. And I think the most important thing that we can do is just try to keep the machine, you know, moving forward effectively and build tools that enable us to absorb whatever bumps and make whatever changes we need to whenever we see them. So I think overall nothing super material, a couple little things week to week, but nothing that mattered at the level of the quarter.

Jeff Lick: Got it. Congrats again. Thanks.

$100 retail, GPU impact. Um, due to some pricing changes we made as we were riding through that period. I think our goal there was to make sure the machine was just operating in his balanced way as we, possibly could keep it. Um, I think, you know, there will be, um, you know, other Dynamics and catalysts and little moves, uh, you know, quarter to quarter in the future as well. And I think the most important thing that we can do is just try to keep the machine, you know, moving forward, effectively, and build tools that enable us to uh to to absorb whatever bumps and make whatever changes we need to and we see them. So I think overall nothing, nothing super material, a couple little things week to week but nothing that mattered at the level of the quarter.

Ernie Garcia: Thank you.

Conference Operator: The next question is from Sharon Zakfia with William Blair. Please go ahead.

Got it. Congratulations. Thanks. Thank you.

Daniella Haigian: Hi, thanks for taking the question. I wanted to dig in a little bit on the marketing side. So it completely makes sense that you'd be reinvesting in more marketing, but I'm curious where your brand awareness now is nationally and if you have a figure for where that might be in Phoenix. And then, I'm sorry, not Phoenix, Atlanta. Phoenix too, if you want to give it to me. And then as we think about marketing, is this more brand building or is there a specific message that you're trying to get across in the new campaign?

The next question is from Sharon Zakia with William Blair. Please go ahead.

Hi, thanks for taking the question. I wanted to dig in a little bit on on the marketing side so it completely makes sense to you be reinvesting in more marketing but I'm curious where your brand awareness now is nationally. And if you have a figure for where that might be in Phoenix,

And then I'm sorry not to be anxious Atlanta.

Um, Phoenix too, if you want to give it to me. Um, and then, as we think about marketing, is this more brand building, or is there a specific message that you're trying to get across in the new campaign?

Ernie Garcia: Sure. Well, so I think let's start with, you know, what's the goal of all this? I think the goal of all this is to make sure we're laying foundations for outsized growth for a long time. That's the general goal. And I think the fundamentals are we're now at a spot where the gap between our total GPU and our operating expenses is very, very large, and I think that suggests that there are lots of opportunities to lay those foundations. I think one of the things you can compare that gap to is just our advertising expense, and I think there's clearly a big gap between our advertising expense and the difference between those two numbers. So that suggests opportunity. We run various surveys, you know, every quarter that we update to try to get a sense of where, you know, all three of the considerations.

Sure. Well, so I, I think let's start with, you know, what's the goal of all this? I think the goal of all this is to make sure we're laying foundations for outside growth, for a long time, that, that that's the general goal. And I think the fundamentals are, we're now at a spot where the gap between our total GPU. And our operating expenses is very, very large. And I think that suggests that there are lots of opportunities to, to lay those foundations. I think, 1 of the things, you can compare that that Gap to is just our advertising expense. And I think, uh, there's clearly a big gap between our advertising expense and, and, and the difference between those 2 numbers,

Ernie Garcia: So awareness, understanding, and trust is kind of the general frame that we use, but we try to understand where all that is. And I think what we see is we see constant progress, but we still see a lot of opportunity in all of those. I think there's significant opportunity and awareness. I think that's true across the country. I think it's true in many different parts of what we do. I think understanding there's even more opportunity. And then I think trust is mostly about making sure that we give customers a great experience one at a time. But I think we're leaning into marketing a little bit to test some things and to see how that works.

Ernie Garcia: I think there are many different marketing channels that exist on a spectrum from more direct marketing where the response is pretty immediate to more brand marketing where the response is long term. I think we're testing both. I think that, you know, marketing in general is something that's very difficult to precisely attribute to sales. I think it's a little easier on direct marketing and even harder on brand marketing. But as we discussed in the letter, you know, we're putting out another brand campaign. We're testing a number of different channels. So I think we see that as one of the many areas of opportunity where we can continue to lay foundations for a lot of growth, and we'll see where that takes us, but we're excited.

Various surveys. Uh, you know, every quarter um that that we update to try to get a sense of where, you know, all 3 of the consideration. So awareness understanding and trust is kind of the general frame that we use, but we try to understand, uh, where all that is. And I think what we see is, we see constant progress, but we still see a lot of opportunity in all of those. I think there's significant opportunity and awareness. I think that's true across the country. I think it's true. Uh, in many different parts of what we do. I think understanding there's even more opportunity. Uh, and then I think trust is mostly about making sure that we give customers a great experience 1 at a time, but uh, but I think we're leaning into marketing a little bit to, to test some things and to see how that works, I think there are many different marketing channels that exist on a spectrum from more direct marketing where the response is, you know, pretty immediate to more brand marketing where the response is long term. I I think we're testing both, I think that, uh, you know, Marketing in general is something that's very difficult to precisely attribute to sales. Uh, I think it's a little easier um, on Direct marketing and and even harder on brand marketing.

Daniella Haigian: But Ernie, do you have any metrics for what ADA brand awareness would be for CARVANA versus maybe some of your peers?

Um, but as we discussed in the letter, you know, we're putting out another brand campaign. We're testing a number of different channels. So, I think we see that as one of the many areas of opportunity where we can continue to lay foundations for a lot of growth. We'll see where that takes us, but we're excited.

Ernie Garcia: Of course we do, but we very purposely didn't provide them, and then you followed up and made it awkward.

Daniella Haigian: Sorry. I'll pass.

But Ernie, do you have any metrics for what aided brand awareness would be for carvana versus maybe some of your peers we do. But we very purposely didn't provide them and then you followed up and made it awkward.

Ernie Garcia: Thank you, Sharon. Appreciate it.

Sorry.

I'll pass.

Conference Operator: The next question is from Brad Erikson with RBC. Please go ahead.

Appreciate it.

The next question is from, Brad Erickson with RBC, please go ahead.

Brad Erickson: Thank you. I had two. First, just for the capacity expansion going forward, Mark, this might be for you. Can you give us a sense of just kind of what that might look like in terms of facility integrations and line expansions and so forth and just how to think about investment necessary to do that? And then I have a follow-up.

Unknown Executive: Sure. Yeah, there's lots of things to hit in that question. So I think just to talk a little bit about our strategy. So, you know, core to our production expansion strategy right now is Adessa integrations. I think we've had great success with that over the last year or so, you know, marching up integrated Adessa locations steadily over time. I think that is something that we, you know, intend to continue, you know, through the back half of the year, but also, you know, I would expect that we continue to march out integrations in 2026. Those are obviously, you know, CapEx light integrating these Adessa locations. We're really utilizing existing structures at those Adessa facilities and just layering in CARVANA Carly technology to run the centers, layering in CARVANA retail reconditioning processes. And so those are, that's sort of the first phase.

Thank you. Uh I had 2 uh first just for the capacity expansion going forward. Uh mark this might be for you can you give us a sense of just kind of what that might look like in terms of facility Integrations and line expansions and so forth and just how to think about investment necessary to do that and then I have a follow-up.

Sure, yeah, there's there's lots of things to hit in that question. So I think the just to talk a little bit about our strategy, so, you know, core to our production expansion strategy, right now is Adesa Integrations. I think we've had great success with that over the last year or so, um, you know, marching up, uh, integrated a Deca locations, uh, steadily over time, I think that is something that we, you know, intend to continue, um, you know, through the back half of the year. But also, you know, I would, I would expect that we continue to March out Integrations, um, in 2026. Those are obviously, you know, capex light, um integrating these Adesa locations, we're really utilizing existing structures um at those Adesa facilities and just layering in carvana Carly uh technology to run the centers uh layer in.

Unknown Executive: The next thing that, you know, the next phase that we'll enter into as we proceed with our growth plan is to actually start building out some of those Adessa locations and really, you know, actually doing more fulsome build-outs of the locations to increase the capacity at Adessas. There, I think the, you know, the way to think about that is, you know, back at the time of the acquisition, you know, we basically gave a number. We thought it would cost roughly a billion dollars to build out all the Adessa locations. That would obviously be something that would take place over a number of years. There's been some inflation since then, so it might be a little bit higher than that now, but I think that still gives, you know, a pretty reasonable sense.

Every retail reconditioning processes. Um, so those are um, that's sort of the first phase. Um, the next thing that, you know, the next phase that will enter into as we proceed with our growth plan is to actually start building out some of those, the decisive locations. Um and really, you know, actually uh doing more wholesome, buildout of the locations to increase the capacity, uh, at Adesa there. I think the, you know, the way to think about that is

Unknown Executive: And then, you know, that would be something that would play out over time.

You know, back at the time of the acquisition, um, you know, we we we basically gave a number, we thought it it would cost roughly a billion dollars to build out all the a desk locations that would obviously be something that would take place over a number of years. There's been some inflation since then, so it might be a little bit higher than that now. But I think that still gives um, you know, a pretty reasonable sense. Um, and then you know that would be something that would that would play out over time.

Brad Erickson: Got it. That's helpful. And then how should we think about kind of your ability to source vehicles from consumers as you have more of these IRCs up and running? Like, does that ramp up kind of in a linear fashion or anything else we should be thinking about kind of in the equation for supply acquisition as you grow your capacity?

Got it. That's helpful. And then,

Uh, how should we think about kind of your ability to Source vehicles, from consumers, that you have more of these irc's up and running? Like, does that ramp up kind of in a linear fashion or anything else? We should be thinking about kind of in the equation for Supply acquisition as you grow Your Capacity? Thanks.

Ernie Garcia: Sure. I'll take a swing at that one. I mean, I think it just makes things better and it makes the machine more efficient. I think, you know, we talked about in the letter our inbound transport's down about 20% in terms of miles traveled. As we open more facilities, that should continue to go down. You know, as we convert all these Adessa facilities, we have room for more than twice as many inventory pools as we have today. And when you think about kind of, you know, what that means for, you know, the reduction in distance of miles that cars have to travel, that's meaningful. And that's kind of fundamental value that has to show up somewhere either in bottom line or in bids where we're sharing it with customers.

Ernie Garcia: So I think that, you know, that's one of the areas where I think that there's fundamental gains that are because we make the system smarter or do things differently and more efficiently. There's also fundamental gains that just come directly from scaling the system and getting the benefits of positive feedback that exists in the model. And I think that there are many of those in this area. I also think that, you know, we just spoke about, you know, advertising and brand generally a moment ago. I think a number that is pretty interesting is, you know, in the last two years, we've grown, you know, retail sales by approximately 80%, give or take. And if you look at, say, you know, wholesale to retail ratio, it's been approximately flat that entire time.

Sure, I'll take someone with that 1. I mean, I I think it just makes things better and it makes the machine more efficient. I, I think, you know, we talked about, uh, in the letter or inbound transports down about, uh, 20% in terms of Miles traveled. Um, as we open more facilities that should continue to go down. Uh, you know, as we convert all these desk facilities, we have we have room for more than twice as many inventory pools as we have today. Um, and when you think about kind of, you know what that means for, um, you know, the the reduction in distance of miles of cars have to travel that's meaningful and and that's kind of fundamental value that that has to show up somewhere either in bottom line or in bids where we're sharing it with customers. So I think that uh you know, that's 1 of the areas where I think that there's um, there's there's fundamental gains that are because we make the systems smarter um, or or or do things differently and more efficiently. There's there's also fundamental gains that just come directly from scaling the system and getting the benefits of positive feedback that exists in the model. And I think that there are many of those in this area.

Izing in brand. Generally, a moment ago.

Ernie Garcia: And I think that speaks to the fact that these two businesses generally grow together, but they also have completely separable product pipelines, right? There's different things that the different teams are working on to make those different experiences better. And I think those teams are both doing incredible things, but so far we've remained very well in balance, and I think we're benefiting from continuing to scale and continuing to open up additional sites. And as I said, I think that creates opportunity to share some of those gains with our customers over time, which we think can power growth even further.

I think a number that that is is pretty. Interesting is in the last 2 years, we've grown uh you know, retail sales by Approximately 80%, give or take. Um, and if you look at say, you know, wholesale to retail ratio, it's been approximately flat that entire time and I think that speaks the fact that these 2 businesses generally grow together. Um, but they also have completely separable product pipelines, right? There's different things. The different teams are working on to make that, uh, you know, those, those different experiences, uh, better. And I think those teams are both doing incredible things. But so far, we we've remained very well in balance and I think we're benefiting from continuing to scale and continue to open up additional sites. Uh, and as I said, I think that that creates opportunity to share some of those games with our customers over time, which uh, which we think can power growth even further.

Brad Erickson: Super helpful. Thanks.

Ernie Garcia: Thank you.

Super helpful, thanks.

Conference Operator: The next question is from Andrew Boone with Citizens. Please go ahead.

Thank you.

Jeff Lick: Thanks so much for taking the question. I wanted to ask about retail GPUs in the quarter. Have a really strong quarter. Mark, I know you called out the one-time $100 benefit, but is there anything else that you can help us understand there? And then, Ernie, in the letter, you guys mentioned word of mouth. Understood you guys aren't going to disclose anything on awareness, but bigger picture, as you guys are just a bigger part of the car economy, can you talk about the benefits of word of mouth and just having more people talk about the actual experience of CARVANA showing up in a driveway? Thanks so much.

The next question is from Andrew Bun with Citizens. Please go ahead.

Thanks so much for taking the question. Um, I wanted to ask about retail GPUs in the quarter; it had a really strong quarter, Mark. I know you called out the one-time $100 benefit, but is there anything else you can help us understand there? And then, Ernie, in the letter you guys mentioned word of mouth understood. You guys are going to disclose anything on awareness, but bigger picture, as you guys are just a bigger part of the car economy, can you talk about the benefits of word of mouth and just having more people talk about the actual experience of Carvana showing up in a driveway? Thanks so much.

Ernie Garcia: Sure. Yeah, let me start with the first question. So retail GPU is up about $200 year over year on a non-GAAP basis. That really, you know, breaks down into two primary categories. One was just improvements in reconditioning and inbound transport costs. I think that's an area where, you know, we've had focus for a long period of time and saw nice year-over-year gains there. I think some of those year-over-year gains were driven by continuing to integrate Adessa locations, which leads to lower inbound transport costs, you know, which is one of the, you know, those retail costs of sales. And so I think, you know, just fundamental gains in reconditioning costs and inbound transport costs was about half of that year-over-year gain.

Ernie Garcia: The other half was an impact where we saw in April where our April retail GPU was higher than the GPU we saw in the months and the remaining months of the quarter. We think overall that impacted the quarter by about $100 for the full quarter as a whole. That higher April retail GPU, we really linked to the announcements of auto tariffs in late March that, you know, drove stronger demand and higher margins. And then trying to hit on word of mouth, I mean, I think that's ultimately, in many ways, I think the name of the entire game. And we think, you know, building a better business is the foundation of word of mouth.

Sure. Yeah, let me start with the first question. So, retail GPU is up about $100 a year over year. Um, on a non-gaap basis that really, you know, breaks down into 2 primary categories. 1 was just improvements in uh reconditioning and inbound transport costs. I think that's an area where, you know, we've had Focus for a long period of time and saw a nice year-over-year gains there. I think some of those year-over-year gains, um, were driven by continuing to integrate a decent locations which leads to lower inbound transport costs. Um, you know, which is 1 of the uh, you know, those retail cost of sales. Uh, and so I think, you know, just fundamental gains and reconditioning costs and and inbound transport costs was um, about half of that year-over-year gain, the other half was, uh, an impact where we saw in April, where our April retail GPU was higher than. Um, the GPU we saw in the months and the remaining months of the quarter. We think, overall that impact of the quarter by about a hundred dollars um, for the full quarter as a whole

That higher April retail CPU was really linked to the announcements of auto tariffs in late March that drove stronger demand and higher margins.

Ernie Garcia: I think there's a lot of stuff that we are doing and a lot of goals that we have, but I think, you know, one of the frames that we've used in the past, we want to give customers the best selection, you know, the best experience, and, you know, a fast, fun, fair experience and a low price. And I think that we've got the ability to, you know, continually build out a machine that just provides all of those things. I think as we continue to grow, it's very reasonable that many customers across the country will have access to more cars on CARVANA than they'll have at the sum of all dealers in their, you know, city or state.

Ernie Garcia: And if we do a good job making it easy for them to find that car, they can find it more easily and get a simpler experience and a better price. You know, we talked, you know, in the letter about a number of ways we're trying to make the experience simpler. You know, faster delivery times, fewer customers calling in when they call in, having, you know, quicker calls. That's all driven by the customer being in control and us building tools that make it so the customer doesn't need to call in, or if it's the type of customer that doesn't want to call in, they don't need to, but if they want to, we're there for them.

And then, try and hit on Word of Mouth. I mean, I, I think that's ultimately in many ways I think the name of the entire game and, and we think, you know, building a better business, is the foundation of Word of Mouth. I, I think there's a lot of stuff that, that we are doing, and a lot of goals that we have. But I think, you know, 1 of the frames that we've used in the past, we want to give customers the best selection, uh, you know, the best experience, and, you know, a Fast Fun Fair, uh, experience and, and a, and a low price. And I think that we've got the ability to, you know, continually build out a machine that that just provides all of those things. I think as we continue to grow its, it's very reasonable that many customers across the country will have access to more cars on carvana than they'll have at the sum of all dealers in their, you know, city or state. Um and if we do a good job making it easy for them to find that car. Uh they can find it more easily and get a, a simpler experience and a better price. Uh, you know, we talked to you know, in the letter about a number of ways we're trying to make the experience simpler. You know faster delivery times uh fewer customers calling in when they call in having you know quicker calls that's all driven by the customer being in control and us.

Ernie Garcia: And I think, you know, we gave an anecdote of a transaction we bought a car from a customer where in 38 minutes they went from getting a value on our site to getting money in their account. And I think, you know, you can imagine a version of that conversation that hopefully happens between millions of customers in the future that is, you know, they had every car they could possibly want, the prices were incredibly fair, and I got the car faster than I could have driven down to the dealership and gone through the transaction myself. And I think if that's the conversation that's happening, I think we don't understand why we're not at least, you know, in the conversation for every single customer that's thinking about buying a car anywhere in the country.

Building tools that make it to the customer, doesn't need to call in or if it the type of customer that doesn't want to call, and they don't need to, but if they want to, we're there for them. And I think, you know, we gave an anecdote of um, uh, you a transaction. We bought a car from a customer where in 38 minutes, they went from getting a value on our site to getting money in their account. And I think, you know, you can imagine a, a version of that conversation that hopefully happens between millions of customers in the future that is, you know, they had every car I could possibly want. The prices were incredibly fair and I got the car.

Ernie Garcia: And I think that's our goal, but the foundation of that is build a better system that's simple, that allows customers to tell each other simple stories that are very compelling by making it fundamentally better for them. And so I think there's a ton of work to do. I think we've done a ton of that work, and we're very proud of the experience that we deliver and the progress that we've made in all these different dimensions. But there's still a ton more work to do, and it's still very early in that game. You know, we're 1.5% of the used car market. So there's a lot of room to run and a lot to do, but I do think that that story consumers tell each other is probably the single thing that matters the most, and we got to make sure that story is very compelling.

Last time, I could have driven down to the dealership and gone through the transaction myself. If that's the conversation that's happening, I think we don't understand why we're not, at least, you know, in the conversation for every single customer that's thinking about buying a car anywhere in the country. I think that that's our goal, but the foundation of that is to build a better system that's simple, allowing customers to tell each other simple stories that are very compelling, um, by making it fundamentally better for them. And so I think there's a ton of work to do. I think we've done a ton of that work and we're very proud of the experience that we deliver and the progress that we've made in all these different dimensions.

Do the single thing that matters the most, and we have to make sure that story is very compelling.

Jeff Lick: Thank you. Nice quarter.

Ernie Garcia: Thank you.

Thank you, nice quarter.

Conference Operator: The next question is from Rajat Gupta with JP Morgan. Please go ahead.

Thank you.

The next question is from Rajat Gupta with JP Morgan. Please go ahead.

Jeff Lick: Thanks for taking the question. I think in the letter you had a comment that you want to look at the business more holistically going forward, you know, focused just on units and EBITDA. Could you elaborate a little bit more on that? You know, what that means, you know, what those levers are. You know, you talked about advertising as one. Maybe if you could just elaborate on, you know, what different kind of levers, you know, that you can just manage within the different line items and have a quick follow-up.

Oh, thanks for taking the question. Um, uh, I think in the letter you had a comment that you don't want to look at the business more holistically going forward, you know, focus just in.

Units and EBA, uh, could you elaborate a little bit more on that, you know, um, what that means, you know, you know what those levers are. Um, you know, you talked about advertising, uh, as well. Maybe if you could just elaborate on, you know what different kind of levers. Uh, you know that you can like manage uh, within within the different line items and have a quick follow-up.

Ernie Garcia: Sure. Well, I mean, that's a big opening to run through because, you know, I think that basically every number that we tried to provide in the letter is, you know, a lever that we're looking to improve. So, you know, again, I'll go to customer experience of fast, fun, fair. Make the experience extremely fast. Make it fun. Make it fair. Make sure that we're getting more intelligent all the time. Make sure that we're utilizing all the data that our system kicks off to make better decisions about which cars we're buying and what price we're paying for those cars and how we're pricing those cars and how we're merchandising those cars. Build tools that make it easier for customers to find those cars.

Sure. Well I I mean

Ernie Garcia: I think all of those are things that we're continually working on, and I think every one of those items are levers that we have. We try to build systems that are, you know, intelligent and as autonomous as possible, but obviously that have our oversight. So we decide on, you know, key levels like overall pricing level of any given lever, but we try to be intelligent and use analytics to determine, you know, where those prices are placed on various cars. And so I think continually improving those tools is, you know, an opportunity we've got. I mean, I think there's so many things to talk about there. We want to give customers simple experiences with an efficient machine that's getting smarter all the time. And I think every single thing inside that system is a lever for us.

that's a, that's a big opening to run through because, you know, I I think that basically every number that we try to provide in the letter is, you know, a lever that we're looking to improve. Um, so you know, again I'll go to customer experience of Fast, Fun Fair. Um make the experience, extremely fast, make it fun, make it fair, make sure that we're getting more intelligent all the time, make sure that we're utilizing all the data that our system kicks off. To make better decisions about which cars we're buying, and what, price, we're paying for those cars and how we're pricing those cars, and how we're merchandising those cars built tools, and make it easier for customers to find those cars. I, I think all of those are are things that we're continually working on and

And I think, every 1 of those items are are levers, that we have. Um, you know, we try to build systems that that are, you know, intelligent and as autonomous as possible. Um, uh, but obviously that have our oversight. So we decide on, you know, key levels like, um, overall pricing level of of Any Given lever, but but we try to be intelligent and use analytics to determine, you know, where those prices are placed on various cars. And, uh, so I think, continually improving those tools is, is, you know, an opportunity. We've got, I, I mean, I, I think there's so many things to talk about there. We want to give customers simple experiences with an efficient machine. That's getting smarter all the time and I think every single thing inside that system is, is a lever for us.

Jeff Lick: Understood. Yeah, yeah, I figured towards the end that it could have been differently. The other question was just on the cohort data. In the past, you've given us some anecdotes, you know, on the Atlanta, you know, some of the early cohorts. Anything from Apple you can give us, you know, how the Atlanta or like some of the 2013 or '14 cohorts performed relative to the overall company this quarter?

Understood. Yeah, yeah. I I, I, I, I, I, I, I, I figured towards the end that it could have framed it differently. Um, we the the other question was just on the cohort data and in the past, you know, you've given us the amount of notes, you know, around the Atlanta, you know, from the early cohorts.

Uh, anything from I believe you can give us, you know how the Atlanta or like some of the 2030 or 2014 cohorts.

Ernie Garcia: I think we'll kind of stick with what we've said in the past, but all the trends that we've discussed in the past remain there. I think it's been pretty consistent, broad-based progress across the country and across cohorts in every way.

Performed relative to the overall company of the squad. Thanks.

I, I think we'll, we'll kind of stick with what we've said in the past, but all the, all the trends that we've discussed in the past remain there. I, I think it's, um, it's, it's been pretty consistent broad-based progress across the country and across, uh, cohorts, in, in every way.

Jeff Lick: Understood. Thank you. Good luck.

Ernie Garcia: Thank you.

Conference Operator: The next question, excuse me, the next question is from Michael McGovern with Bank of America. Please go ahead.

Understood. Thank you. Good luck. Thank you.

Daniella Haigian: Hey, guys, thanks for taking my question. On the really strong leverage and operations cost per unit, can you provide a little bit more detail on what exactly goes into that bucket of costs? Is that mostly labor and logistics, and what else is driving the bulk of that operational efficiency?

The next question. Excuse me. The next question is from Michael McGovern with Bank of America. Please go ahead.

Unknown Executive: Sure. Yeah. So let me provide a quick breakdown. So I think some of the key categories of expenses that are in that operations expense line item are fulfillment expenses. So that would include, you know, our multi-car hauler network that connects our IRCs to the markets where we serve our customers, as well as our last mile delivery network that delivers the cars to the customer's door. It also includes, you know, customer care and title and registration expenses, as well as limited warranty expenses and some miscellaneous other expenses as well. So those are some of the major categories. You know, I think that, you know, over the last couple of years, we've certainly made gains across the board.

Hey guys, thanks for taking my question. Um, on the really strong leverage and operations cost per unit, can you provide a little bit more detail on what exactly goes into that? Bucket of cost, is that mostly labor and logistics, and what else is driving the bulk of that operational efficiency?

Unknown Executive: I think the, you know, we've talked about some of the efficiency gains, you know, in fulfillment, for example, that come from technology process, as well as adding things like adding Adessa inventory pools, which puts cars closer to customers. You know, we've talked a bit about, you know, some of our, you know, early efforts in, you know, using our large datasets to fuel AI models. I think we're still in the relatively early days of that, but some of the early applications have been in customer care and document processing where, you know, AI can really make us more efficient in the way that we communicate with the customer, improving customer experience, and also lead to some cost efficiencies as well. And so those would be a few of the examples.

Sure, yeah, um, so let let me provide a quick breakdown. So I think the some of the key categories of expenses that are in that operations, expense line, item are fulfillment expenses, so that would include, um, you know, our multi-car, uh, holler Network that connects our irc's. So the markets where we serve our customers, as well as our last mile delivery Network that delivers the cars to the customer store. Uh, it also includes, uh, you know, customer care and title and registration expenses uh, as well as limited warranty expenses and, uh, some miscellaneous other expenses as well. So those are some of the major categories, you know, I think that, um, you know, over the last couple years, we've certainly made gains, um, across the board. I think the, um, you know, we've talked about some of the efficiency gains. Um, you know, in fulfillment, for example, that come from technology process. Um,

Unknown Executive: I think, you know, operations expense per unit, it's an area where we've seen really, you know, strong gains over the past couple of years, but an area where we do see opportunities looking forward as well.

Area where we do see opportunities looking forward as well.

Daniella Haigian: Got it. Thank you. And you also call out you grew selection 50% in the quarter versus last year. Can you provide a little bit more detail on what that means? Is that just like number of vehicles in your inventory, or does that mean kind of breadth and depth and different mix and models, or maybe more inventory of specific models that are really in demand? And, you know, where does that stand today relative to where you want it to be?

Got it. Thank you. And, uh, you also called out you, uh, grew selection 50% in the quarter versus last year. Can you provide a little bit more detail on what that means? Is that just the number of vehicles in your inventory, or does that mean kind of breadth and depth in different makes and models? Or maybe more inventory of specific models that are really in demand? And, you know, where does that stand today relative to where you want it to be?

Unknown Executive: Sure. So I think what we mean by that is really just the, you know, the count of units that are immediately available for sale on the website as a measure of selection. Typically, you know, breadth increases with inventory count as well. So, you know, that metric specifically points to just inventory count of immediately available units, but, you know, breadth typically increases as well with that metric. In terms of where we want it to be, you know, I think we still have a very clear opportunity to provide more selection to our customers. We view selection as a powerful long-term growth driver that interacts with some of our other growth drivers to create positive feedback cycles. It's one example of that.

Sure. So I think the, what we mean by that is really just the, um, you know, the count of units that are immediately available for sale on the website, um, as a measure of selection, um, typically, um, you know, breath increases with inventory count as well. So, you know that metric specifically points to just inventory count of immediately available units. But uh, you know, breathe in typically, increases as well with that metric.

In terms of where we want it to be, I think we still...

Unknown Executive: You know, the more selection you have on the website, the more customers you convert, the more efficient your advertising becomes, and so, you know, the more you can, you know, leverage advertising to build understanding, awareness, and trust. So that's just one example of the type of positive feedback that selection can create. I think in terms of where we stand versus the long term in our selection, I think we're small compared to what we ultimately want to be. You know, I think the used car market has this very unique property where there are a very large number of unique SKUs. When you combine year, make, model, mileage level, trim, set of packages, exterior color, interior color and material, and so on and so forth, you know, you really get down to a very large set of unique combinations.

Have a very clear opportunity to provide more selection to our customers. We've used selection, as a powerful long-term growth driver that interacts with some of our other growth drivers, uh, to create positive feedback Cycles is 1 example of that, you know, the more selection you have on the website. Um, the more customers you convert, uh, the more efficient your advertising becomes. And and so, you know, the more you can, um, you know, leverage advertising to build understanding awareness and Trust. So, that's just 1 example of the type of positive feedback that that, uh,

Unknown Executive: And so compared to that very large set of unique combinations, you know, our inventory today is small. And so we really do view, you know, growing our effective SKU count, i.e., growing our inventory and the breadth of our inventory as a powerful long-term growth driver.

Selection can't create, I think in terms of our where we stand versus the long term in our selection. I think we're small compared to what we ultimately want to be. Um, you know, I think the used car market has this very unique property where there are a very large number of unique skus. When you combine year, make model mileage level trim set of packages exterior, color, interior, color and material and so on and so forth. You know you really get down to a very large um set of unique combinations. Um and and so compared to that very large set of unique combinations.

You know, our inventory today is small, and so we really do view, you know, growing our effective SKU count, i.e., growing our inventory in the breadth of our inventory, as a powerful long-term growth driver.

Daniella Haigian: Got it. Thanks so much.

Ernie Garcia: Thank you.

Got it. Thanks so much.

Conference Operator: The next question is from Chris Botticlieri with BNP Paribas. Please go ahead.

Jeff Lick: Hey, guys, thanks for taking the questions. The first one is, can you talk more about the large build of inventory the quarter? Does this primarily relate to the expansion selection or to the change in the agreement with the commercial party to just have an accounting impact that drove that balance higher? I want to think of its growth or just accounting that drove that.

Thank you. The next question is from Chris Badak. Larry with BNP Paribas, please go ahead.

Hey guys, thanks again for the questions.

Um,

Unknown Executive: Sure. Yeah. So there are three drivers of our inventory growth in the quarter. The first was just sales and selection growth, as you just alluded to. The second was a change in essentially the contract structure with a large retail marketplace partner that has us holding the inventory on our balance sheet rather than the partner holding the inventory on their balance sheet. And then the third that I would layer in is, you know, we did see our average selling prices slash average cost of our vehicles increase in the quarter, which also was a driver of that quarter-over-quarter increase in inventory.

The, uh, first one is, can you talk more about the large build of inventory this quarter? Does this primarily relate to the expansion selection for the change? In the agreement with the commercial parties, did that have an accounting impact that drove that balance higher? I just want to think if it's growth or just accounting that drove that.

Jeff Lick: That actually leads me to my next question. Can you kind of talk about that mix shift into more expensive vehicles? Kind of what's going on there? Are you, I assume you're after a more prime customer. Are you doing anything differently in terms of the, you know, rates that you charge prime and shipping fees? Like, you know, or is this just an inventory initiative right now?

Sure. Yeah, so there are 3 drivers of our inventory growth in the quarter, the first was, um, just sales and selection growth. Um, as you just alluded to the second was, uh, changing the in essentially, the contract structure with a large retail Marketplace partner, um, that has us holding the inventory, on our balance sheet rather than the partner holding, um, the inventory on their balance sheet. Uh, and then, the third that I would layer in is, you know, we did see, um, our uh, average selling prices slash average, uh, cost of our vehicles, uh, increase in the quarter which also was a driver of that quarter over quarter increase in inventory.

Unknown Executive: Sure. Yeah. So this is one of those areas that relates to Ernie's, you know, answer earlier where I think we're not particularly focused on a specific, you know, ASP. We're really focused on units and driving, you know, strong, you know, company-level outcomes. But we, you know, we have some mix shift into more expensive vehicles. That's largely just driven by our algorithms that, you know, are tracking real-time demand trends, tracking real-time supply trends, and then selecting inventory on the basis of, you know, what they're seeing in supply and demand. That has led to, you know, an increase in, you know, in ASP. We called out that we do expect a further increase in Q3, you know, beyond where we were in Q2. But, you know, it wouldn't surprise me at all if after Q3 we saw it decline.

It actually leads me into my next question. Um, can you kind of talk about that mix shift into more expensive vehicles and kind of what's going on there? Are you, I assume, you're after a more prime customer or anything differently in terms of the, you know, rates that you charge prime and shipping fees? Like, you know, or is this just an inventory initiative right now?

Sure. Yeah, so this is one of those areas that relates to earnings, you know, as I answered earlier, where I think we're not particularly focused on a specific, you know, ASP. Um, we're really focused on units and driving, you know, strong, um, you know, company-level outcomes. But we, you know, we have some mixed shift into more expensive vehicles. That's largely just driven by our algorithms that, you know, are tracking real-time demand trends and tracking real-time supply trends, um, and then selecting inventory on the.

Unknown Executive: I think it really just depends on what our models are telling us at any point in time. And, you know, I think most importantly, we're really focused on some of the bottom line metrics like growth in units and then also obviously our profitability metrics.

Jeff Lick: Makes sense. Thanks, guys.

Um, and then also, obviously, our profitability metrics.

Unknown Executive: Thanks.

makes sense. Thanks guys.

Conference Operator: The next question is from Michael Baker with DA Davidson. Please go ahead.

Thanks.

Unknown Executive: Okay. Congratulations, guys, on a good quarter. Can I ask you about the guidance for the back half of the year? It implies about at the midpoint 30% EBITDA growth. So obviously a little bit of a slowdown from the first half. I presume it's just the law of large numbers, but does it signal increased investments? You already talked about increasing the advertising investment, but does it signal increased investments around price or bids or anything else along that, or is it just simply we're coming up against big numbers last year?

The next question is from Michael Baker with DA Davidson. Please go ahead.

Okay. Uh, congratulations, guys, on a good quarter. Um, can I ask you about the guidance for the back half of the year? It implies, at the midpoint, about 30% growth. So, obviously, a little bit of a slowdown from the first half. I presume it's just the law of large numbers, but does it signal increased investments? You already talked about increasing the advertising investment, but does this signal increased investments around price or bids or anything else? Or is there just simply the fact that we're coming up against big numbers from last year?

Ernie Garcia: Sure. Well, I think just to reiterate, I think our guidance was for a sequential increase in units in Q3 versus Q2 and then for 2 to 2.2 billion in EBITDA for the full year. I think, you know, we're not going to give a ton more color than that, but obviously those are big numbers and exciting numbers. I think, you know, we grew by 41% in Q2. You know, last year was a record EBITDA year for us. It was incredibly exciting at, you know, just shy of 1.4 billion. So I think those are big numbers to suggest we're on a good path. And so we're just going to keep marching. I think that's, you know, another milestone on the way to 3 million, which is a milestone onto wherever we end up after that.

Ernie Garcia: So we're just going to keep trying to march through these various gates and make improvement along the way.

Jeff Lick: Okay. Fair enough. Maybe one other one, and it'll probably be the same type of answer, but to get to 3 million in five years, I understand you have a range of 5 to 10, but to get there in five years off of 2024, that's like a 48% annual growth rate. You're having a great year this year, but I think your unit growth rate year over year is up like 43%. So again, do you have to like add some investments, or how do you get that to accelerate to get to that, you know, 3 million in five years?

Sure. Well, I, I think just to reiterate our, I think our guidance was first sequential increasing units in Q3 versus Q2 and then for 2 to 2 billion, um, in in ibida for the full year, I think, you know, we're not going to give a ton more color than that. But, uh, but obviously, those are big numbers and, and, and exciting numbers. I think, you know, we grew by 41% in Q2, uh, you know, last year was a record even, but I year for us, it was incredibly exciting. It, you know, just shy of 1.4 billion. So I think those are big numbers that you guys were on a good path. Um, and so we're just going to keep marching. I think that's, you know, another Milestone on the way to 3 million which is a milestone on, to wherever we end up after that. So, uh, we're just going to keep trying to March through these these various Gates and make Improvement along the way.

Okay, turn it off, maybe 1 other 1 and and it'll probably be the same type of of answer. But to get the 3 million in 5 years, I understand you have a range of 5 to 10 but to get there in 5 years off of 2024 that's like a 48% annual growth rate, you're having a great year this year but I think your unit growth rate year over year is up like 43%. So again do you have to like add some Investments or how do you get that to accelerate to get to that you know, 3 million in 5 years?

Ernie Garcia: I think at a really high level, the five-year timeline was approximately a 40% compounded growth rate, and the 10-year timeline was approximately a 20% compounded growth rate. You know, we just printed 41. We're excited about that. I think very importantly, you know, we're 1.5% of the used car market and 1% of the overall car market. So I think there's a lot of headroom. I think our machine's getting simpler. We're adding additional locations to hold inventory and to recondition inventory. We're making it so, you know, there's less work per transaction. And I think all of that aids growth, and we're trying to push back value into the customer offering, which makes, you know, those stories customers tell even better. So I think we feel like we're on a very good path.

Ernie Garcia: There's no question that, you know, growing at 40% for five years is an ambitious target, but we're an ambitious group, and we're going to try to get there somewhere between that 5 and 10-year target, and we're just going to go as fast as we can along the way.

Jeff Lick: Fair enough. Thank you.

I think it'll really high level the the 5 year timeline was approximately 40% compounded growth rate. In the the the 10 year timeline is approximately a 20% compounded growth rate. Um, you know, we we just printed 41, we're excited about that. I think, um, very importantly, you know, we're 1 and a half percent of the used car market and 1% of the overall car market. So I think there's a lot of Headroom. Um, I think our machines getting simpler, we're adding additional um, you know, locations to hold inventory and to recondition inventory where uh, making it. So you know, there's less work per transaction. Um, and I think all of that aids growth uh, and we're trying to push back value into the customer offering which makes you know those stories customers tell even better. So I I think we feel like we're on a very good path. There's no question that uh, that, you know, growing at 40% for 5 years is a is an ambitious uh, Target. But we're an ambitious group. And, and we're going to try to get there somewhere between that 5 and 10 year Target and we're just going to go as fast as we can along the way.

Ernie Garcia: Thank you.

Conference Operator: The next question is from Chris Pierce with Needham. Please go ahead.

Fair enough. Thank you. Thank you.

Jeff Lick: Oh, hey. Just a quick question on other GPU, two of them actually. Just first, in the quarter, you talked about a higher VSC attach rate. I'd love to hear some comments about where you are on attach and warranty attach in general, how difficult it is to attach warranty online versus in person, or maybe that's not true. Just sort of runway and open space you have on warranty attach broadly.

The next question is from Chris Pierce with NEM. Please go ahead.

Oh hey. Um, just a quick question on other GPU 2 of them actually, just first in the quarter you talked about a higher VSC attach rate. I just, I'd love to hear some comments about where you are on attaching warranty attached in general room. You how difficult it is to attach warranty online versus in person or maybe that's not true. Just sort of Runway and open space. You have on warranty attached broadly.

Unknown Executive: Sure. Yeah. So I think, you know, the attach rate of ancillary products and, you know, I would include, you know, VSC and also other ancillary products in that is definitely an area where we've made progress over time. And, you know, through constant testing and iteration, you know, I have been able to identify wins in the quality of our communication of those products, the way those products are structured, you know, things like that. I think, you know, despite the gains that we have made, I certainly think there's opportunities for future fundamental gains really by running the same playbook on just, you know, constantly iterating and seeking to get better. You know, one of the areas where we're always getting better is, you know, each year we have more and more data.

Sure. Yeah, so I think, you know, the attach rate of ancillary products and...

Unknown Executive: So we have more and more, you know, observations to help us evaluate what exactly, you know, do our customers like in these products, what are they looking for, and that helps us, you know, improve attach, you know, through communication and product structure and things like that that I mentioned previously. So, you know, to summarize that, it's definitely been an area where we've made gains. Customers definitely like and get value out of these products, but it's also an area where we see opportunities for future fundamental gains, just like in other areas of the business.

Um, you know, I would include, you know, VC and also other products in that. It is definitely an area where we've made progress over time, um, and, you know, through constant testing and iteration, you know, I have been able to identify wins and the quality of our communication of those products. The way those products are structured, um, you know, things like that. I think, you know, despite the gains that we have made, I certainly think there are opportunities for future fundamental gains, um, really by running the same playbook on just, you know, you know, constantly iterating and seeking to get better. Um, you know, one of the areas where we're always getting better is, you know, each year, we have more and more data. Um, so we have more and more, um, you know, observations to help us evaluate what exactly, you know, do our customers like in these products, what are they looking for? Um, and that helps us, you know?

Jeff Lick: Okay. And then just a real big picture question on gain on loan sale. If we think about, you know, before CARVANA came on the scene, there was a pool of ABS investors, yield-seeking investors who want to own auto loans. You guys have uncovered new investors.In

You know, improve attachment, um, you know, through communication and product structure, uh, things like that that I mentioned previously. So, uh, you know, to summarize that, um, it's definitely been an area where we've made gains. Customers definitely like and get value out of these products. Um, but it's also an area where we see opportunities for future fundamental gains, just like in other areas of the business.

Conference Operator: this space. Is sort of the obvious conclusion the correct one that as you find more of these investors, yourself and other auto dealers will have more pricing power on the loan side of the world, and that is a tailwind to other GPU, or is that too simplistic because of your market share?

Who wants to own auto loans? You guys have uncovered new investors in this space. It is sort of the obvious conclusion, the correct one, that as you find more of these investors, yourself and others.

Auto dealers will have more pricing power on the loan side of the world. And that is a tailwind to other GPU, or is that too simplistic because of your market share?

Mark Jenkins: That's an interesting question. I think we oftentimes hear a related but different question as well of, you know, are we going to outgrow that market? And so let me just try to give you the way that we at least think about it. I think, you know, we are a small part right now, you know, 1 and 1/2% of a large mature market where that large mature market kicks off a lot of very high-quality consumer loans in the form of auto loans. And those auto loans are being purchased by someone today through various different channels. And I think as we take market share and displace, you know, some of those originators, you know, there are still, you know, hands that are hungry to hold those loans.

Mark Jenkins: And so I think, you know, we've been in many ways expanding that market as we've been kind of growing into it. I think we've also been expanding the buyer base more generally than just the ABS market. Sometimes we meet buyers through the ABS market that we then move on to, you know, pool sales, and it can even go the other way as well. So I think, you know, our focus is we believe that the receivables that we're generating are very high quality. We believe it's highly desirable to a lot of investors, many investors that have traditionally been buyers of auto loan assets and probably a number of investors that maybe traditionally haven't had access to them. So if anything, we think that there's room to expand the total buyer base for auto loans, and we think that that could bode well.

Um, that's an interesting question. I, I think, um, we we often times hear a, a related, but, but different question as well of of, you know, are we going to outgrow that market? Um, and so let me, let me just try to give you the way that we at least think about it. I think, you know, we are a small part right now, you know, 1 and a half percent of a large mature Market where um, that large mature Market kicks off a lot of very high quality Consumer loans, um, in the form of auto loans, and those auto loans are being purchased, uh, by someone uh, today, uh, through various different channels. And I think as as we take market share and displace, you know, some of those Originators, uh, you know, there are still, um, you know, hands that are that are hungry to hold those loans. Uh, and so I think, you know, we've been in many ways expanding, that market as we've been kind of growing into it. Uh, I think we've also been expanding the buyer base, more generally than just the ABS Market. Sometimes we meet buyers through the ABS Market that we then, move on to to, you know, uh, pool sales. Um, and

Mark Jenkins: And I think we found that as we've gotten bigger and we've established more of a brand and people have seen more of our performance history, it's gotten easier to attract additional buyers. And as we've gotten bigger, it's gotten easier to be a meaningful partner to more buyers because we can originate enough volume to be meaningful for them just by the work that they do to start the relationship and evaluate a pool of loans. So I think as a general matter, that's another area where we're very optimistic. And we think our unique model and being vertically integrated where there isn't slippage between the incentives of the retailer and the incentives of the finance company is a valuable thing, and it's allowing us to originate lots of very valuable receivables.

And it can go the other way as well. So I I think, you know, our focus is, we believe that the receivables that we're generating are very high quality. Um, you know, we believe it's it's highly desirable to a lot of investors. Many investors that have traditionally been buyers of of auto loan assets and probably a number of investors that maybe traditionally haven't had access to them. So if anything, we think that there's room to expand the total buyer base for auto loans and and we think that that could bode well and I think we found that as we've gotten bigger and we've established more of a brand and people have seen more of our performance history. Um, it's gotten easier to attract additional buyers. Um, and as we've gotten bigger, it's gotten easier to be a meaningful, um, partner to, to more buyers because we can originate enough volume to be meaningful for them just by the work that they do to, uh, to start the relationship and evaluate a pool of loans. So I, I think as a general matter, that's that's another area where we're very optimistic and we think, uh, you know, our unique model and being vertically integrated, where, uh, there isn't slippage between the incentives, uh, of the re

Retailer and the incentives of the finance company are valuable, and they're allowing us to originate lots of very valuable receivables.

Conference Operator: OK. Just you actually said it. You might outgrow that market. How would you outgrow that market, though? Because you're just selling a car that someone else would have sold and another loan buyer would have bought that loan. So I just want to make sure I understand where you're coming from with that comment, and then I'll pass it on.

Okay. Uh, just

Mark Jenkins: Yeah. No, sure. Yeah. Well, that was not my intention. I think I was trying to point to a question that we sometimes get. I think our general belief is that we will not outgrow the market. We think that there are already buyers of auto loans through many different channels, and we think that the manner in which we originate auto loans and the way that we make those liquid and available to investors, if anything, should expand the total buyer base for auto loans. And we think we have access to the traditional buyer bases as well. So we have found empirically, as we've moved through orders of magnitude of scale, that it has gotten easier to sell loans, not harder, as we've gotten larger. And I think that our best expectation is that will continue to be the case.

You you actually said it, you might outgrow that market. How would you outgrow that market though? Because you're just selling a car that someone else would have sold. And another loan buyer would have bought that loan. So how would like I just want to make sure I understand where you're coming. From with that comment and then I'll pass it on. Yeah.

Conference Operator: OK. I'll pass it along. Thank you.

Oh sure. Yeah. Well that was not my intention. I think I think I was trying to point to a question that we sometimes get. I think our general belief is that we will not outgrow the market. We think that there are already buyers of of auto loans through many different channels. And we think that the the manner in which we originated auto loans and the way that we make those liquid and available to investors, if anything should expand the total buyer base for auto loans, um, and we think we have access to the traditional buyer bases as well. So uh we have found, you know, empirically as we've moved through uh you know orders of magnitude of scale that it has gotten easier to sell loans, not harder as we've got larger. And I think that our our best expectation is that we'll continue to be the case.

Mark Jenkins: Thank you.

David Brown: The next question is from Marvin Fong with BTIG. Please go ahead.

Okay, I'll pass along. Thank you. Thank you.

Meg Kehan: Great. Thanks for taking my questions. Congratulations on a great quarter. Just maybe two around other GPU, also looking into that topic. So you referenced a lower sell-through rate in the quarter. Was that related to, I think, another player in the space commented that there were more cash buyers that kind of came out because of the tariffs in the quarter. Is that related? What you saw, is that related to that dynamic? And it has that sort of cycled out of what you're seeing. And then secondly, you cited improved cost of funds as benefiting other GPU. We just kind of love to just understand, obviously, what can always drive that lower. But if we sort of level set maybe in a one to two-year horizon, how much more benefit do you think you can extract from lower cost of funds?

The next question is from Marvin Fong with BTIG. Please go ahead.

Great. Uh, uh, thanks for taking my questions. Congratulations on a great quarter, uh, just maybe 2 around other GPU, also looking into that topic. Um, so you referenced a, a lower sell through rate in the quarter. Uh, was that was that related to, I think another, uh, player in the space meant, you know, commented that it was more cash buyers that kind of came up because of the terrorists in the quarter. Uh, is that related? Uh, but you saw is that related to that Dynamic and it has that sort of, uh, um, cycled out of what you're seeing. Um, and then, secondly, you cited improved cost of funds. Um, as benefiting other GPU, we just kind of love that, just understand.

Meg Kehan: And could you kind of give us a relationship to how that translates to actual GPU? That'd be great. Thanks so much.

Understand all obviously, well can always drive that lower. But if we sort of level set, maybe in a, in a 1 to 2 year Horizon, uh, you know, how much more benefit do you think you can extract from from lower cost of funds? And, and how, uh, you know, could you could you kind of give us a relationship to how that translates to actual, um, you know, GPU, um,

That'd be great. Thanks so much.

Mark Jenkins: Sure. Yeah. Let me take that one. So I think on the lower sell-through rate, I think what we're calling out there is actually really an impact in Q2 2024, more so than an impact in Q2 2025. So in Q2 2024, we had stored some more loans in Q1 that we ended up selling in Q2. So we actually sold more loans than we originated in Q2. And I think that had a positive impact on the order of $100 per unit in Q2 2024. This quarter was relatively normal, give or take a small amount in terms of the ratio of loan sales to originations. And so nothing really to call out there in this quarter. That was really about approximately a $100 impact back in Q2 2024 that was a positive impact in that quarter.

Mark Jenkins: The question about cost of funds, so I think what are some drivers of cost of funds? One, I think, is the number of loan investors and buyers that we're selling loans to in the finance platform. That's been something that has steadily increased over time as more and more investors become aware of the quality of the assets that we're originating, do the relevant research, and start to invest in or buy the loans. So I think expanding the pool of buyers is a driver of cost of funds. Other drivers of cost of funds, I think, are just continued strong performance. And we talked about this early in the call, but our origination platform has generated assets that have performed very well, offering very strong returns to investors.

In Q2 2024 more so than an impact in Q2 2025. Um, so in Q2 2024, um, you know, we, um, had um, stored some more loans, um, in Q1 that we ended up selling in Q2. So we actually sold more loans than we originated in Q2. Um, and I think that had a positive impact on the order of $100 per unit in Q2 2024. Um, this quarter was, you know, relatively normal give or take um, a small amount, uh, in terms of, you know, the the ratio of loan sales to um, originations and so nothing really to call out there in this quarter that was really about, um, approximately a $100 impact back in Q2 2024, that was a positive impact in that quarter. Um, on the, you know, the question about cost of funds. So I think you know what are some drivers of cost of funds 1, I think is.

The, you know, the the number of um, you know, load investors and and buyers that um you know we're selling loans to in the in the finance platform. That's been something that has steadily increased over time. Um, as more and more investors, um, you know, become aware of the quality of the assets that were originating. Um, you know, do the relevant, uh, you know, research and and start to invest in or buy the loans. So I think expanding the pool of buyers is a a driver of cost of funds. Um, other drivers of cost of funds, I think are

Mark Jenkins: And so I think continued strong performance from a vertically integrated platform is a driver of cost of funds gains as well.

You know, just continued, strong performance and we talked about this early in the call, but, you know, our origination platform has, you know, generated assets that have performed very well. Um, offering you know, very strong returns to investors. Um, and so, you know, I think continued strong performance from a vertically integrated platform is is a a, a a driver of uh, cost of funds gains as well.

David Brown: Got it. Great. Thanks so much, Mark. The next question is from Alex Potter with Piper Sandler. Please go ahead.

Got it. Great. Thanks so much, Mark.

Meg Kehan: Perfect. Thanks very much. So you mentioned that 40% CAGR, if you're able to sustain that. Obviously, you've been doing very well recently. The sort of implicit in your comments earlier about that being a difficult thing to achieve in five years is that, obviously, 40% growth kind of year in, year out, over time, something could break, right? I mean, it's difficult operationally to sustain that sort of growth. So I'm wondering, obviously, you're growing at that pace now. What is it that you think in your system could break? Is there anything getting close to breaking with you sort of redlining at the top end of that growth range right now?

The next question is from Alex Potter with Piper Sandler. Please go ahead.

Perfect. Thanks very much. Um,

So, you mentioned that 40%, Kegger, if you're able to sustain that, obviously, you've been doing very well. Um, recently, the, you know, sort of implicit in...

Uh, your comments earlier about that being a difficult thing to achieve in 5 years is that, you know, obviously 40% growth kind of year in, year out over time, something.

Could break, right? I mean, it's difficult, uh, operationally to sustain that sort of growth. So I'm wondering, obviously you're growing at that pace now.

What is it that you think in your system could break? Is there anything getting close to breaking with you sort of redlining? Uh,

At the top end of that growth range right now.

Mark Jenkins: Sure. I think that's a good question. First, I'm not sure today it feels like we're redlining. And I don't mean that to imply that we're going to immediately grow a ton faster. I mean that to imply that it feels like the teams are executing very well, and I think confidently and comfortably. So I think we've talked in the past, as a general matter, I think to use that term break, the things that are most likely to break are the things where you have the most work to do, the most people in a system to coordinate, or the most stuff to move. And so I think reconditioning is probably the place that is operationally the most intense in the business. I think what's great is we are laying foundations for the future today. And in many ways, we're making investments in future growth today.

Sure. I I think it's a good question. Um first I I'm not sure today. It feels like we're redlining and I I yeah, I don't mean that to imply that we're going to immediately grow a ton faster. I, I mean that to imply that it feels uh, like the the teams are executing very well and and I think confidently and comfortably, uh,

Mark Jenkins: We easily could have grown into the existing inspection centers that we have in the CARVANA network, and that could have supported the growth that we're seeing today. But over the last year, plus a little, we've integrated 12 Odessa sites. That's been an investment in certain ways. The payoff has been that we've added additional inventory pools, and so we have less miles traveled. The investment has been that we've had to open those sites, hire at those sites, find managers for those sites, run those sites. At lower utilization, they tend to be a little bit more expensive. So that's flowing through our results today. But it also means that there's higher utilization to come in the future, and that will be a tailwind to results. And we have more locations to hire more people and produce more cars in the future.

So I I think, you know, we've talked in the past, you know, the the, as a general matter, I think to to use that that term break the things that are most likely to break or the things where you have, you know, the most work to do the most, uh, people in a system to coordinate or the mo most stuff to move. And so, I think, you know, reconditioning is probably the place that that is operationally the most, uh, intense in the business. I think what's great is, you know, we, we are laying foundations for the future today. And and in many ways we're making investments in future growth today. What we easily could have grown into the existing inspection centers that we have in the carvana network and that could have supported the growth that we're seeing today. But, you know, over the last year, you know, plus a little we've we've integrated 12 Adesa sites. Um, that that's been an investment in certain ways. It's it's, um, the payoff has been that we've added additional inventory pools and so we have less miles traveled. The investment has been that that we've had to open those sites, um, you know, higher at those sites, find managers for those sites. Run those sites at at

Mark Jenkins: So I think what we're doing in reconditioning, which is probably the operationally most difficult thing today, is we're not only supporting the growth that you see. We are also laying foundations for easier growth in the future. And I think that that's important and exciting. I think in logistics, we've made a ton of gains over the last couple of years, getting more efficient and causing cars to travel fewer miles. I think logistics is probably the second most complex operational undertaking that we've got. And given that we've recently made a ton of gains in reducing total miles traveled, I think getting to a spot where we're supporting high levels of growth over a long period of time is work, right? The total amount of miles driven has not grown as fast as sales have grown over the last couple of years.

Mark Jenkins: So we got to make sure that we're in front of that. And we've got plans, and we're working hard. And that's a very capable team that has a very clear plan for how they're going to continue to do that. I think market ops is probably the next most complex operational area. I think we've got great plans there. I think that team's also executing incredibly well and making a lot of progress and has recently been putting a little effort into outgrowing our growth to enable a little bit faster delivery times in one of the areas where we're giving back value to customers. And I think that that's going extremely well. And then I think in customer care, we shared a number of data points where we're making very rapid progress there in getting more efficient.

Operational undertaking that we've got. Um, and given that we've recently made a ton of gains in in reducing total, miles traveled. I, I think, you know, getting to a spot where supporting high levels of growth over a long period of time is work, right? The, the total amount of miles driven, um, has not grown as fast as sales have grown over the last couple years, so we got to make sure that we're in front of that. Um, and and we're we've got plans and we're working hard and that's a very capable team that um, you know, has a very clear plan for how they're going to continue to do that. Um, I I think, you know, Market Ops is is probably the next most complex operational area.

Mark Jenkins: And I think that that means over a long period of time, the amount of growth in people and things moving around can be less than the growth that we're showing as a company as we continue to get more efficient. So I think we've got a good plan there. Real life is always hard. And so there are going to be bumps in the road, and there's going to be stuff that comes up. And we're going to perform great sometimes and worse than we wish other times. But I think we've got very capable teams and clear plans, and I think we're going to go, like I said, as fast as we responsibly can is our plan.

I think we've got great plans there, I think. Um, I I think that teams also executing incredibly well, uh, and and making a lot of progress and um, has recently been been putting a little effort into outgrowing our growth, uh, to to enable a little bit faster. Delivery times is in 1 of the areas where we're giving back value to customers. Um, and I think that that's going extremely well. And then I think in in customer care we shared a number of of data points where we're making very rapid progress there in getting more efficient. And I think that that means over a long period of time the the amount of growth in people and and things moving around can be less than the growth, uh, that we're showing as a company as we continue to get more efficient. So I think we've got a good plan there. Uh, you know, real life is always hard and so that there are going to be bumps in the road and there's going to be stuff that comes up. And we're going to perform, you know, great sometimes and worse than we wish other times. But I think we've got very capable teams and clear plans and I think, uh,

You know, we're going to go, like I said, as fast as we responsibly can, as our plan.

Meg Kehan: Thanks very much, Ernie.

Mark Jenkins: Thank you.

Thanks very much Ernie.

David Brown: The next question is from Ron Josey with CITI. Please go ahead.

Thank you.

Meg Kehan: Great. Thanks for taking the question. Two, please. Can you remind us, Ernie and Mark, just when mega sites or the Odessa sites come online, just how quickly are these sites up and get up to speed to become efficient? And when I mean efficient, meaning on par with maybe the other IRCs out there. And then just, Ernie, you talked a little bit about improving processes internally. But in the letter, you also talked about improving e-commerce experience, making it easy to use, maybe more fun. Would love to hear your thoughts or just maybe highlight there's one or two changes that have had an impact on improving those conversion rates. That'd be great. Thank you.

The next question is from Ron Josie with City. Please go ahead.

Mark Jenkins: Sure. Well, so I think first, it's going to take a little bit of time for the Odessa sites to get up to the efficiency level of the existing CARVANA sites. I mean, as a very high-level kind of estimate, the CARVANA sites are a little bit less than half utilized today versus their facility capacity. And the Odessa sites that are up today are less than half of that. So generally speaking, I think utilization is a good first-order measure of how efficient they're going to be in cost. And so today, the Odessa sites are more expensive. And it is a bit of an investment to lean into growth in those sites versus just leaning into it in the CARVANA sites.

Great, thanks for taking the question. Um to please just can you remind us earning Mark just when Mega sites are the essay sites come online? Just how quickly are these sites up. Get up to speed to become efficient um, and when I mean, efficient meaning on par with maybe the other irc's out there and then just earning you talked a little bit about improving processes on internally. But in the letter, you also talked about improving e-commerce experience making it easy to use, maybe more fun. Uh, would love to hear your thoughts or just maybe highlight, there's 1 or 2 changes, that have had an impact on on improving those conversion rates. That'd be great. Thank you.

Sure, well well so I I think, you know, first to to its going to take um, it's going to take a little bit of time for the death of sites to get up to the efficiency level of the existing carvana sites. I mean, as a as a very high level um kind of estimate the carvana sites are are a little bit less than half utilized today versus their facility capacity and the Adesa sites are, you know, that are up today are are less than half of that. Um, so generally speaking, I think utilization is a, is a good first order measure of how efficient they're going to be in cost. And so today, the Adesa sites, um, are more expensive and it is a bit of an investment to

Mark Jenkins: But for the reasons discussed earlier, we think that that's smart, and we expect to continue to get better there as we do scale those sites out over time. I think the same is true of logistics. By having those sites, we have fewer miles to travel. But also, because there's less utilization at those sites, we have more expensive costs per mile traveled. That will, again, normalize as we get up to utilization rates that are more similar to the CARVANA inspection centers. So I think catching up is something it's kind of like an asymptote that we catch up to that will take some time. That is not something that happens immediately. But I think so far, we are on plan with our expectations or a little bit better as a general matter. And as I said, the teams are doing very well.

Mark Jenkins: So I think we're excited by what's going on there. And I think the fact that we're showing the gains that we're showing while making those investments and making future growth easier, I think, means that the fundamental gains that the business is actually achieving are a little greater than are showing up in the financials. So I think that's great. I think as it relates to making things fun, I think the last couple of years, we've had a major focus on making the business more efficient. That makes customer experiences faster and simpler. And it also makes the business better from a financial perspective and more efficient overall. I think we still have a number of areas where we can continue to improve there. But I think that you calling out fun is absolutely correct.

Lean into growth in those sites versus just leaning into it in the, in the Carbono sites. Um, but, but for the reasons discussed earlier, we think that that's smart and we expect to continue to get better there. Um, as we do scale those, those sites out over time, I think the same is true of, of logistics, you know, by having those sites, we have fewer miles to travel. Um, but we also, you know, because there's less utilization at those sites. We have, you know, more expensive costs per mile traveled, um, that will again normalize as we get up to utilization rates that are more similar to the carvana, uh, inspection centers. So I, I think, you know, catching up is something it's, it's kind of like an ASM tote that we catch up to, that will take some time. That, that is not something that happens immediately. Uh, but I think so far, we are on plan with our expectations, uh, or, or a little bit better as it as a general matter. Um, and as I said that the teams are doing very well. So I I think, you know, we're excited about what's going on there. And I think the fact that we're showing the gains that we're showing while making those Investments and making future growth easier, I think means that the fundamental gains that that the business is actually, uh,

Achieving are a little greater than are showing up in the financials. So, I think that's great.

I think as it relates to making things, you know, fun. I think the, the last couple of years are we, we've had a major focus on making the business more efficient. Um, that that makes, uh, customer experiences faster and simpler. And it also makes the business, uh, you know, better from a financial perspective and and more efficient overall. I, I

Mark Jenkins: And I think also kind of minimizing anti-fun in the form of when we make mistakes. How do we make sure that if we make a mistake, we do right by the customer, we treat them incredibly well? I think there's a lot of interesting ideas that we're working on to continue to make the experiences that our customers have faster and more fun. But I think we're going to keep those cards closer to our vest and maybe talk about them more in retrospect than we do ahead of time.

Meg Kehan: Great. Thanks, Ernie.

We do ahead of time.

Mark Jenkins: Thank you.

Okay. Thanks Ernie.

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

Thank you.

Mark Jenkins: Perfect. Well, thanks everyone for joining the call. CARVANA team, awesome job. Truly incredible. I feel like I just keep saying the same thing every time in these calls. But the results that you've been able to put up over the last couple of years.

This concludes our question-and-answer session. I would like to turn the conference back over to Ernie Garcia for any closing remarks.