Carvana Q1 2025 Earnings Report

Carvana EPS Results

• Actual EPS: $1.51
• Consensus EPS: $0.75
• Beat/Miss: Beat by +$0.76
• One Year Ago EPS: $0.23

Carvana Revenue Results

• Actual Revenue: $4.23 billion
• Expected Revenue: $3.94 billion
• Beat/Miss: Beat by +$294.77 million
• YoY Revenue Growth: +38.30%

Carvana Announcement Details

• Quarter: Q1 2025
• Date: 5/7/2025
• Time: After Market Closes
• Conference Call Date: Wednesday, May 7, 2025
• Conference Call Time: 5:30PM ET

Carvana (NYSE:CVNA) Co. was founded in 2012 by Ernest Garcia and two partners. Today Carvana is a leading used-car dealer nationwide, the fastest growing in the US and well-known for its chain of used car vending machines. The vending machines allow pre-approved buyers to pick up their purchases at one of 32 locations nationwide. Other buyers can have their vehicles delivered directly to their door or to a location of their choice. Ernest Garcia III remains as CEO as of 2022. He and his father, Ernest Garcia II, are among the company’s largest shareholders.

The company operates an e-commerce platform that provides an end-to-end car buying experience without the hassles of dealers or dealerships. The platform can offer no-haggle pricing by leveraging its database of used vehicles and readily available data for local car markets. Buyers can search for and find vehicles, view them using the website's propriety technology, obtain financing and even register their new car or get insurance.

The company’s rise to fame was meteoric. The first vending machine was launched in 2013, leading to the brand's rapid expansion. The 1st fully-automated vending machine was opened in 2015 and then later, in 2017, the company held its initial public offering. The company IPOd on the New York Stock Exchange and saw its share price quickly double, triple, and quadruple as used-car trends and growing brand recognition boosted sales.

The post-IPO years included major acquisitions, including vehicle-data company Carlypso and imaging firm Car360, which greatly enhanced the website and car-buying experience. In 2020, with the onset of the COVID-19 pandemic, the company initiated touchless delivery that allowed consumers to receive their vehicles with minimal interaction. Consumers can also sell their used cars to the company in exchange for cash or trade value. The trade-in business is a source of products for the company and is a key to its success.

All Carvana used cars are inspected a reconditioned by a team of industry professionals. They have no reported fire, frame or flood damage and are certified by CARFAX and AutoCheck data. Once purchased, consumers have 7 days to test drive and return the vehicle with no charge. The total number of retail units sold in F2021 topped 425,000 and resulted in $12.84 billion in revenue, or a growth of 129%. Cars that don’t make the cut are sold off through the wholesale unit, which is a significant portion of the business. The company has a presence in 47 contiguous US states and is planning to deepen and expand its coverage.

Legal issues began to mount in 2021 when the first of several states filed suit against the company. Among the complaints were a failure to properly register vehicles and deliver paperwork to consumers among other violations of state and local car-buying regulations. The suits have resulted in a number of states banning the company from operating, some indefinitely.

Carvana Q1 2025 Earnings Call Transcript

Presentation

[Meg Kehan, Senior Director, Capital Markets & Investor Relations at Carvana]

afternoon, ladies and gentlemen, and thank you for joining us on Carvana's first quarter twenty twenty five 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 first quarter shareholder letter is also posted on the IR website. Additionally, we posted a set of supplemental financial tables for Q1, which can be found on the Events and Presentations page of our IR website.

[Meg Kehan, Senior Director, Capital Markets & Investor Relations at Carvana]

Joining me on the call today are Ernie Garcia, Chief Executive Officer and Mark Jenkins, Chief Financial Officer. Before we start, I would like to remind you that the following discussion contains forward looking statements within the meaning of the federal securities laws, including, but not limited to, Carvana's market opportunities and future financial results that involve risks and uncertainties that may cause actual results to differ materially from those discussed here. A detailed discussion of the material factors that cause actual results to differ from forward looking statements can be found in the Risk Factors section of Carvana's most recent Form 10 ks and Form 10 Q. The forward looking statements and risks in this conference call are based on current expectations as of today and Carvana assumes no obligation to update or revise them whether as a result of new developments or otherwise. Our commentary today will include non GAAP financial metrics.

[Meg Kehan, Senior Director, Capital Markets & Investor Relations at Carvana]

Unless otherwise specified, all references to GPU and SG and 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?

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Thanks, Meg, and thanks everyone for joining the call. In 2018, we held an Analyst Day where we walked through the long term economics we believed our business model could deliver. That analysis resulted in us projecting a long term EBITDA margin range of 8% to 13.5% at a time when our actual adjusted EBITDA margin was negative 9%. For the last four consecutive quarters, we have been in that range and in Q1 in a seasonally weaker quarter, we were reporting 11.5%. This achievement is worth reflecting on and it begs an important question.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Why were we able to accurately forecast how our model would perform as a five year old newly public company that was significantly subscale and 20% of revenue away from our margin target? The answer is that the automotive industry is simpler when you zoom out than it looks when you zoom in. It is a mature industry with mature unit economics. It is highly fragmented with many industry players using similar processes with similar goals and similar underlying economics. This reality provides a lot of stability and makes the key to understanding any given player about understanding where they are different from the rest This is the method we use to determine our own long term financial model in 2018.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

We went line by line using automotive retail history, simple mental models for the way our industry works and a bottom up analysis of the differences in costs and revenues of our business given our novel approach. Zooming out has been predictive over the last seven years and we expect it to be predictive in the future as well. When we went public in 2017, we opened our S1 with a statement of our mission to change the way people buy cars. What we meant by this is that we wanted to build a business so differentiated in selection, experience and value that it just became the way people buy cars. We wouldn't have said that then if we didn't believe it.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

We've always believed it. But today, it is much more apparent externally that our mission is achievable. What happens when we continue growing selection and benefiting from the other positive feedback in our business? What happens when we continue unlocking and sharing value with our customers, further separating our offering in speed, experience and value? What happens when more people hear from their friends and family that buying a car from Carvana was fast, fun and fair?

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

What we think happens is that Carvana becomes the way people buy and sell cars. We are in an incredible position with an incredible business and an incredible team. In order to continue our rapid march toward fulfilling this mission, we are setting our next objective, to grow to $3,000,000 annual retail sales with 13.5% adjusted EBITDA margins in the next five to ten years. Given the position we're in and the fundamental gains we see in front of us, the path to that goal, which we currently view as both very exciting and very achievable is that we continue marching straight to 13.5% EBITDA margin and rapidly grow to 3,000,000 units while sharing significant additional value with our customers along the way. While we believe this is a likely path, we are too young a company that is too early in taking advantage of our opportunity and five to ten years is too long of a time to not have flexibility available to us.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Accordingly, it is important to communicate our priorities. Over the next five to ten years, we plan to prioritize growth over margin within reasonable margin ranges and plan to manage the speed of our growth to ensure we continue to deliver exceptional customer experiences and that we maintain high quality efficient operations. There are 40,000,000 used cars sold every year in The U. S. There are an additional 16,000,000 new cars sold every year.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Adding this up and using last quarter's unit sales annualized, we are still just about 1% of this market. It's very early in the Carvana story and we are firmly on the path to becoming the way people buy and sell cars. Mark?

[Mark Jenkins, CFO at Carvana]

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

[Mark Jenkins, CFO at Carvana]

Revenue was $4,232,000,000 an increase of 38% and also a new company record. Consistent with past quarters, our growth in the first quarter was driven by our three long term drivers of growth: a continuously improving customer offering, increasing awareness, understanding and trust, and increasing inventory selection and other benefits of scale. We believe as we continue on our path of profitable growth, each driver will improve creating more positive feedback in our model. Our strong profitability results in Q1 were again driven by sustained and fundamental improvements in GPU and operations expenses as well as levering our overhead expenses. Non GAAP retail GPU was $33.08 an increase of $97 Year over year changes were primarily driven by reductions in reconditioning and inbound transport costs and lower retail depreciation rates, partially offset by lower spreads between wholesale and retail market prices.

[Mark Jenkins, CFO at Carvana]

Non GAAP wholesale GPU was $964 a decrease of $189 Year over year changes were primarily driven by faster growth in retail units than wholesale vehicle and wholesale marketplace units and higher wholesale vehicle depreciation rates. Non GAAP other GPU was $2,868 an increase of $430 Year over year changes in other GPU were primarily driven by higher spreads between origination interest rates and funding costs as well as a higher attachment rate on vehicle service contracts. Non GAAP SG and A expense was $468,000,000 an increase of 20%. Q1 was another strong quarter for demonstrating the power of our model to lever SG and A expenses. Our 46% growth in retail units sold led to a $750 reduction in non GAAP SG expense per retail units sold.

[Mark Jenkins, CFO at Carvana]

The Carvana operations portion of SG and A expense totaled $16.58 dollars per retail units sold, a decrease of $192 driven by our operational efficiency initiatives. The overhead portion of SG and A expense totaled $160,000,000 an increase of $9,000,000 and a decrease of $449 on a per retail unit basis. We continue to see opportunities for significant improvement in per unit SG and A expenses over time and as we scale, driven by both continued efficiency and operational expenses as well as leverage in the fixed components of our cost structure. Adjusted EBITDA was $488,000,000 in Q1, an increase of $253,000,000 and a new company record. Adjusted EBITDA margin was 11.5% in Q1, a 3.8 percentage point increase.

[Mark Jenkins, CFO at Carvana]

Our adjusted EBITDA margin of 11.5% was industry leading and is well within our long term financial model EBITDA margin range of 8% to 13.5%. Our adjusted EBITDA is very high quality compared to many rapidly growing companies due to our relatively low non cash expenses. We converted approximately 80% of adjusted EBITDA into $394,000,000 of GAAP operating income and a 9.3% GAAP operating margin in Q1 leading the public auto retail industry. As previously noted, we currently carry many expenses that support retail unit sales and capacity of over 1,000,000 units and expect our GAAP operating income to grow faster than adjusted EBITDA over time. Q1 was a record quarter that again demonstrated the significant power of our business model.

[Mark Jenkins, CFO at Carvana]

Assuming the environment remains stable, looking toward Q2, we expect a sequential increase in both retail units sold and adjusted EBITDA leading to all time company records on both metrics. We remain on track to deliver significant growth in both retail units sold and adjusted EBITDA in FY 2025. In conclusion, our results in Q1 were exceptional and we remain highly motivated by our opportunity to continue driving significant profitable growth. Thank you for your attention. We will now take questions.

[Operator]

We will now begin the question and answer session. The first question comes from Ron Josey with Citi. Please go ahead.

[Ronald Josey, Managing Director at Citi]

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

[Ronald Josey, Managing Director at Citi]

And then the second question is more on pricing and on GPUs. And just wondering when you're managing the business and do you manage the business between retail GPUs and total GPUs, meaning that as you can benefit from improving retail GPUs, does that go into lower pricing, maybe impacting the retail GPU, but yet financing GPUs are better. So I'm trying to understand how we're taking these efficiencies pushing it to greater growth and now how that rolls up to overall profitability of the company. Hopefully that makes sense. Thank you.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Thank you. Okay. I'll try to be quick on the first one. I don't know that we have as much interesting stuff to say as others might. But I think as it relates to tariffs, I think we've heard reasonable arguments that I think are directionally correct that if tariffs drive up car prices all else constant, that's bad.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

And I think we've heard reasonable arguments that it would be more likely they would drive up new car prices by more than used car prices. And so it may be a directional benefit to used cars. And it may be a benefit to business models that are able to offer value to consumers, which a business model that we think we fit in that box. So we'll see how that works. I think the general approach that we try to take to this, and I think it's been true since the beginning we believe what matters in this industry is what are your expenses compared to everyone else?

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

What are your revenues compared to everyone else? And what is the experience you deliver compared to everyone else? And if you're better in those three things, then you're going to win. And the question is degree and the question is time, because it is a competitive industry. It's a mature industry.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

It's an industry that's very large. And it's an industry where many of the other players have shared economics. And so we try really hard to put all of our energy into those three things, because you can kind of chase a macro environment in circles. That said, we pay attention. I think the good news is we have an adaptive system.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Our system inherently adapts to what it sees. So if customers start to prefer less expensive cars, we'll automatically start buying less expensive cars. If the reverse is true, then we'll react in the opposite way. I think we've seen little gyrations over the last month or so. I think when tariffs were first announced, we saw a small pull forward of demand and we reacted accordingly.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

We like to try to keep sales approximately on our plan, keeps operations very smooth. So we pulled some levers to try to keep sales on our plan despite that little increase in demand. And then we saw probably a little bit of a trough thereafter, it feels like it's stabilized since. And I think overall, our expectations remain the same. So I don't think we have too much that's interesting there, but that's how we've been reacting.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

I think as it relates to pricing in general, I think we continually use this term fundamental gains. And I think the last couple of years have been pretty exceptional in this regard. I think we've demonstrated a lot of improvement in every expense line item, in every revenue line item, and we've done that well, giving customers improving experiences with improving NPS and similar value. And I think that that's very exciting. And we think we tend to have kind of our annual planning around this time.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

And we're setting our targets now for Q4 of this year and for Q2 of next year. And I think looking at the opportunities in every group, there again, very large and very exciting. And I think the hardest thing that we have to do is decide which things we're going to do and which things we're not going to do to try to stay focused and ensure that we get the most out of our effort along the way. But we still think there are very significant fundamental gains. And we think that in aggregate across the various line items, we're likely to take those fundamental gains and seek to share the significant majority of them with our customers to further separate our offering over time.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

And we think that we're in a position to do that because we think the economics are very strong. So just to give a quick walk, which is to some degree in the shareholder letter, we were 11.5% this quarter in a traditionally seasonally weak quarter. And so we think that that's very strong to begin with. We think there's a couple of points of fixed cost leverage from there. Even in marketing, which is not a huge line item at this point, our older, more mature markets with larger market shares are a couple of hundred dollars better than our average.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

We still think that there's very significant fundamental gains to be had. And I think when you start doing the mental math on that, it gets you well beyond our 13.5% target. But we view that as exciting because we think that that's fuel for future growth that we can share with customers. And we think we'll share it in many ways. It could be economic.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

It could be additional investments and experience. You've seen some of the stats we put in show of the letter. We're delivering cars materially faster. We're answering phones more quickly. We're getting fewer calls from customers because we've invested in digital tools that answer questions for them.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

So we're just becoming more efficient as a business overall. And I think that we will seek to continue to do that and to take these gains that we expect you'll get, but that we're going to have to work hard to go share them with our customers and see where that takes us. But we think the road in front of us is very clear and it's up to us to execute, we think we've got huge opportunity.

[Ronald Josey, Managing Director at Citi]

Super clear. Thanks, certainly. Appreciate it.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Thank you.

[Operator]

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

[Brian Nagel, MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.]

Hi, good afternoon. First off congratulations. I mean another very, very nice quarter. So congrats.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Thank you. We really do appreciate that. And we do keep track over here. Just remember coming up next.

[Brian Nagel, MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.]

So two questions. I'll put them together. I mean, first off, as part of the superior performance, you've been managing your retail GPU very well. I guess the question I have is where as you look at it from here, how should we think about from your standpoint the trajectory there kind of puts and takes both near and maybe longer term on that retail GPU? And then my second question, the longer term nature.

[Brian Nagel, MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.]

You introduced today the kind of newer new longer term financial goals for the company. So as we think about I've been recognizing the numbers you put out there over a long period of time. But what type of incremental investment are you starting to think about to sort of in a business to support those type of volumes? And when will we start to see that newer capacity so to say come online?

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

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

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

And so I think first and foremost, we try to get fundamentally better. And if we get fundamentally better, then we've got good options. One option is you show that in the bottom line and one option is you pass it back to customers either in price itself or in some other form of investment and drive incremental demand. And so generally speaking, I think that we feel like we're in a pretty good spot from an overall GPU perspective. And it's driving us to this place where the EBITDA economic walk that we did a moment ago gets you to very, very exciting places.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

So I think we're going to be managing kind of across the economics of the business to try to make sure that we're in a great overall margin spot. And we're going to try to get better in every sub line of every revenue line item and every expense line item. And we think we have visibility to do that and we'll seek to continue doing that. I think as it relates to investments to keep going from here, I think we are in a pretty unique and exciting position. We acquired ADESA several years back now.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

And through that acquisition, we got access to a lot of real estate. We've been methodically opening up our mega sites, which support both auction capabilities and reconditioning capabilities. And then we also have underutilized inspection centers ourselves. So I think we're positioned very well to kind of grow into that infrastructure. I think, of course, along the way, there will be investments.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Mark's given some CapEx guidance for this year. I'm sure over time, we'll continue to provide that. But I think relative to most companies with this kind of opportunity, I think there's a lot of kind of pre purchased infrastructure that we get the benefit of growing into. So I think we're in a great spot there and we're excited about it and we'll work hard to unlock it.

[Brian Nagel, MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.]

Thanks, Ernie. Appreciate all the color.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Thank you.

[Operator]

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

[Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co]

Great. Thanks for taking the question. I have one question just on the macro. And you have several questions being asked over the last few months around how is Kirvana positioned to tackle another recession maybe a severe recession. Could you help us understand like what's different now in the business versus 2021, '20 '2?

[Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co]

How should we think about the challenges you might create in the lending I guess in the lending markets gain on sale margins etcetera? If you could just walk us through like some of maybe two or three top aspects that are very different from 2022, which puts you in a better position to navigate a downturn? I have a quick follow-up. Thanks.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Sure. Okay. Well, started that question with a great and then you didn't follow it up. So was that great that it was your turn? Or was that great quarter just so we can keep our stats

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

on

[Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co]

Both.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Okay. Thank you. Okay. So mark that one down. Here's what I would answer.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

I think it's a good and fair question. I think the way that we would try to answer that one would be to point to the automotive industry in general. I think that we were a very, very different company in many respects heading into 2022, right? We were not a money making company. We were an extremely high growth company that was sprinting full speed in opportunity.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

And we felt at the time that we are supported by investors in that mission. And then I think we ran into our own issues. We saw interest rates shoot up in a way that was very unique. We saw car prices shoot up over a full year in a that was unique. And we were in a position where we had to dramatically change our strategy.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

And so I think there's just a lot of threads that came together at a single time there can give the impression of a pattern that we don't really think is predictive of where the future is likely to be. I think where we are today is we're the most profitable automotive retailer by a pretty long way. I think as measured by adjusted EBITDA margin, we're approximately twice as profitable as the average public automotive retailer. And that puts us in a very different position. We've got significant margin to work with.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

We've got significant cash balances. We're simultaneously growing very quickly. And I think that that suggested our ability to absorb variation in the macro environment is very, very different. And I think it's likely to look more like other automotive retailers that were profitable heading into downturns in the past. And in general, when you go back and look at that history, the changes were not very severe.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

I think you can also in any of these line items, can look at the history that we've generated over our relatively short life as a company. We've been through some real storms in finance GPU, for example, which I think is one of the areas that people tend to look at first when they ask these sorts of questions. We went through COVID and we saw finance GPU go down a little bit, but recover a quarter later. We went through 2022 and 2023 when you couldn't read a nice thing about us online if you search over and over again. And I think that we saw GPU go down a little bit, but not all that much.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Generally speaking, we are in a competitive market. Everyone else sees the same things that we see. Consumer credit gets worse, that gets priced in. If interest rates go up, that gets priced in. If car prices go up or down, that generally gets priced in.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

And so I think our expectation would be that it would be much more like other highly profitable automotive retailers have dealt with difficult environments in the past than it would be like 2022 or 2023. And we'll do our best to make sure that that's the case.

[Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co]

Got it. Got it. And just a follow-up on just like the lending backdrop. I mean, you added like a new partner last year. Curious where you are in discussions potentially adding more partners?

[Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co]

Do you see yourself having more partners or additional partners this year? Where are we in those discussions today? Thanks.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Yes, sure. I think we're stronger than we've ever been by a long way. I think our securitization program is stronger than it's ever been. I think we have more support in the residual sale portion of that, which is kind of more of the almost whole loan risk taking portion of those securitizations. We've got more buyers that are kind of recurring buyers than we've ever had.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

We've got obviously our Ally arrangement, which has been great for us over a long period of time and hopefully great for them as well. And we've also had large like pooled loan sales that we've done. We added another large pool buyer this quarter. And I think in general, we feel like we're in a really strong position there. We generate very high quality assets that have predictable cash flows and high yields relative to a lot of other assets that are available in the market.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

And so in general, I would say that, that feels as good as it's ever felt. And I think that that's reflected in the results that you see this quarter. We had exceptional finance GPU this quarter. And in general, it's been an improving trend over the last year and a half plus. So I think that that's reflective of those trends.

[Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co]

Understood. Great. Thanks for all the color and good luck.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Thank you. Appreciate it.

[Operator]

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

[Chris Bottiglieri, Analyst at BNP Paribas]

Hey, thanks for taking the questions. First one, I'm not sure if I heard you correctly, but it sounded like you recast the TAM to the $40,000,000 used plus new and now you're 1% of that TAM. So just in context of acquiring that small dealership that you bought in the franchise space, just currently thinking want to hear how you're thinking about the new vehicle opportunity?

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

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

[Chris Bottiglieri, Analyst at BNP Paribas]

Okay. That's fair. And then I was hoping to dig in on the ramp. Like you provided some interesting context in the shareholder letter like you can get to $3,000,000 in five years versus 10,000,000 and what that implies for like the weekly production capacity. I mean to do it in 5,000,000 you'd have to almost probably start that this year or this coming year to do that.

[Chris Bottiglieri, Analyst at BNP Paribas]

But I guess what are the steps you do differently to hit it in five years versus 10? Like how does that change your capacity needs? It's the same facilities, but I guess what do do differently to do it in five versus 10? Is it more demand based? Or is it more like how you approach investment and scale it up quite more quickly?

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Sure. Well, I think you referenced some data that we put in the letter that hopefully was helpful. But I think over the last twelve months, we've been simultaneously growing sales quite a bit and growing inventory. That means that we've been growing production pretty quickly. And so if you break that down to what we've been doing weekly, it means over the last twelve months, we've averaged increasing our production by about 80 units per week.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

And we've done that very consistently over that period of time. It's been a tremendous undertaking by the team. I think they've done an unbelievable job. But I think it also bodes very well for our future because if you that is kind of like the real fundamental operating unit that underlies growing at least production, which is our most complex and difficult to scale operational component of our business. And so if you look at that pace, we really don't have to increase it by very much.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

We estimate that we'd have to increase it to about 90 units per week over a ten year period to hit 3,000,000 sales. And so that feels very achievable and we need to be at about 180 units per week to hit 3,000,000 sales in five years, which sounds a bit further away. But I think it's also important to note that over the last year, we had on average about 23 locations that we were producing cars out of and we expect over time to have about 60 locations that we're producing cars out of. And production growth happens at a facility level and requires organization and leadership and hiring at all those levels. But it's something that is made easier certainly by adding more facilities.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

So we think that operationally, it's very achievable. It's going to be a lot of work. And there are other parts of the kind of operational chain that we've got to make sure we expand as well. But it's the kind of work that we think that we can do and it's a scale of that work that we believe we have we've achieved in the past or at least have been close to in the past. And so I think that's pretty exciting.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

And so I think our goal is going to be to go unlock that as quickly as we can subject to delivering great customer experiences with highly efficient operations to go get fundamental gains and share those with our customers and have that drive demand. Think generally speaking, if you look at the sum total of our life, we had an offering that has been pretty consistent over time and that very consistent offering has driven a lot of demand growth over an extended period of time. And we think looking forward, we're going to benefit from that same offering and we plan to make it better as we unlock additional fundamental gains. And so we think that should provide an ample amount of demand to get us to that level. Because again, 3,000,000 units is a big number, but it's relative the used market of 40,000,000 units, that's 7.5%.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

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

[Chris Bottiglieri, Analyst at BNP Paribas]

Got you. Good. Thanks, Ernie.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Appreciate it. Thank you.

[Operator]

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

[Sharon Zackfia, Partner & Head of Consumer Equity Research & Analyst - Restaurants, Lifestyle & Leisure Brands at William Blair & Company, L.L.C]

Hi. I feel a lot of pressure to say congratulations. So I will do so because I know

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

you're keeping You have forced. We're still going to count it.

[Sharon Zackfia, Partner & Head of Consumer Equity Research & Analyst - Restaurants, Lifestyle & Leisure Brands at William Blair & Company, L.L.C]

Feel that felt a little forced. It's a long day. It's long out here. So I guess I wanted to kind of drill back into the idea of reinvesting the gains with your customers in the future. I want to level set that that means future gains and we're not expecting kind of a retrenchment in GPU anytime soon because I'm getting pinged on that.

[Sharon Zackfia, Partner & Head of Consumer Equity Research & Analyst - Restaurants, Lifestyle & Leisure Brands at William Blair & Company, L.L.C]

So just if you could clarify that. And then secondarily, as you think about reinvesting kind of further gains with the consumer, how are you prioritizing where to reinvest that? I mean is it are there certain areas where there's just a really quick ROI that you know will catalyze conversion or catalyze traffic? Are there areas where you have like certain return thresholds that you're thinking about when you're thinking about this reinvestment? I think it's just a whole construct and I'd love to know what I think you said reasonable margin ranges.

[Sharon Zackfia, Partner & Head of Consumer Equity Research & Analyst - Restaurants, Lifestyle & Leisure Brands at William Blair & Company, L.L.C]

So I need you to define reasonable for me Ernie.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

You know we're not going to do that. But okay, so let's start with the first question. So I think we put in the letter and said early in the call that we'll prioritize growth over margin within reasonable ranges. And so I think that that does then beg this very reasonable question of like, okay, our margins going backwards, is that the plan? And so just to be crystal clear, we think five to ten years is a long time and it's important when you're a company that's 1% of the market to have flexibility.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

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

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

That if you can unlock that much that fast, there's likely more left. And we anticipate and we'll seek to go get more of that. And then we think that we will share that with customers. And I think when we share with customers, there's a number of ways you can do it. Our goal is a simpler, faster, more fun way to buy a car, where we offer more value.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

And I think when you talk about margins going backwards, I think everyone's head goes first to the value side and they imagine lowering prices, lowering rates, increasing bids on cars we buy from customers. All of that is certainly possible and on the table. And I think we will look to share value with our customers in the most intelligent ways we can over time. But I think that simple, faster and fun are also areas that are worthy of investment. And so that's the kind of areas that I think that we've invested in over the last year or two that are driving NPS near three year highs leading to the statistics that we put in the letter and we discussed earlier.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Generally speaking, I think if you make investments in customer offering, it is usually more work and it is harder and you're not only kind of you're generally investing focus, would say more so than dollars. And I think in the best case scenario, we'll seek to invest as much focus as we can to keep making the experience even better because we think that really matters. And oftentimes that's more efficient than dollars. But we're clearly in a spot where if you look at reasonable expectations of additional opportunities we can unlock. It is relatively large dollars and we think that that's exciting and we'll try to invest intelligently going forward.

[Sharon Zackfia, Partner & Head of Consumer Equity Research & Analyst - Restaurants, Lifestyle & Leisure Brands at William Blair & Company, L.L.C]

Okay. Can I follow-up on that? Is that as you're starting to kind of embark on these kinds of investments, are those things you're going to outline to us on The Street, so that we're aware of kind of where you're prioritizing that investment?

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

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

[Sharon Zackfia, Partner & Head of Consumer Equity Research & Analyst - Restaurants, Lifestyle & Leisure Brands at William Blair & Company, L.L.C]

Okay. Great. Thank you.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Thank you.

[Operator]

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

[Michael Montani, Analyst at Evercore]

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

[Mark Jenkins, CFO at Carvana]

Sure. I can hit both of those. So I think the offerings that we've been developing related to either wholesale or retail marketplace, I think are going well. I think we've talked a bit before about some of the fundamental opportunities we see to create a better offering for commercial sellers that gives them options to send a car to Carvana and either wholesale it through a physical auction in ADESA, wholesale it through our new digital auction offering that has been expanding this year ADESA Clear or to sell it via our retail marketplace offering. And so that's something where we see real fundamental gains in the time it takes to get a car from a commercial seller into the hands of the ultimate customer and also an opportunity to cut out costs out of the system in doing that same thing.

[Mark Jenkins, CFO at Carvana]

I'd say we're incredibly early in that story and thinking about what that can ultimately be. But I do think that it's a place in the industry where we see real fundamental opportunity for a faster and lower cost offering that makes everybody better. And so I do think it's something that we're excited about, but it's very, very early days and really thinking about what that can ultimately be. In terms of your question about what should I put into the model on ancillary revenue streams, and you mentioned a couple around third party reconditioning or logistics services. I think certainly we see opportunities in those areas.

[Mark Jenkins, CFO at Carvana]

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

[Michael Montani, Analyst at Evercore]

Thank you.

[Operator]

The next question comes from Jeff Licht with Stephens Inc. Please go ahead.

[Jeff Lick, Managing Director & Equity Research - Consumer & Auto Ecosystem at Stephens Inc]

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

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Our first tremendous. Thank you.

[Jeff Lick, Managing Director & Equity Research - Consumer & Auto Ecosystem at Stephens Inc]

No problem. I'm always trying to be a trendsetter. A question for Mark and then Mark I was wondering if you could just something in the data this quarter that surprised you? And then for Ernie, we're really only call it four years into COVID past COVID where you mentioned recurring customers. We see all these tremendous volumes that you're putting up.

[Jeff Lick, Managing Director & Equity Research - Consumer & Auto Ecosystem at Stephens Inc]

But the reality is that people really don't know you that well yet. I mean, we're still all operating under this pretense over the last forty to fifty years that you buy cars at a dealership. And so it still feels like you're very early in the adoption. And I could I'd be curious to know how you think about that and things that you're looking at in the data that says, hey, well maybe we're whether we are where we are in the adoption curve?

[Mark Jenkins, CFO at Carvana]

Sure.

[Mark Jenkins, CFO at Carvana]

Yes. So on the thing this quarter that surprised me the most, I have to say the aftermarket reaction initially to our earnings release today was probably the biggest surprise. I mean, think we had an unbelievable quarter, set records across almost every key metric. I think the numbers that we're putting up here with 46% retail unit sales growth in our roughly flat industry. I think leading the industry on adjusted EBITDA margin by nearly 2x, while growing at that 46% year over year growth rate, having very strong conversion of adjusted EBITDA to GAAP operating income.

[Mark Jenkins, CFO at Carvana]

So I think making us look very favorable on that metric compared to other many high growth technology companies. I think we're just really excited about all these metrics. We think Q1 was an incredible quarter. We're expecting sequential growth in retail units sold and adjusted EBITDA in Q2 as well. And so we're excited about that.

[Mark Jenkins, CFO at Carvana]

And so I just think the way we feel like we're positioned right now, the numbers that we're putting up, the way we're executing, I think we're very, very excited about. So I was certainly surprised to see that first few minutes reaction to our earnings print.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

If you ask me that question, I have another answer. I have what we deserve. But then to your second question, I think and I hope that you're right and I think that there's a lot of evidence that you're right. I think one of the many ways that we try to get customer feedback is every couple of weeks we have customer calls where we'll just call two customers give or take three customers for half an hour and just talk through their entire experience and we try to pair it where it's different kind of customers, maybe one week it's customers that bought an EV and one week it's customers that are repeat purchasers or customers that didn't have a perfect experience or whatever it is. And something that I would say is you learn a lot in those conversations because you're talking live with a person who made a choice to buy a $20,000 thing on a website.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

And you definitely hear the stories of, my friend or neighbor told me that it was great and so I went and did it. And you also definitely hear stories that are more like I would say, we hear more of these stories that are more like, well, I was searching online. I had kind of seen your logo before and knew that it was a thing. The car looks good. The price looks good.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

And I kind of searched around and I saw a picture of a vending machine and that seems like it was real. So I figured you guys were real company and I decided to go for it. And to me that's a bit of a bummer from like a brand building perspective, but I think it's incredibly exciting from an opportunity perspective, because I do think that if we want to become the way that people buy cars, the way that you do that is it no longer is a friend of a friend that heard that Carvana is a pretty great way to buy a car. It's three or four friends and neighbor and a family member who say, just go to Carvana, it's easy, like why would you do anything else? And I think because this market is so big and people buy cars once every five or six years, I think it takes time to build the kind of brand that we want to build.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

But the most important input is deliver great experiences to customers one at a time and give them an offering that's truly differentiated and we think that we're doing that. So I think that it is still early and we're excited. And I think that one of the frameworks that we try to use to evaluate that question is, there's always kind of like the awareness question, which is you can always hit people up on surveys and try to get a sense of what is awareness. I think in awareness, we're generally pretty good. And to put it into this customer discussion language, think that oftentimes means, I saw your logo before, right?

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

I have some sense that you're a thing in the world. And so I kind of know that you exist. And then there's understanding, do they really know that we've got a broad selection, they really know that the person experience is very simple, they really know that they can get financing in minutes, they can get a value for their car and attach the trade and have it delivered to their door. Do they really know that they have a seven day return policy? And I think that understanding is where I think we tend to have lower levels of understanding.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

I think that's a real opportunity for us. And then I think the last thing is when you click buy it, it comes down to trust. Do you believe that you're going to get a high quality car? And if there's something wrong with it, you'll really be able to return it. And to me, that's friends and family and neighbors.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

And all that points in the same direction. It says we just got to keep delivering great experiences. And I think all of the data is pretty exciting around that as well because we do see that adding up. We see that our older markets have higher market shares than our newer markets. And we don't see that our growth story today is newer markets catching up to older markets.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

We see that all markets continue to grow at rates that are pretty exciting. I think versus our previous best Q1 at the company level, our sales are up about 25%. If you look at our two of our larger markets where we've historically had very large market shares, Atlanta and Phoenix in both those markets, they're up about 25% versus their previous first quarter high. And so I think that suggests that even later in life, we are continuing to build awareness, understanding and trust in these markets. And we're excited by that and think we have a long runway in front of us.

[Jeff Lick, Managing Director & Equity Research - Consumer & Auto Ecosystem at Stephens Inc]

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

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

So I think we have an incredible marketing team that puts together incredible creative assets and we've got a very thoughtful quantitative marketing team that does a great job trying to get those assets in front of people. And I think that we've tried a lot. What I'll say is, if you go back and like the Wayback Machine and look at the first version of website, it was basically five bullet points about why we thought it was the right way for consumers to buy cars. And it turns out it was a surprise to me, but it turns out that five bullet points about the economics of car buying don't have it being that persuasive to consumers. Think marketing is one of these very, very difficult and very important problems where it's hard to get someone's attention and get them to open their mind to hear a message that is a little bit different.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

But we've got great teams that work hard to do that. And then I think very importantly, we've got the sum of the Carvana team that works incredibly hard to make sure that when a customer does decide to buy from us, they've got a story to tell and that story is compelling. And that we're very confident works over time. So I think we'll continue to try to tell our story. We'll try to tell the vehicle quality story.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

I think you're right. If someone wants to give us ten or fifteen minutes or maybe even two or three minutes of attention, I think we can tell a very compelling story about vehicle quality. And many of you have seen that out of our inspection centers. But that's not super easy with millions of consumers. It's hard to get their attention to tell that story.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

And I think trying to explain experience ease, we'll continue to work on. I think that we've got some great swings out in the past. We've got some great ideas. We've got fun ads that are coming out all the time. And I would encourage you to take a look at those.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

But yes, that's a recurring problem that I think will take a long time and I think it bodes well.

[Jeff Lick, Managing Director & Equity Research - Consumer & Auto Ecosystem at Stephens Inc]

Awesome. Well, on the stock still up. So we'll talk to you soon.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Messed it up. Yes. Thanks.

[Operator]

The next question comes from Daniela Higgin with Morgan Stanley. Please go ahead.

[Daniela Haigian, Vice President - Equity Research at Morgan Stanley]

Hi, Ernie and team. Thanks for taking the question. On the financing side, I appreciate your comments on the additional whole loan buyers added to the platform. In that vein, can you comment on gain on sale? It looks like it increased sequentially to over 11% of receivables sold this quarter, impressive considering the market backdrop.

[Daniela Haigian, Vice President - Equity Research at Morgan Stanley]

Can you speak to your various loan monetization channels profitability across each? What's driving the higher gain?

[Mark Jenkins, CFO at Carvana]

Sure. So I can talk about that. I mean other GPU is one of the places and this would include finance GPU where we're really focused on continuing to make fundamental gains. And I think those fundamental gains take a couple of different forms. One is just improving the platform itself.

[Mark Jenkins, CFO at Carvana]

So that's continuing to make improvements to our credit scoring and pricing and underwriting and using more and more data and continuing to optimize and just get smarter and smarter on the lending side of the platform. In addition, gains means doing things to lower our cost of funds. And I think

[Mark Jenkins, CFO at Carvana]

that can

[Mark Jenkins, CFO at Carvana]

be things like bringing new buyers to the platform for example. And so I think that can have a positive impact. I think we still we've made lots of gains in both of those areas and still see meaningful opportunities for further fundamental gains in both of those areas. And so that's certainly a place where we will be looking to continue to make further fundamental gains. In terms of some of the more specifics on the quarter, if you look year over year for example, I do think benchmark rates benchmark rates are moving around a bit and our spread of origination rates to benchmark rates was a little wider this quarter than it was in some previous quarters.

[Mark Jenkins, CFO at Carvana]

And so I think that's a driver as well. But I think most importantly, the most important driver is our teams are just working to make continued fundamental gains both on the lending side of the platform as well as on the monetization side.

[Daniela Haigian, Vice President - Equity Research at Morgan Stanley]

Thanks.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Thank you.

[Operator]

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

[Marvin Fong, Director at BTIG]

Great. Thanks

[Marvin Fong, Director at BTIG]

for taking my questions. Congratulations the strong quarter. I would like to obviously you guys are producing like crazy here. How should we think about your ability to continue to source I think it's 80%, eighty five % of your retail units from consumers? Are you going to be able to sustain that?

[Marvin Fong, Director at BTIG]

Do you feel like your access to the wholesale marketplace can help you satisfy the demand there? And the second question just to go to maybe an old school metric, but it looks like your conversion rates are doing quite well on roughly the same traffic. Your unit sales are up. And I was just wondering if you could double click on that. Is it being driven by the improved delivery availability and things you're doing on that front that you've talked about in the past?

[Marvin Fong, Director at BTIG]

Or whether it's something about this quarter with tariffs and the urgency there that on the consumer part? I know you mentioned there wasn't much there, but potentially had some noticeable impact on the numbers. Just anything you could provide on conversion rates would be great. Thanks.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

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

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

I think one way to evaluate that is to look back to when we were one sixth of our current size, which is around six years ago, give or take, six point five years ago maybe, we were approximately one sixth of our current size. And I think since then, generally speaking, our offering has been very similar. I think we have added some capabilities, our economics have gotten better. But for the most part, I think the simplest explanation would be the kind of mental model that this industry has very stable economics across the sum of the transactions when you add up retail and finance and wholesale and everything that's available. I think that mental model has held up tremendously well and has been very predictive and is why we were able to put together a long term financial model and then hit it seven years later.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

So I think when we look forward, we expect the same to be true. I mean 40,000,000 transactions is just consumers that own two seventy million cars trading with each other every six or seven years. That's what 40,000,000 transactions is. And the machine that we're trying to build, the sum of buying cars from customers plus selling cars to customers plus having access through our Adesto platform and additional capabilities we're building out with Adesto Clear is about playing a big role in that system. And our growth has generally come from taking market share and displacing others in that system.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

But the economics that the system offers have remained remarkably stable over a long period of time, and we expect them to continue to remain stable. So I think we'll continue to grow in the same ways that we have. I think generally speaking things have been very stable and that's our expectation going forward as well for I think deep fundamental reasons.

[Marvin Fong, Director at BTIG]

That's great. Thanks so much Ernie. I appreciate the insight.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Thank you.

[Operator]

The next question comes from Alex Porter with Piper Sandler. Please go ahead.

[Alexander Potter, MD & Senior Research Analyst at Piper Sandler Companies]

Perfect. Thank you. Great quarter. Wow. It actually was a very good quarter.

[Alexander Potter, MD & Senior Research Analyst at Piper Sandler Companies]

Don't want to be facetious.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Appreciate it.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

We appreciate the wow too and the pause. A little drama.

[Alexander Potter, MD & Senior Research Analyst at Piper Sandler Companies]

Yes. So I'll just keep it to

[Alexander Potter, MD & Senior Research Analyst at Piper Sandler Companies]

one question here. Obviously, it's exciting to see this new framework.

[Alexander Potter, MD & Senior Research Analyst at Piper Sandler Companies]

Once you get into the millions of units,

[Alexander Potter, MD & Senior Research Analyst at Piper Sandler Companies]

presumably you're going to be reaching down market in terms of pricing. Obviously, if it's a fifteen or a 20 old car that's selling for a couple of thousand dollars on Craigslist or something that counts as a transaction, but presumably the economics aren't as attractive or might be less sort of ancillary finance BSC type stuff and more pure retail GPU. So if you can comment on how you expect your own economics to evolve over time as you reach down into those lower price points that would be very interesting? Thanks a lot.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Yes, sure. What I would say is I think we don't necessarily expect to need to evolve all that much in terms of the distribution of cars that we're selling. I think that that's an opportunity for us, but it's not obvious that it's a need. I think if you look at used cars sold in The U. S, the significant majority are less than ten years old, which is a subset of cars that we're selling today.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

I think it's something on the order of 85% give or take, but that number might not be exactly right, but cars sold are less than ten years. And so today, if you go to our website, we're selling cars across that spectrum. I think you can break those sales in other ways as well. Franchise dealers generally have about a third of the 40,000,000 transactions, call that kind of 14,000,000 independent dealers generally have around a third give or take and then private party has around a third. And I think those numbers from different sources can vary a little bit, but you're talking about millions and millions of transactions in all of those buckets.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

So I think we're currently reasonably broad, but I think there is room for us to go both upmarket, where I think we have a decent amount of opportunity and I think a little bit downmarket. And I think this market is just very, very big and the opportunity is significant. So I think as we head from here to $3,000,000 it's not obvious that our average sale needs to move all that much. We think that what we're selling today is likely to be pretty reflective of what we'll be selling at that point.

[Alexander Potter, MD & Senior Research Analyst at Piper Sandler Companies]

Super helpful. Thanks a lot guys.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Thank you.

[Operator]

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

[Michael Mcgovern, Analyst at Bank of America]

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

[Michael Mcgovern, Analyst at Bank of America]

Thank you.

[Mark Jenkins, CFO at Carvana]

Let me start with the second one of those questions. So I think the seasonal pattern in retail GPU typically we think of Q4 and Q1 being the lower quarters of the year and Q2 and Q3 being the higher quarters of the year. And I think that's a reasonable expectation for this year based on what we're seeing as well. So that isn't that's sort of the normal seasonal pattern and no reason to think that this year would be any different on that front at this time. I think on your question about tariffs and parts impacting recon costs, I think we'll see.

[Mark Jenkins, CFO at Carvana]

I think we'll see exactly how these tariffs end up playing out. But I think beyond taking a wait and see approach, I think we're not making any particular prediction about that at this point.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

And the one thing that I would add there is I think the mental model that has been reasonably predictive is that we're in a competitive market with others that share similar cost to us. And so to the extent there's some input cost that changes, generally speaking, the way that that is played out is that that input cost is passed through. I think the simplest way to see that that is the case is just to look at like the retail GPUs of all of the various automotive retailers over a long period of time, where over the last five or six years we've seen enormous swings in car prices. We've generally seen pretty stable retail GPUs. And I think any other shared cost is more likely than not to have that same kind

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

of relationship in the future.

[Michael Mcgovern, Analyst at Bank of America]

Got it. Thank you.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Thank you.

[Operator]

The next question comes from John Colantoni with Jefferies. Please go ahead.

[John Colantuoni, Equity Research Analyst, Internet at Jefferies]

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

[John Colantuoni, Equity Research Analyst, Internet at Jefferies]

Thanks.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Sure. Well, so I think we gave kind of our long explanation of the way that the operation has been working over the last year, which I think is one helpful way to think about what we've been able to unlock over the last year. I think I'm going need one more operational and I'll swing back to demand. I think another thing to keep in mind is operationally, I think that we produced on a per facility basis at significantly higher rates and we've grown significantly faster per facility than we did over last year in the past. In 2018 through 2021, we had significantly fewer facilities and we were ramping sales at a very fast rate.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

If you kind of do the math on a per facility basis, we were growing pretty quickly. So I think that there is plenty of data in our history to suggest that we can execute at that level. And then I think on the demand side, I think generally speaking, we've had an offering that's been very stable and we've moved through several orders of magnitude as we've grown the business. And I think generally speaking, our economics have been very stable across several orders of magnitude and our consumer offering has been very stable across several orders of magnitude. And we think that that's because we have an offering that customers love that is very simple and gives them a broad selection and great value.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

And as we grow, there is positive feedback just directly in the system, even as it relates to just conversion of existing customers. As you have more cars, odds that a customer finds a car they're looking for go up. As you have more cars at more inventory pools, you can deliver cars faster. And so there's some benefits there to conversion. So I think historically, demand has not been the governor on our growth.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Generally speaking, it has been more our ability to operationally handle it. And I think looking forward to the market of this size, I think we'll work hard to make sure that we're delivering great experiences that in turn turn into demand and then we'll work hard to make sure that we're operationally fulfilling that demand as best we can. But we certainly think that the $3,000,000 is a very achievable number over time.

[John Colantuoni, Equity Research Analyst, Internet at Jefferies]

Great. Thank you.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Thank you.

[Operator]

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

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

Thank you. Well, thanks everyone for joining the call. Really appreciate it. Carvana team another awesome quarter. Thank you guys so much.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

I really do think these results have just been kind of a hit parade over the last several quarters. And I hope you're incredibly proud of what you're building. And I hope you take a moment to be proud, but you don't let it go to your head and we keep fighting because we got a lot of building left to do. We got new goals. And I think we have every opportunity to go chase them down.

[Ernie Garcia, President, Chief Executive Officer and Chairman at Carvana]

So thank you all so much and let's go do it. Thanks everyone.

[Operator]

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

Participants

Executives

• Meg Kehan, Senior Director, Capital Markets & Investor Relations
• Ernie Garcia, President, Chief Executive Officer and Chairman
• Mark Jenkins, CFO

Analysts

• Ronald Josey, Managing Director at Citi
• Brian Nagel, MD & Senior Analyst - Consumer Growth & eCommerce at Oppenheimer & Co. Inc.
• Rajat Gupta, Executive Director, Autos at JP Morgan Chase & Co
• Chris Bottiglieri, Analyst at BNP Paribas
• Sharon Zackfia, Partner & Head of Consumer Equity Research & Analyst - Restaurants, Lifestyle & Leisure Brands at William Blair & Company, L.L.C
• Michael Montani, Analyst at Evercore
• Jeff Lick, Managing Director & Equity Research - Consumer & Auto Ecosystem at Stephens Inc
• Daniela Haigian, Vice President - Equity Research at Morgan Stanley
• Marvin Fong, Director at BTIG
• Alexander Potter, MD & Senior Research Analyst at Piper Sandler Companies
• Michael Mcgovern, Analyst at Bank of America
• John Colantuoni, Equity Research Analyst, Internet at Jefferies