Carvana Co. Class A Aktie

Good afternoon, and welcome to the Carvana First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

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

Thank you, Gary. Good afternoon, ladies and gentlemen, and thank you for joining us on Carvana's first quarter 2026 earnings conference call. Please note that this call is being webcast and can be accessed along with our Q1 shareholder letter and supplemental financial tables on the Investor Relations section of the company's corporate website at investors.carvana.com. 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 this 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 these factors can be found in the Risk Factors section of Carvana's most recent Form 10-K. These forward-looking statements are based on current expectations as of today, and Carvana assumes no obligation to update or revise them. Our commentary today will include non-GAAP financial metrics. GAAP reconciliations can be found in the shareholder letter posted on our IR 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 first quarter was another outstanding quarter for Carvana. It was another quarter full of records, including a record 187,000 cars sold in a single quarter, a record GAAP operating income of $581 million and record adjusted EBITDA of $672 million, and it was our ninth straight quarter of being the most profitable and fastest-growing automotive retailer as well as our sixth straight quarter of 40% year-over-year growth. The quality of our customer offering, the fact that it naturally gets better as we get bigger and our experience over the last 13 years lead us to believe the demand is available at the speed that we are able to scale the business effectively. As it has been since the beginning, we expect our execution will be the biggest determinant of the speed and degree of our success. Execution in a complex operational scaled business like Carvana that is growing at 40% is an inherently difficult problem. While the best-case scenario in a vacuum is to avoid bumps in the road, those bumps are a reality of building ambitiously.

This means success requires building a better system with better scaling properties and assembling a team and building a culture that drives intensity, focus, accountability and resilience. With the right team and culture, the bumps in the road create pressure that makes us better. In the fourth quarter, we hit a bump in recon that gave us another chance to prove that we assembled just such a team. The Recon team is using that pressure to make us better. When we realize we are off track a bit, the first thing the team did was turn out the operational intensity across the network, setting higher expectations for each facility and leaning into the operational structures we've built over the last several years. This allowed us to make rapid progress nationwide. In addition, they quickly assess the underlying cause of the variation in facility performance, most notably newer managers that could use more detailed directions and more powerful tools to help them execute at the level we were aiming for and adjusted their road map to prioritize building the tools that mattered most immediately.

Over the last couple of months, they built additional data integrations, developed tools to help managers make faster, higher quality decisions, and how they staff their lines, and how they optimize flow through their paint lines and implemented a productivity tracker to ensure feedback reaches the right groups quickly. To accomplish all this and to ensure the tools address real-world operational needs, the product team spent weeks on the ground in the facilities that needed it most, rolling out testing and iterating with the operators until they are making a real measurable difference. We'll continue to iterate on these tools, and we'll roll them out to the rest of the facilities over the coming months. The result is that, so far in April, we are operating just shy of our all-time best and labor efficiency throughout the network. This will take a little time to flow through to the financials as cars carry the cost of reconditioning at the time they were produced, not at the time they were sold. We still have a ton of work to do across reconditioning and other operational and technology teams, but every time a team reacts that quickly to a problem that excites us. Once again, the people on team Carvana have proven that they are exceptional that they're resilient that they are up to the challenges we will inevitably face as we scale Carvana to millions of transactions per year. We remain firmly on the path of achieving our mission of changing the way people buy and sell cars and is selling 3 million cars per year to 13.5% adjusted EBITDA margin by 2030 to 2035. The March continues, Mark?

Thank you, Ernie, and thank you all for joining us today. Unless otherwise noted, all comparisons will be on a year-over-year basis. Q1 was a strong quarter driven by our team's continued focus on profitable growth and strong execution. We set new company records for retail units sold, revenue gross profit, SG&A expense per retail units sold, GAAP operating income and adjusted EBITDA. Retail units sold totaled 187,393 in Q1, an increase of 40%, and a new company record. Revenue was $6.432 billion, an increase of 52%. Revenue growth exceeded retail units sold growth primarily due to traditional gross revenue treatment for certain vehicles acquired from a large retail marketplace partner. 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, increase awareness, understanding and trust and increasing inventory selection and other benefits of scale. The first quarter marked our ninth consecutive quarter of industry-leading retail unit growth and margins. Non-GAAP retail GPU decreased by $58, primarily driven by higher non-vehicle costs and lower shipping fees.

Looking ahead to Q2, we expect retail GPU to increase sequentially, but to decrease year-over-year due to approximately $100 of tariff-related benefits last year, lower shipping fees and higher non-vehicle costs this year and approximately $100 to $200 of impact from narrower industry-wide wholesale to retail spreads this year. Non-GAAP wholesale GPU decreased by $83, primarily driven by increased wholesale vehicle volume and gross profit per unit that was more than offset by lower wholesale marketplace gross profit and growth in retail units that outpaced wholesale gross profit. Non-GAAP other GPU decreased by $88 primarily driven by our decision to give back to customers in the form of lower interest rates, partially offset by higher finance and VSC attach rates.

Q1 was another strong quarter for levering SG&A expenses. Our 40% growth in retail units sold led to a $170 reduction in non-GAAP SG&A expense per retail unit sold, including a $36 reduction in operations expenses and a $226 reduction in overhead expenses. Advertising expense increased by $92 per retail unit sold as we continue to invest in building awareness, understanding and trust in our customer offering. With a nearly 2% market share in the U.S. used vehicle retail market compared to approximately 20% e-commerce adoption in non-automotive retail verticals, we believe we are in the early days of customer awareness and adoption of our model. We continue to see opportunities for significant SG&A expense leverage over time and as we scale, driven by both continued improvements in operational expenses as well as leverage in the fixed components of our cost structure.

Net income was $405 million in Q1, an increase of $32 million. Net income margin was 6.3%, a decrease from 8.8%. Adjusted EBITDA was $672 million, an increase of $184 million and a new company record. Adjusted EBITDA margin was 10.4%, a decrease from 11.5%, primarily driven by increased retail revenue per unit, resulting from the traditional gross revenue treatment mentioned previously. GAAP operating income was $581 million or 86% of adjusted EBITDA, an increase of $187 million and a new company record. As discussed in prior quarters, we continue to drive toward investment-grade quality credit ratios over time. In Q1, we again reduced our net debt to trailing 12-month adjusted EBITDA ratio to 1.1x, our strongest financial position ever. Q1 was a record quarter that again demonstrated the significant power of our business model.

Looking toward Q2 and assuming the environment remains stable, 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 full year 2026.

In conclusion, our Q1 results were outstanding. Our team is intently focused on driving profitable growth. And we remain excited about progressing toward our goals of becoming the largest and most profitable audit retailer and buying and selling millions of cars.

Thank you for your attention. We'll now take questions.

[Operator Instructions] The first question today is from Chris Pearce with Needham.

Ernie, in your remarks, you said -- you talked about new tools at underperforming sites where there are new managers. I just want to understand, do these tools -- these are brand-new, and these could help top-performing sites further improve, or these are to bring those underperforming sites in line with the -- your top performing sites.

Sure. Well, first, I want to start with just giving gratitude and credit to the reconditioning team. I think they took it very personally and hard when we didn't have a perfect fourth quarter, and they reacted extremely effectively. And that's why I wanted to make sure that I spent some time in our comments, giving them credit. I'm extremely impressed and proud of how hard they work, and how quickly they made a difference. I think there were a number of things that were done. The new tools that were discussed are net new tools. And those are tools that we hope will drive additional fundamental gains over time. I think that will take time, and we'll see how powerful that ends up being. But I think they're fundamentally value-added tools that are not in the vast majority of our facilities yet. So we'll roll those out over time. And I think to me, the way that -- we hope that this goes over the next many years as we're scaling a big business, it's operationally complex very quickly. I think we're inevitably going to run into bumps in the road. And every time you run into a bump, I think it's a chance to reevaluate what you're doing and to try to learn from that and get a little better. And I think the team dug in. I think they reevaluated their road map. I think they found new opportunities that are potentially bigger, and I think they focused and made a huge difference quickly, and I think we're very excited about those opportunities. So to me, I wouldn't want to set expectations too high beyond. We think we're very much back on track, but I think if we had to pick a direction, the tooling that we're building, I think, is exciting, and it's more room for fundamental gains over time.

Okay. Perfect. And then just kind of a bigger picture question. New vehicle prices, tariffs, gas prices, do you think there's some portion of people tapping out and dropping down to use? And could we see when off-supply and more supply comes back used go north of 40 million units for a couple of years because of this? And if that did happen, would that affect other GPU as you guys tilt more prime versus subprime, or -- I just would love to hear your thoughts on that.

Sure. I think I mean car prices are high. I think these numbers won't be exactly right, but the last number that I remember is kind of pre-pandemic. I think general consumer goods are up 25%, give or take, and I think cars are up 35% to 40%. So I think car prices at all else constant, are and that has to be impacting people. I think generally, the kind of elasticities for cars at like the aggregate level are not super high. People need cars to live their lives and they get hired the car they own. And so I think you generally see aggregate transactions that are relatively stable. I think there is room, though. All the things you pointed to are things that are probably directional positives for the overall market size over time. But I think realistically, the scale of those positives relative to the sale of our growth is just very small. And so I think our view is that most things that happened to the market are going to impact us in a proportionate way. But what we are doing ourselves is dramatically more powerful than that. And so we try to stay really focused on all the fundamental tools that we're building and just making sure that we're delivering great customer experiences and doing all the hard operational work to make sure we can scale effectively. And then I think on your last point on rates and shifting between prime and non-prime customers, I think, first of all, our balance of customer credit is pretty similar to the market overall. And then I think the profitability per retail unit sold for prime versus non-prime is not different enough to where moves in those distributions matter all that much to the overall other GPU. So generally speaking, I think that would fit in the same category. We think it's -- those things can move around. There will always be a little macro effects that move things around by tens of dollars, give or take. But in general, the most important thing is that we keep delivering great customer experiences and stay focused on us. And so that's where our focus remains.

The next question is from Daniela Haigian with Morgan Stanley.

So my first one is on SG&A leverage. Most line items this quarter, including logistics, came in lower as a percentage of sales versus the run rate we've been seeing in the last few quarters. How should we be thinking about operating leverage in fixed costs, Mark, you mentioned that? And then more near term, how should investors think about logistics expense in a rising fuel cost environment.

Sure. I can hit that. So I think it's helpful to break that down into a couple of different categories. So one, operations expense, that's the expenses associated with executing the transaction, providing customer service, filling the transaction via our logistics network and last mile delivery network and all of those sort of expenses that are more variable in nature. I think we had a strong quarter on that front with operating expenses, down slightly year-over-year. I think in the longer term, we definitely see an opportunity to march those down further on a per retail unit basis. In any given quarter, they can be impacted. You mentioned fuel prices, that would definitely have an impact because because logistics is part of that operations expense. I wouldn't expect that impact to be particularly large, but there's some impact there. Then the second category of expenses is overhead expenses there, that's an area where we've shown a lot of strong leverage. I think overhead expenses are expenses that are more fixed in nature. They can grow due to investments that we make. For example, we're making some investments now in additional technology, including AI-related technology that would be in that overhead expense number. So that can grow. But it's much more fixed in nature, and we do expect to see significant leverage in that overhead line item over time. So those are two of the big categories to stay at the third. We have been marching up advertising spend. We think given where we are in our company's life, we think there's still a lot we can do to continue to raise that understanding, awareness and trust of our offering. We're in the relatively early days of online auto retail adoption. Obviously, we're playing a big role in telling that story, and we think there's a lot of value to us continuing to invest in advertising. So those would be the three big categories, and I've walked you through some of the dynamics.

Mark, that's helpful. Second question, a bit longer term on CapEx long term. So recognizing you're only 20% utilized on your current real estate capacity of $3 million. But at this rate of growth, you're going to need to think about build beyond that over the next few years. And you had a helpful exhibit in last quarter's investor letter on eventually building out greenfield production. What would that look like? What's the team's philosophy on building that capacity?

Sure. So the way I think about our production growth plan, and I think a lot of our capital investment is really related to just growing production and production facilities. Right now, there's multiple ways that we're doing that. One is just adding staffing into existing facilities. That's no CapEx. A second is we're integrating ADESA locations, which basically means going into existing ADESA buildings that have already been constructed implementing our car lead proprietary software system to do inventory and reconditioning management in those centers, adding some equipment. And that's a very CapEx-light way to add production capacity. The third way is to actually start doing full build-outs of existing ADESA facilities. The way to think about that is we've got the land, but we can expand the buildings and structures in order to add more production lines into those facilities. We did talk a little bit about that in our last letter. We think those are very high-quality investments to be making and expect to start making those investments over the course of this year. And then last is greenfield IRCs. That's not a priority at this time. I think the I think our bigger priority is executing those first three types of production expansion. Up to this point, we've been really focused on the first two ramping capacity in existing facilities and integrations. This year is the year where we'll start doing some of those full build-outs, which we think make a lot of sense.

Next question is from Rajat Gupta with JPMorgan.

Great congrats on the execution around the reconditioning costs. I had a question on the wholesale retail spread comment, Mark, that you made in the prepared remarks, is that impact that you're already feeling in the month of April based on how retail prices are tracking? Or is that more of an expectation around May and June or baking in some sort of slowdown in demand because of gas prices and just sentiment tied to the war. Any more color around that 100 to 200 wholesale retail spread headwind would be helpful. And I have a quick follow-up.

Sure. Yes. So I think the -- what we're seeing on spreads and what we've seen year-to-date, it really starts with a very hot wholesale market in Q1. So I think wholesale prices really appreciated in Q1, and that appreciation can happen in any given year as a lead up to tax season, but the appreciation in the wholesale prices that we saw early this year at both started earlier and it was of a larger magnitude than we've typically seen in past Q1. And so I think a strong wholesale market, which did benefit us, we had one of our highest quarters ever on wholesale vehicle gross profit per wholesale unit sold in Q1, commensurate with that hot wholesale market. But I think what we're seeing is that wholesale appreciation wasn't fully passed on into retail prices, and that's causing a little bit of that wholesale to retail spread compression that we're pointing to.

Got it. Got it. That's clear. And just to follow up on the previous question around SG&A. Did the sequential pickup in the overhead expenses. It's just the other the yard cost is probably the highest we have seen in a while from 40 to 1Q, particularly since the turnaround. You mentioned some investments around AI and stuff. Any way you could double click on that, give us a little more detail around what's going on. Are there any one-timers, maybe some of the new car acquisitions? Just a little more grounded there would be helpful. And any color on overhead expenses for the year would be helpful.

Yes, sure. Yes. So I think there are some seasonal or onetime components in there as well as some investments. So we typically see -- Q1 is a high quarter for payroll expense related to share-based compensation because we typically have large vesting of share-based compensation in Q1 larger than some other quarters. In addition, the weather events in Q1 actually did have some impact on overhead expenses, where we spent much more than a typical winter quarter on snow plowing and removal. And so that is in that number. There are ongoing investments, things that I wouldn't think of as seasonal or one time, including technology investments, some incremental investments in facilities. That, I think, will have us operating at a higher level on overhead expenses than we were in 2025. But I would not expect to see overhead expenses to increase at a rate like that. I think thinking of Q1 is something more like a new level is probably more appropriate.

The next question is from Sharon Zackfia with William Blair.

Congratulations on getting wholesale ops back up and running. I guess -- well, it was running, but more and more optimized. I guess with that, it sounds like you might be positioned to hold retail GPU for the full year. And I'm curious on your thoughts on that in terms of seeing an improvement in the back half of the year again?

Sure. I think we try to stay away from giving too much precise color there, but I think all the things that we've generally kind of set in the past, we continue to believe. I think there's a little bit of seasonality in those numbers. And then I think we have fundamental gains that we're going to continue to seek to attack. And then I think across the sum of the GPU line items plus expenses, we feel like we've got clear visibility to 13.5% adjusted EBITDA margin, which is our goal. So yes, I think there's been -- there's always like a couple of little interesting stories that pop up from time to time, whether it's gas prices or impacts from Iran or Recon expense or whatever it is. But I think as a general matter, we think we're in an environment that looks similar to the past, and we're just going to keep chugging forward.

I think secondarily, sorry, I'm losing my voice. For the OBB, there have been kind of a lot of talk about tax refunds and the benefit that you might see in your business that happened right around the time the war broke out and obviously, gas prices spiked. So I'm curious, as you went throughout the quarter, did you see any change in the complexion of your customers across income cohorts, or those all look very similar to what you were seeing in 2025.

Sure. Well, I would say we grew by 40% in the quarter. So overall, I would say we're extremely happy with the way the business performed and the way the team operated during the quarter. I think it's a little hard to massage out some of those effects. I think there was an expectation that tax dollars would be larger. I think that did play out, like there's data out there that suggests that, that is true. And that, that may lead to additional vehicle demand. I think we only see our own data and that did coincide very closely with the Iran situation. So I think it's hard to disentangle. But I would say our view would be that it probably was not as strong as I expect in terms of converting to vehicle demand and was probably more similar and maybe even a touch softer than years past. But I think overall, not really a huge event for the quarter. And I think hard to separate the tax season effect from the gas price effect. Since then, it feels like things are operating in the way that we'd expect. And I think that's true. Almost any way you look at the business, whether it's volume or seasonality or distribution of customers or anything like that.

The next question is from Brian Nagel with Oppenheimer.

Great quarter, congratulations, very nice. The course I know that -- and look, I know that this has been asked before, so I apologize you being repetitive. But just with respect to gas prices, I mean, clearly, the straight you've had a very strong quarter. The commentary in Q2 has been very strong as well. But as you think about gas prices and the potential impacts to our consumer and then maybe you look over time, over prior spikes in gas prices. I mean how should we be thinking about that? I mean have you noticed over time that your consumer acts different when gas prices spike?

I think -- sure. I think maybe there's two potential impacts. One is what happens to aggregate sales and one is, what happens to mix of sales. I think what we've seen in the past is that the impact to aggregate sales is usually pretty small and over any reasonable period of time, I think largely massage is out. I think in terms of mix of sales, we do see some movement. You see expected things. I think over the last couple of months, we saw large SUVs kind of decrease as a percentage of sales a little bit. And we saw EVs kind of increase again as a percent of sales. I think even over the last several weeks, we've seen that normalize or kind of go back to closer to baseline, not all the way to baseline, but closer to baseline. I'm sure those things will continue to migrate. I think the way that we try to manage that is we try to make sure that we build a system that's adaptive, and we've got all the cars that customers could want in front of them. And then based on the demand signals we see every day. We're adjusting what we're buying every day to try to match what that demand is. And given how quick our turn times are, generally, the system adapts very quickly. So I think our view would be that there will be impacts, and they will generally be directionally as would be expected. But we don't expect them to be a central part of the story unless the impacts were to get much, much larger.

That's very helpful. I appreciate that. And then my second question, just with regard to the commentary on the narrowing spreads between retail and wholesale. So I just want to understand, but as you look at this and what's happened here, is this more of a short-term phenomena where it maybe started a couple of quarters ago and now is correcting, or do you think there's actually some type of longer term or multi-quarter shift happening within the marketplace?

Yes. I think our pretty strong view would be this is a transitory impact. I think it's hard to know exactly what drives these movements, but I think the kind of wholesale retail spread that we mentioned a lot, I think generally, that follows a pretty clear seasonal pattern. And I think in any given quarter, it tends to bounce around a little bit around the normal seasonal expectation. I do think that this year heading into the year and heading into tax season, wholesale market was really strong. And then the way the market would normally react to that is the retail market would just kind of catch up on a 30- to 60-day lag. And seems like the retail market is catching up, but it's catching up on a little bit longer lag. And so I think there's room for that to normalize relatively quickly, and there's room for it to kind of hold where it is. And either way, we don't think it will be a central part of the story. But as we look at it today, the wholesale market is ahead of the retail market, and so that led to the call out.

The next question is from Jeff Lick with Stephens Inc.

Of course, I was wondering if you could talk just unpack a little bit deeper as you guys become bigger, you become a bigger part of the entire used ecosystem, they're not just retail but wholesale. And just looking at your wholesale numbers, wholesaled less as a percentage of your retail down to 44.6% from 47.4%. I know your marketplace were actually down, and then you were -- Mark, as you pointed out, your wholesale DTU was $1,327. So I'm just curious kind of how that dynamic is playing out in terms of your ability to source your decisions that you're making as to why you might -- as you would think almost if you can get that much money wholesaling, you might have wholesale more, but it appears that you retailed more. So just -- can you maybe talk a little bit more about the dynamics there?

Sure. Yes. I think we're extremely excited with how the business is operating overall. And I think -- keep in mind, I think one of the central things that we're always trying to balance is making sure that we're managing the business operationally as best we can while growing at these very high rates. And the wholesale side of the business does have operational impacts on the overall business, most notably in last mile logistics, which is an important part of our system that we've got to carefully manage to make sure we can handle the growth. So I think we're always making trade-offs there and trying to make sure that we're doing smart things. But in general, all the signs that we see are very good, and the teams are executing extremely well. I think the wholesale team continues to unlock fundamental gains and is doing great. I think you see that in the wholesale vehicle results. And then I think in wholesale marketplace, I think we're also building a lot of fundamental value there that feels very exciting. I think we made a comment in the letter that we feel like ADESA Clear, which is our digital platform is now a best-in-class platform. And we've got a lot of reasons for believing that, but that's pretty exciting. We think that we've built something there that is extremely high quality, and it's growing very quickly, and it's adding value to the ADESA system and to the Carvana system as we buy cars wholesale and and dispose of most of them through that platform. And then you kind of saw in the letter we shared a number of speed stats that I think are fund reductions of the rate at which we can kind of move cars through the system. We've talked about it before, but the goal of building the entirety of the Carvana system is to deliver incredible customer experience on both sides of the transaction and to minimize the expense that is necessary to allow customers to trade cars with each other. And I think if you look at the cars that we're buying retail and then putting through our system and selling to a different customer, that entire process in the fastest case took place in just under 5 days, which I think is remarkable. I mean it's -- forgive me for walking through that. But that means the customer goes to our site, get a value for their car, decides they want to sell it. They go through a verification process, go through all the title work, schedule time to drop off the car to us or for us to pick it up, we get the car. We landed at our hub. We put it on a multicar hauler. We drive it to an inspection center. We inspected. We run it through the reconditioning process after figuring out what needs to be fixed on the car, photograph it, put it up on the site, price it in an automated way. And another customer finds it, decides they want to buy it, they go through the entire purchase process, schedule their delivery. We put it on a truck, deliver to them, and it's theirs, and that took 4.8 days, which is pretty exciting. So I think the system overall, we're making a lot of investments to make sure it's very tight, and we're getting a lot of fundamental value out of that, and we think that, that's going to unlock a lot of value over time. So I think, overall, we're very excited about how the system is performing overall.

That's an amazing anecdote. Thanks for sharing that. Congrats and best of luck for Q2.

Thank you. Appreciate it.

The next question is from John Colantuoni with Jefferies

Just wanted to ask about other GPU. Can you give us a sense if you sort of see an opportunity to incrementally invest some of the financing GPU into growth as you've done in recent quarters? Or is that reinvestment largely behind you so that other sort of is more or less hit a run rate level at this point.

Yes. Thank you. I would say -- I mean, let's start with -- in the quarter, we are 10.4% adjusted EBITDA margin. I think in the past, we've provided these walks that we think are relatively straightforward to get to our goal of 13.5% that basically include leverage and fixed costs and then include getting to marketing dollar per unit spend that is similar to our more mature cohorts. And I think if you do that walk, it continues today to be pretty straightforward and the math is approximately the same. And then I think what that leads from there is basically, we've got room for any place where we make fundamental gains, whether we get more efficient in any of the GPU line items, or we get more efficient in any of the variable cost line items, that gives us room to share value with customers. And I think where we share value with customers will not necessarily always be in the exact places that we unlock it, but we are seeking to unlock it in every part of the business. We've got projects that we're very excited about in every single one of those line items, every expense line item, every revenue line item. And they're all credible projects that we think have a real impact to make meaningful differences in the business. But we haven't done them yet, so we got to go unlock that value. And then as we unlock it, we -- our plan is to share that with customers. So we do think that there's going to be value that or share with customers. We think that if we execute really well, it could be significant. And we think even with doing that, we can hit our goals, which overall has us excited, it means there's a lot of work to do.

Okay. Great. And I wanted to ask one about advertising. Mark, you talked about spending more. Just be curious if you could give us a sense for what advertising channels you're seeing the best returns? And how you sort of think about advertising fitting into your broader growth strategy over time? Is there sort of a near-term ramp in spend in a particular market? And then once you hit a level of mind share, you sort of can pull back. I just made that up. But just curious to get your perspective on sort of how you think about advertising fitting into your long-term growth strategy over time?

Sure. Absolutely. Well, let me just start with that long-term growth strategy. We've talked about the three pillars of that growth strategy. One is continuing to improve the product and customer experience. That's a place where we've made and hope to continue to make significant gains. Second is building increased awareness, understanding and trust. That is the growth pillar. Obviously, where advertiser plays a role, advertising is not. The only component of that, great customer experiences, word-of-mouth, repeat customers. There's a number of different ways to do that, but advertising is certainly a component of it. And then just to round out that framework. Third is increasing collection and other benefits of scale, including adding more inventory pools to put more cars closer to customers. So on the advertising component of that leg, as I mentioned in my remarks, we still feel like we're in the relatively early days of telling our story. So we do see opportunities to continue to advertise more. I would expect that advertising to be very broad-based across many different channels as we seek to reach different audiences and meet them where they are. I think in the very near term, we haven't provided too much commentary on our advertising outlook. But I think if you look over the last 2, 3 quarters or so, you'll see relatively consistent advertising expense per unit, and I think that's a reasonable way to think about where we are today.

The next question is from John Healy with Northcoast Research.

Just wanted to see if we could switch gears just a little bit and talk about your priorities on the new car side. I think you guys are up to maybe 6 or 7 Chrysler dealerships. There's a lot of the dealerships now. Any kind of updated perspective on where you're seeing benefits, and I know you said in the past, it's a learning process, but with the pace of these acquisitions continue, I was hoping you could provide some more context there.

Thank you. I'm going to apologize in advance, and you are welcome to ask another question, but I think our answer remains the same. It's still early. So stay tuned. We'll share more when it's time to share more. And as I said, if you've got another question, you're more than welcome to ask it.

Understood. And I guess I'll stick on the other businesses as well. Obviously, we continue to see mobility and autonomous offerings rolling out in more cities. Obviously, you have a really good asset, and we've talked about capacity at the reconditioning centers. Have you guys game planned out any more that you could talk to us about maybe how you see yourself maybe facilitating those, that business potentially as being a service provider there? And kind of any updated thoughts maybe on evolution of the business model.

Sure. Yes, I would say we're always paying attention, and I think we try to always be thoughtful about what opportunities exist out there given the assets that we've built. But I think we try to balance that with where is the best place to put our focus. And I think we've clearly got an opportunity here to continue to grow a lot very quickly, and it clearly takes a lot of operational discipline and operational effort. So I think that will continue to be our primary focus for the foreseeable future, but we're always paying attention.

The next question is from Marvin Fong with BTIG.

Congratulations. I think this quarter, I mentioned the top new car dealer in the country. Question on just kind of inventory. I was taking that from the 2Q? It looks like it grew quite a bit less than sales. And I just wanted your take on -- was that partly a function of just kind of bringing the operational efficiency up and getting recon in order? And then just secondarily, how should we kind of think about having what looks like a pretty lean inventory relative to your sales growth rate. So kind of how do we think about that in terms of your pricing power acknowledging what you said about spread, but it would seem to me that you have pretty good ability to exercise and pricing power with this level in.

Sure. Yes. So I think last quarter, I think, our inventory was up approximately 40% year-over-year. I think this quarter, it was up a little over 30% year-over-year. So I think that directional change is correct, and that kind of means that our implied turn times have gotten a bit faster. I think that can generally be not surprising seasonal move as you had kind of right out of tax season, where you tend to have like the biggest discrete change in sales rates and so you can kind of quickly eat through inventory that you're building up prior to that. So I think that's not a totally unexpected change, but I think there's no question that if we could press the inventory button and have tens of thousands of more cars, I think we likely would. And I think that would probably result in additional sales as long as we were able to manage kind of all that recon and operational complexity. But I think that, that's just part of building this machine. I think we got to keep building the machine as we keep building it, we'll keep getting to bigger scales. And as we get to bigger scale, we'll have more inventory, more selection for our customers, and that will result in better conversion rates. And I think that that's kind of the flywheel of the Carvana business that we just got to keep working hard to make sure we continue to unlock.

Great. And if I could do a follow-up here. Just -- how would you characterize just the pricing environment? I think one of -- at least one competitor is kind of out there discounting. And obviously, it's a famine market, but just what's your view on pricing discipline across the industry?

I think nothing too notable to call out. I think in a way that's sort of implicit in the wholesale retail spread that we talk about. When we measure that, we're looking at various wholesale market indicators and then we're looking at various retail market indicators, and that sort of captures where pricing is for the industry in some total. So I think I think there -- we noted some mild differences there versus average, but would not necessarily associate that with pricing. I think it's more just kind of the evolution of the way the last couple of months have played out. And so nothing notable to call out there.

Your next question is from Andrew Boone with Citizens.

Ernie, I wanted to go back to some of the tools you guys rolled out this quarter at IRCs, specifically centralized planning. Can you talk about maybe moving some of your maybe lower-performing IRCs more towards best-in-class performance just through more centralized planning. What's the unlock there? And how do you guys really create more of a uniform system across all IRCs? And then in the letter, very specifically, you called out ADESA Clear as a best-in-class digital auction. Can you speak to the longer-term opportunity of what you guys may be thinking about Clear and the broader potential for that asset?

Sure. I think we're extremely excited about the way the team executed the way the Recon team executed in this last quarter and the tools they built. I think the tools that they built that are enable more centralized planning are, I think, very exciting in concept. I think the early signs are good. I think we'll be rolling them out over the next several months. And then we'll get a better sense of the near- and medium-term kind of quantitative benefits of those things, but we certainly think that there are benefits there that can show up over time. One of those benefits is what you discussed, which is just trying to kind of collapse the distribution of performance across different locations, which is driven by differences in quality of execution across locations. It's also driven partially by differences in the scale of various locations. But I think last quarter, we talked about there being a couple of hundred dollar spread between our top quartile and bottom quartile performers. And I think that's spread despite the fact that we improved the overall number this quarter, that spread remains about the same. So I think opportunity is certainly there and then just getting fundamentally better across the sum of the facilities is there as well. But unlocking that takes time, and it's hard to do while you're also simultaneously growing at 40%. So I would put that in the category of clear opportunity and hard to make sure that we execute well enough to unlock, but very much something that we're always paying close attention to and seeking to unlock as quickly as we can. I think with Clear, we're very excited by what we've done there. I think in order to make progress in anything, you have to decide what you're going to focus on. And I think in Clear, we built what we believe is a best-in-class platform. And we've built that by focusing a lot on the buy side of the equation. I think when you're building these tools, there's seller side tools, and there's buyer side tools. It's enabled us to make the problem simpler by using ourselves as the primary seller. And so we're not required to build as many sell-side tools. And we've been able to build a platform for the buy side that we think is highly differentiated, and where there's room to differentiate it further from here. And we think that's showing up in the results. We think that, that has positively contributed to our wholesale vehicle gross profit per wholesale unit, for example. We think that is identifiable positive contributor to the performance there. So that's super exciting. And then we think the sum of that, plus our retail platform, plus our -- the general ADESA business and our ability to wholesale cars physically means that in aggregate, we're we think, the most economic buyer for cars for any seller that is selling pools of cars. And that's a fundamentally valuable thing that we're very well positioned to provide as a service and to benefit from as a business. So I think there will be a long road map of making sure that we make all those tools fit together really well, and they reduced the simple offerings for our customers and that, that then results in great business performance. But I think the foundations have been laid and are continuing to be late, and we think that it's an exciting capability add to our overall system.

The next question is from John Babcock with Barclays.

I just want to go back to some of the discussion on the retail GPU. I know you gave a little bit of color for the upcoming quarter, which is helpful, but I also want to reconcile that a little bit to effectively like how you performed really from 4Q into 1Q. So I think last quarter, you talked about headwinds from reconditioning costs and also depreciation. Out of curiosity, how did 1Q end up relative to that? And also what factors in addition to those might have impacted GPU? So in other words, I know there was some strength on the used vehicle side of things. Did that come into play and did that contribute perhaps to some performance there. So any commentary you could provide on that would be useful.

Sure. Yes. So I mean retail GPU was down slightly. It was pretty close to flat, but down slightly on a year-over-year basis in Q1. I think a couple of the key drivers there are things that we did talk about in Q4 as well. So one, we're having great success in our logistics network, getting cars to customers even faster and with shorter distances. I think that manifested in Q1 with I believe an all-time low logistics expense per retail unit sold. We did -- as we brought down distances, for outbound shipping, we also brought down our shipping revenue and just pass those gains on to customers. And so I think that was an impact. It was great for customers, but it had a negative impact on retail GPU both in Q4 and Q1. We've also talked a lot about elevated retail reconditioning costs, where we've made lots of progress, as Ernie has discussed at length. So those are a couple of the key drivers, applied both to Q4 and Q1. Hopefully, that's some helpful additional commentary.

Okay. And did depreciation change much from 4Q to 1Q?

I don't think we feel like we had major unusual seasonal patterns there, if I remember correctly.

Okay. And then just back to reconditioning costs. You talked about centralizing that a little bit. Are you pretty comfortable doing that? Do you think there's going to be any added -- because I'm sure you guys are pretty cognizant in terms of how you're doing this and trying to avoid any unnecessary bureaucracy or adding any time inappropriately to certain channels. But I'm just kind of wondering, are there -- do you generally view this as a positive to do that? Are there any concerns you have in terms of doing that? Are you still maintaining pretty good flexibility at the recommissioning center level to ensure that they have the ability to make decisions quickly. I don't know if you could talk about that a little bit, but that would be useful.

Yes, sure. Yes. So I think it's really important there to strike a balance. I think the teams on the ground, they're there every day. They are hands on with the dynamics in the cars flowing through and all the people that are there, and their various strengths and abilities. And so I think it's important to have a lot of on-the-ground input into the way the reconditioning centers function. At the same time, there's a lot of very quantitative decisions that can help reconditioning centers run better. So for example, if you have a given number of people after reconditioning center, on any given day, with a given distribution of skill sets, what's the optimal way to distribute that team that you have on the ground that day across the various stations and the reconditioning process. And you can do that by hand, and you can do it on the ground manually. But on the other hand, it's also -- that's a problem that can be solved with algorithms data and pairing those two things together, very strong quantitative focus via software and via making even better use of all the data that we're collecting in the centers and then pairing that more effectively with the teams on the ground. That's where we think the special sauce is. We have been investing in reconditioning technology over a period of several years, but we haven't solved that problem yet, and that's a place that we've been focusing.

Next question is from Michael McGovern with Bank of America.

I was just curious on the labor hours per unit metric that you gave. It seems like it's really efficient right now. So I'm just curious how much more efficiency you can gain there longer term? Which parts of the chain have decreased the most in terms of labor hours per unit, and how does that flow through into GPU longer term?

Sure. I think we've talked in the past about our expense per unit in recon. And I think the #1 driver of those expenses labor. It's a big part of the direct cost and then it also is highly correlated with the other costs. And so when we're looking for operational metrics that move very quickly so that we can manage and make quick decisions. That's a metric that we tend to look at. And I think it's clearly gotten better. I think the kind of numbers that we discussed in terms of cost that we drifted in Q4, that was driven largely by a drift in HPU. And I think we're back now to where we were last year in Q2, which was our all-time best. And I think -- as we said, I think there's clearly room that we can see for additional improvement from here that room exists both by improving the sum of all centers and by getting the centers to operate more like our best centers. So I think there's opportunity there that can matter that is meaningful dollars, but it does take time. We don't want expectations that's coming in the next couple of quarters. I think that will take time for us to unlock and get the full benefit of it. But it is there, and I think it's exciting and meaningful. It just has to be done at the same time that we're also executing well enough to grow at very high rates of speed. And some of those two things are hard to do together, but I think the team is up to it.

Got it. Just a quick follow-up on that. To your point of how hard it is it seems like your recon headcount growth is still pretty elevated. So from here, is there some sort of shift in just how efficiently you're able to train these new reconditioning hires and keep that growth elevated in reconditioning headcount while also keeping new employees really efficient?

Yes. I think Mark talked a lot about centralization and automation. And I think that can also just be thought of as reducing the complexity and the learning curve in a lot of these different positions. And so I think as a general matter, we're trying to -- we've built these centers in a way where you can take a focused skill set and have people that really know how to do something really well, do that over again and then you can train them in new skills and kind of move them to different parts of the line. And that gives us access to a pool of talent that is broader than many other companies that are trying to to provide similar functions. And so we think that's an advantage. And then we think as we continue to build out Carli that makes the systems inside Carli that make the individual operators more efficient and as we continue to build out these manager tools that make manager decision-making more straightforward, so they can focus on the other parts of management, making sure they're identifying their best performers and keeping people motivated and keeping the system moving. We think that generally just makes things a bit easier to learn and makes it easier to train people. We also are definitely investing in the tools that allow us to hire people more quickly and to get them up to speed more quickly. That's another area that the team has been focused on for a long time. So I think that's all part of continual improvement. And I think we've made a ton of gains there over the last many years, but there's clearly a ton of room for us to continue to make gains, and that's what the team is focused on every day.

The next question is from Michael Montani with Evercore ISI.

I was going to ask if I could, just to start on the diesel front. I was wondering if you could help us to understand any exposure that you might have there. Obviously, impressive improvement on logistics side this quarter. So definitely appreciate that. But we were thinking about it as potentially like a low single-digit earnings headwind in isolation. So wondering if you'd comment there. And the other question I had was more just strategic, which was obviously, you continue to have some underlying gains in GPUs. I know there's some quarterly noise going on, but how should we think about Ernie, the propensity to kind of reinvest those gains to further accelerate share versus you kind of happy at these levels with this kind of unit growth to just kind of pass some of that through.

I can take the first one. So I do think there is an impact of fuel prices on the operations of our business. I think that takes a couple of different forms. One, there's a cost of sales impact for inbound transport and then there's also an SG&A expense impact, which is in this operations expense, broader sort of variable cost category down in SG&A. In some -- I would expect to see some impact from the higher fuel prices in the second quarter, but not one that's particularly large and one that I think of as being in sort of the normal range of quarter-to-quarter fluctuations that we see things move around quarter-to-quarter. So at any rate, I think there will be an impact. But based on what we see right now, we don't expect it to be particularly large.

And then on reinvesting gains, I think we're trying to be not too repetitive from previous answers, I think we do think that we have opportunities across the entire business, and we think that the path from where we are today to 13.5% adjusted EBITDA margin is pretty straightforward with leverage and advertising expense. And so we think the gains that we make, we can largely pass through to customers. And we think the opportunities are many, but like anything hard, we got to go actually do it. And when we actually do it, we'll find out how fast we can do it, and how big those gains are, but we do expect to share additional gains with customers over time and hopefully, meaningfully while still marching toward our goal.

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

Great. Well, thanks everyone for joining the call. Carvana team, awesome job. Another great quarter. You have a lot to be proud of. Recon team, in particular, awesome, awesome job. Thank you for reacting the way that you did. I think to everyone across the business when we hit a bump, let's react the way Recon did. No one can stop us but us. Let's just keep margin. Thanks, everyone.

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

All right. Welcome back, Ernie. Thank you for joining us out here. Last time you were here, was March 2024. Your stock price was around $70. Your units were growing 16% year-over-year. Fast forward today...

Exact same relative position today.

So can you give us a little bit of sense of what was that turnaround like? And how do you keep that momentum going?

Wow, that's a big picture opening. Talk for hours and make it look bored. I think the most important takeaway from that, I think we've worked for the last -- what has it been now? 13 years, 14 years, to build a customer offering, it's really different. And I think -- it's been a ton of work, and I think there's been a ton of good days and there's been several bad days. And those were some of the good days along the way, but there were certainly bad ones that preceded it.

But I think we built something that we think is really, really different that there's no obvious comp to and that if we keep doing a good job, we're going to keep having really great results. But I think we also have grown fast, and we've got a big operational business, which I think has good things and bad things. And sometimes along the way means there can be a little bumps. But yes, in general, I think we're in a very similar spots where we've always been and we just going to keep going.

All right. All right. I love the momentum. On the industry, what are you seeing in the used car market? Year-to-date, have you seen any changes in supply or competition? How is consumer demand evolved? Delinquencies are high but not rocketing? Yes, any shifts that you like to call out?

I think I'm going to be a boring interview on this one, too. I think nothing too notable. I think the way that we always try to define our market is that it's a huge market that's, I think, pretty static on average, and we think the reason for that is just massively fragmented suppliers of dealers that are providing the service of selling cars to customers that have a very similar cost structure, no ability to absorb losses. And so I think there can be macro changes, but those macro changes tend to be relatively small because people need cars. So we see things maybe 6 months ago, I think credit was like a big topic.

Today, it's less of a topic. I think if we look over the last 15 years, I think supply has been a topic, demand has been a topic, credit's been a topic. There are always different topics, but I think they tend to be relatively short-lived and it just comes back down to how well we're re-executing and with our customer offering because the industry itself is so stable. So I think we probably spend a lot less time super focused on macro than many other companies probably do. We just try to make our offering better.

Great. And more near term, can you help us think through potential headwinds from the winter storms and then potential tailwinds from the tax refund season. Just any kind of commentary on how you're seeing that trend over the past month or so.

Yes. I think as a general matter, like we're probably a little more impacted by storms because we have logistics. So if you have a storm in one market like impacts cars passing through those markets. But that's usually kind of more week-to-week impact with maybe like a tiny actual persistent conversion impact. I don't think there's anything too interesting there. I think like at the level of even a month or 2, I think you you're unlikely to see huge things that result from the storm. It's a little bit of a headwind. It makes like operations a little bit tougher, sometimes there can be extra expense because we got to move snow around and people have a couple of inefficient days, but I don't think those are things that end up being huge topics.

Got it. And this is a big topic that I'm sure you're hearing a lot about with your meetings today, but retail GPU, right? That was a big focus area coming out of the quarter. Can you unpack what's driving that? What are the main issues driving the managers not being able to control those reconditioning costs and kind of talk through.

I think this is another one that I always think is like useful to put in perspective. And so I think -- if you go back and just like ask GPT or whatever you use to go summarize like the last -- how long have we been public now? 9 years of us being public, there will be several moments where we have very similar conversations where I think we run into operational hiccups in different groups. I think the most common one historically has been recon. The next most common has been logistics.

But we've run into little hiccups all over the place. And I think -- like I said, I think that's part of having a big complex business where we have lots of people, and things were moving around. I wish that we had no bumps in the road ever, but I think we have, and we probably will again in the future. I think this is an example of that. I think investors are right to ask questions about is there something structural or is there something fundamental? Or do you cross some threshold where now this is like the new normal? And I think there are several reasons why we don't believe that's the case. We believe it's kind of a down the middle operational issue.

I think we had a number of sites that just didn't perform quite as well as we'd like. And Q4 is a period of time when we're accumulating a lot of inventory. It's a period of time when there's a lot more holidays, there was some weather that matters a little bit. And I think most importantly, we just had a couple of sites that didn't execute as well as we would like as we were expanding a number of sites and moving management around. And so that is what it is. I think in the grand scheme of things that probably won't be a huge central story. And I think our goal is to turn that into energy, which I think that team is doing an excellent job of today. I think there's no doubt in my mind that the last, whatever, couple of months have been the best couple of months for that group in the last year plus.

And I think that's just because when you have a little miss that's clear, it gives you a little extra energy to go figure out what you can do better. And so they're, I think, handling it very well, and I think we're optimistic we'll resolve it pretty quick.

And when you speak to what specifically was driving that? And how do you turn that around? What are the tools you've put in place? You've talked about software? And then what kind of timeline do you think about for getting that back up and running?

So I would say it's things that happen at a level of detail that I think is sometimes maybe like not as exciting to talk about, but like for example, let's say, like Talison is the nearest inspection center that we have to Phoenix. So it's one where -- that's like the one where, if I'm going down there, I'm going to -- I'm most likely to spend the most time there. In that center, our constraint has tended to be the paint booth. If in the morning, a couple of people who are assigned the paint booth don't show up, then ideally, what you want to do is you want to find people that are downstream in the paint booth and you want to move them into the paint booth and you want to rebalance the whole system. And if there's too many people prior to the paint booth, you might want to offer time off for those people. That's like a normal management process that just happens every day, but I think that can be executed incredibly well or it can be executed in a way that is a bit imperfect, and that causes bubbles to form and for us to get further out of balance.

And as bubbles form, because you're accumulating cars prior to paint, you get more and more out of balance. And then all of a sudden, you have less and less utilized labor, and then people try to make up for it and push cars through and you have more stuff that fails QC or whatever else. So I think it's stuff like that is basically what can start to happen in a facility. And we're building tools now. We built tools for a long time to try to make all of the line level operators in any given functional area of the inspections that are more efficient. And we've kind of relied on managers to basically make all of these game time adjustments inside the facility, kind of intra line.

And I think now we're building more of that data into the system, and we're just starting to scratch the surface of taking more of the kind of logical part of that decision-making and pushing it into systems. So a manager can kind of come in the morning and get four bullet points of like, this is exactly what you should do right now. And the goal of that is to just kind of bring the ceiling of -- sorry, the floor of execution up, whereas most of the line level stuff is about building the kind of ceiling up.

So it's integrating into Carli, getting the managers up to speed on using that system.

Yes, building manager modules in Carli.

Got it. Okay. Okay, financing. So like I said, the auto credit fears flare up every now and then financing business had a great result in the quarter. Gain on sale has been quite stable over the past several quarters. How should investors be thinking about the opportunities and the risks with that business? And how does Carvana insulate that gain on sale and that financing margin from potential future volatility in auto credit?

So I think financing is I think it is inherently more volatile than other line items. I think it is less volatile than people think. And I think when it is volatile, it tends to be like paired with like narrative moments that make it extra impactful. But I think that looking at the historical actual results is a good way to evaluate what that volatility actually looks like. And I think that, that volatility across time has been pretty low. I think that we did a deal immediately post-COVID when there was like a real concern of like structural market breakdown in that kind of immediate moment post-COVID.

And I think our finance GPU that quarter was around half of what it was the preceding quarter and the quarter after it. Of, I think many finance businesses went through 2008, you can look at what that looks like. And I think for businesses that didn't hold a big credit book, but we don't hold a big credit book, there was generally a reduction in the yield of originating finance assets, but it wasn't a massive reduction. And I think in the -- in the financial position that we're in now and where our business model is and the way it produces like contribution margin relative to our peers.

We can absorb those moments and still being a really good cash position. So I think from our perspective of like business builders, the question is, do you want to be in the finance business at all? And I think for us, that feels obvious for lots of reasons. And then I think it's how do you manage it as best you possibly can and what matters is the average finance environment. And so I think we're building the business to be the best it possibly can be across those -- or in the average environment, and then we think that we've got tons of cushion to be in a good spot in tough environments. And I think there's still room for lots of fundamental gains, some of which are I think, very straightforward and easy for investors to buy into and some of which are less straightforward, but we'll be working on both types.

Great. And so last quarter, you added a third financing partner on the other whole loan sales segment. Can you help quantify how much finance receivables are now guaranteed an offtake? And how do investors essentially think about those different channels, how you flex those channels as you continue to grow?

Yes. So we've got three agreements that are basically $4 billion each over 2 years, so $2 billion per year for each of those agreements. And then we have one $6 billion year-long agreement. So that gives us lot of capacity. And then I think generally speaking, the way that we are trying to manage that is I think, as we add these partners, first order, I think the simplest way to think about it is that they're basically structured to be market deals, but they are market deals that are recurring. And so they're doing the same work every quarter. We're doing the same work every quarter, and we're kind of getting accustomed to working together and just makes it easier to kind of keep moving things along. We still have access to and access the securitization markets.

And then I think over time, there's room for us to add additional partners as well. I think there's been a recurring question since day 1. It's like another one that's fun to go back and just kind of like look at all the transcripts and like evaluate the path of potentially prologue to the future, where people have asked all these questions about, will finance GPU go down as you have to grow this and you have to sell it to more finance buyers? And is the residual market large enough to support you and everything else?

As a general matter, what we've seen is as we keep getting bigger, we're able to work with more counterparties who enter the market, and we've seen our cost of capital go down. And so I think that there is reason to be helpful that those sorts of trends can continue over time.

Yes. We've gotten questions about do you ever saturate the ABS market with the level of growth that you see. And I think continue to prove out that you do add these alternative sources of funding? Is there any difference in profitability across these channels?

There's little variation but not materially. Yes. Generally speaking, I would say, it's all very similar.

So, shifting to more medium term, longer term on your guide, 3 million units, 13.5% adjusted EBITDA next 5 to 10 years now, 4 to 9 years. On the unit side, how do investors think about bridging to that $3 million? Are there any gating factors logistically labor-wise. Essentially, what controls your level of growth until once you get there?

I think the way that we think about it is we've got to -- on the demand side, we got to make sure we keep delivering high-quality customer experiences. And as long as we do that, we think the demand will be there. And then I think on the supply side, we've got to make sure we grow the system. And I think that's really hard because you've got all the reconditioning and all the logistics in the last mile and all of the other kind of labor intensive customer care things we have to do. And so I think we put a ton of effort into just making sure that we're scaling that system economically and efficiently and at high customer experience quality. So we think that's the #1 gating factor and that, that will be something that will be effortful the entire time through.

And then on the EBITDA margin guide. How do we think about bridging those extra 200 basis points of margin expansion? Is there room for gains in GPU? Is it all fixed cost leverage? What are the levers you can pull to get there? or upside to that, I guess.

Yes. I think so from where we are right now, I think -- if you just take a reasonable fixed cost leverage assumptions, you can get close probably not quite there depending on how much leverage you're assuming. And then I think if we look at things that we've shared in the past, like our marketing spend in more mature markets relative to less mature markets, if we just had kind of marketing spend that's the same in all markets as in our more mature markets, that would get to the rest of the way.

Then we still think that we've got lots of fundamental gains in every GPU line item in every expense line item. And so I think our plan and our goal is to go unlock those fundamental gains, some of which has come from scale, some of which come from product enhancements, some of which come from things that are sort of related to scale like adding more inventory pools. But go unlock those fundamental gains and then pass that value back to customers, which will just be additional fuel for growth. I think what's exciting about that is pretty much all of the growth that we've seen in Carvana, basically across our life, but certainly for the public period, has been happening with like an offering quality that is pretty consistent.

We haven't really changed our competitive stance relative to market. And I think if we execute the way that we hope to and unlock the fundamental gains that we hope to, I think we have the ability over the next several years to actually improve our economics relative to market. We're already in a great spot, but I think we can even get better. And so ideally, that separates us further. I think in real life, there will be execution. We'll be like another variable in that equation. But our goal is going to be to make linear progress and keep getting better everywhere.

And on that ad spend, you spoke to it. It varies across markets. If you made it like-for-like with your more mature markets. I guess, how do you think about customer acquisition costs and growing your advertising spend on an absolute basis as you continue to scale? Is it brand awareness or any other decisions that go into that?

More recently, we've leaned more into brand awareness. And I think like the unit economics of marketing work, just like the variable customer cost is low relative to the contribution margins that we see. So you can economically defend a decent amount of spend. But I think we've also, generally speaking, we've been more constrained on the supply side. So we have it like fully leaned into just like what the math would tell you to do there.

And then I think more recently, we've invested a little bit more in brand with the idea being that it's branded, I think inherently much harder to like reduce to an ROI calc than kind of like direct marketing, but it's also something that has like a long tail and probably a bigger potential payoff. And so we've invested more on that because we think -- like I said earlier, our view is if we deliver great customer experiences over and over again and you just get people to a place where they're confident that if they buy from Carvana, they're going to get a good experience and a good car, and they don't have to worry that they make a mistake that there's going to be a lot of demand.

And so I think generally speaking the most important thing we can do is deliver great experiences, but another thing we can add on top of that is tell our story through trusted voices. And so I think we've done a little bit more in brand spend.

On capital intensity, you spoke to being somewhat supply constrained, right? Your level of growth is contingent, how quickly you can grow logistics and fulfillment and reconditioning, you have real estate capacity for 3 million units. But as we get to that 3 million unit mark, you have to think about growing beyond that. You are quite capital-light now in terms of your CapEx as a percentage of sales. So how should investors think about once you get to that stage of adding capacity, whether it's greenfield CapEx, brownfield buying something like an ADESA, just helping frame what are the guardrails to add more capacity beyond the 3 million.

I think the return on capital is going to be really, really good. I mean, so like if we think about -- if we think about like a large-scale facility being able to produce on the order of 60,000-plus cars per year. And then you think about the contribution margins that come out of that on an annualized basis, and then you compare that to the cost of building those facilities like math is not going to be the issue.

The question is just going to be can we build the rest of the machine out to sustain that kind of volume? And can we do it while delivering good customer experiences. But I think the good news is we've kind of already laid half the tracks for our path to 3 million in CapEx.

So it's -- the CapEx has even higher return until you get there. But the return is going to look very good. As long as you believe that our economics are in a similar spot to where they are today on a contribution margin basis and demand is present. I don't think that's going to be like a math problem. That's going to be an execution problem.

And to that point, I guess, there are inefficiency or efficiencies when you think about acquiring an existing site versus building, let's say, an IRC from the ground up. Are there different levels of capital intensity that you think about there? Or is that not something you really looked at, at this stage because you still have a lot of runway?

I think there is. The more a facility is ready to go, the more that there's already give you surprise, there's a lot of cost in just putting down the asphalt and building out buildings, then you can build a lot inside of an existing building. So the more that's already built, the easier it's going to be on like an incremental CapEx perspective, but the sum total probably doesn't vary by enough to matter in that equation either. I think it's more about do we execute well? Is the demand there? And can we find sites less about the math afterwards.

Short report, I have to give you another opportunity to address.

You make it more effective every time you bring it up.

It's something we still get questions on. I know you've addressed it, but just giving you another opportunity to clarify related party transactions, Carvana does not sell to who?

We don't do anything manipulative. We don't do anything that's not disclosed properly. I don't know how to say it. It's like I've got three kids and their arguments all the time reduced to you're a liar, no you're a liar. And that's basically where we find ourselves in these things is it's like I don't know what to do because there's not words we can say that fix it. So I don't know. We're going to keep doing our thing. Please keep paying attention. If you think we're doing those things, you should definitely sell the stock. And if you don't, what other people do, maybe check it out.

Had to ask.

Yes, we're good.

Okay. Another big topic is AI, right? We're at our tech conference. We have a lot of big players here. There's been a lot of market concern around Agentic AI, disintermediating these e-commerce winners. Carvana seems to have been bucketed in that category. How -- why is that wrong? Why should Carvana not be considered as one of those kind of incumbent players that lose that?

Oh, man. Incumbent? I was kind of okay with like the theoretical conceptual market doesn't like you thing, but calling us an incumbent that really stung.

Winner. E-commerce winner.

I think -- I mean, I think investors are smart. You guys are well positioned to figure these things out. I think the way that we try to think about it is we think that we exist in a very large market where away from us, there aren't deterministic systems that are well positioned to benefit from AI. We think that we exist in a very big system were away from us. There's not many cultures that are well positioned to rapidly adopt these different technologies.

And then we think that many of the conversations that we've had over time that end up being limiting conversations and much of what we've talked about so far in this conversation, are like real physical world problems where you've got people and things you got to move around. So we think we're really well positioned. And then I think -- the last thing I would say is that our market is very, very big, even relative to our dreams.

So even in worlds where like there is an imagined outcome of like a couple hypercompetitive players like competing away some meaningful portion of the margins that exist. There can't be that many winners in that game, and it's a $40 million a year unit market. So I think in all the like reasonable cases that we can think of, we feel like we're in a good spot, but that's for investors to decide. And over time, it will get figured out.

All right. Autonomous, another big topic. We're here in SS. There's Waymos on every other block. How does the evolution of autonomous driving impact your business, right? There's two angles. You can kind of go about it with it. There's the idea that you have this physical infrastructure and reconditioning capabilities that can make you a fleet manager partner. But then there's also the argument that we've heard a few times that the growth in shared autonomy can then limit the need for buying a car over time.

That $40 million per year used car TAM and no longer being the TAM is that argument. So how do you think about that future?

So we've got a dog in the fight, but like I think our view is that, that future is maybe less likely than people presume. And so I think several reasons for that. One reason is it seems increasingly likely that: A, autonomy will come to pass; and b, that it may not be that expensive on like a per unit basis because the underlying, like set of sensors you need are not that expensive and there may be many people that have technology that is above the bar as we move forward.

And so it's not like there's a market concentration issue that arises. Then I think when you start to think about consumers consuming miles and you start doing the math, like what does it cost to own your own autonomous car versus to rent a mile out of a fleet? At least in all the modeling that we've done, it doesn't look like it's very expensive to own your own car. So we think personal ownership will still be a major part of this for a very long time.

Then I think you get to spot where I think even in like really even in very tangible early steps of that game that I think are easier to place like higher conviction bets on today, things like long leg transport if logistics get relatively less expensive, our business model has a big trade it that is logistics for real estate. 98% of the market is on the real estate side of that bet, and we're on the logistics side of that bet. So that's like a relative win and like a very tangible, easier to extrapolate near-term way. We'll see how it all plays out, but I think that's at least a subset of our views.

And you have the capability to recondition an electric vehicle. You've put out a lot of work on how much higher your penetration is in selling EVs relative to the used car market. So I guess, how do you invest in recondition and machinery and tooling for those advanced vehicles?

So I think we already are making those investments, but I think A decent amount of the work doesn't vary across EVs and ice cars. Like there's most cosmetic things that happen, windshield replacements, tire replacements, et cetera. There's a lot of the work just get a car in great shape that doesn't even change across the two types of cars. So I think a lot of it, we don't have necessarily change, and then a lot -- we are making investments in making sure that we've got the ability to charge cars rapidly, and we're building out the capacity to monitor.

We have the ability to monitor charge across all these cars because that's something that comes up as well. We start selling more EVs is like EVs, the battery runs out if you leave it pared, whereas like a tank of gas stays full, if you leave it parked. So you have to build out different monitoring techniques, but nothing too deep that we have to invest in.

TAM expansion. So a lot of people do the 40 million used cars versus what share does Carvana get of that new car market. But as you've grown so rapidly and proved out your technology and logistics and vertical integration capabilities, are there natural adjacencies you might consider whether that's new cars? Acquire a few dealerships over the past year, reconditioning or servicing, any other areas that you would think about getting into?

I think I think the opportunities around us feel really, really big. And I think part of what's -- where we try to apply some discipline is just thinking through what is the most efficient thing for us to work on. And so I think we're in a place right now where we're 1.5% of the 40 million unit market. I think even that market it's not clear that 40 million is like the number that we should be thinking about in the long run. If we can make things more efficient and more fun, people can turn over cars faster. If like we enter a world that is benefited in all these ways by AI, people are relatively wealthier.

There's a chance if you want to turn their cars over more. I think -- and we've got enormous contribution margins at this point per unit that we produce. So I think trying to stay focused on that and just quickly is part of what we're trying to do.

And then there's clearly opportunities for TAM expansion for vertical integration, but we're trying to pick places there and not do too much at once, just because we've got I think such a simple and clear and scalable opportunity right in front of us.

Absolutely. Any final remarks or messages you have for investors, what are you most excited about for this year or for the business in general?

I think if we don't win in a major way, it's because we messed up. We're supposed to win. We're in a winning position and then we just got to go do it.

All right. Great. Cool. Thank you.

Awesome. Thank you, guys.

Good day, and welcome to the Carvana Fourth Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

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

Thank you, Nick. Good afternoon, ladies and gentlemen, and thank you for joining us on Carvana's Fourth Quarter and Full Year 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 fourth quarter shareholder letter is also posted on the IR website. Additionally, we posted a set of supplemental financial tables for Q4, which can be found on the Events and Presentations page of our IR website. Joining me on the call today are Ernie Garcia, Chief Executive Officer; and Mark Jenkins, Chief Financial Officer.

Before we start, I would like to remind you that the following 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. A detailed discussion of the material factors that cause actual results to differ materially from forward-looking statements can be found in the Risk Factors section of Carvana's most recent Form 10-K. 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.

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. 2025 is another incredible year for Carvana. There are many useful ways to describe the progress that we've made, but one approach I returned to each year starting with the graph at the beginning of our shareholder letter. I find that useful because they provide a simple visual view of the big picture. And the big picture story is clear and meaningful.

The first observation from the graph is that both volume and financial performance are moving up and to the right rapidly. This is only possible if you offer customers something that is sufficiently different and desirable that it caused them to break habit and if the business model itself is sufficiently different and efficient that enables qualitatively different results.

When we went public, we wrote that our mission was to change the way people buy and sell cars. And the graphs show that we have built a customer value proposition and a business model with the power to do it. Having a great customer offering is the single most important thing. We have it, and we're making it better every year.

Looking at the year in our current position, there are 3 key takeaways in our minds. One, we are getting better and more differentiated as we get bigger. In the last 12 months, we increased customer selection by 20,000 cars, 20,000. We are delivering cars to our customers a full day faster. We have put more cars closer to our customers, leading to $60 average savings on shipping fees for our customers. We have reduced the interest rates our customers pay on their loans by about 1% relative to benchmark on average. We have made the transaction simple and straightforward enough that many of our customers can confidently make it all the way to the vehicle handoffs about ever speaking to a person at Carvana. And customers are telling us they love it with [ MBS ] at multiyear highs. That's a lot of progress we made in a year where we also improved our EBITDA margin by 100 basis points. Lots of good things have to be through all that possible and those things are hard to replicate.

Two, we are making rapid progress toward our goals. With every step, our path to our current goal of 3 million retail units a year and 13.5% adjusted EBITDA margin becomes clear, and this year was a big step. We estimate that fixed cost leverage alone will be worth about 2 points of adjusted EBITDA margin over time. We're making rapid progress in fundamental gains that is lowering variable costs and increasing the efficiency of variable monetization, which gives us more fuel to hit our financial goals and to keep providing additional value to our customers over time.

On units, we grew by 43% in 2025, meaning that the compounding annual growth rate is necessary to hit our 2030 to 2035 retail unit goal are now 38% and 18%, respectively. With the quality of our customer offering and the positive feedback in our business, we believe there is plenty of fuel to get us to our 3 million unit goal and beyond. But we have a lot of work to do and to keep scaling our operational machine to handle all that volume.

And that brings us to point number three. We have the infrastructure to scale and we just need to execute. The most operationally intensive part of our business is vehicle reconditioning. Continuing to scale reconditioning quickly, cost efficiently and at high quality has been currently is, and for the foreseeable future, will be a central focus. We have a better foundation to scale reconditioning effectively than we have ever had in the past. We already own the real estate for 3 million units per year. We have already made the investments in the facilities to produce 1.5 million cars per year. Our systems that manage the entire process flow through our reconditioning centers are more capable and robust than they have ever been. And we have more locations that are capable of reconditioning cars, 34 as of today than we have ever had meaning we can scale hiring and production faster because of access to more people and more geographies.

But it's still hard work and we still have significant room to continue to push more of the complexity of managing cars through these locations into systems with the goals of continually improving consistency across locations and of making scaling easier. The team is up to the challenge. The Carvana future is bright. The experience we deliver to our customers are exceptional and getting better all the time. The scale of our opportunity is enormous and the financial opportunity is clear to see. And we have a team that has proven that we can tackle the difficult technology and operational challenges that are in front of us and turn them into most that are behind us.

The march continues, Mark?

Thank you, Ernie, and thank you all for joining us today. Unless otherwise noted, all comparisons will be on a year-over-year basis.

2025 was an exceptional year for Carvana. We entered the year focused on 3 key objectives: one, delivering significant growth in retail units sold and adjusted EBITDA; two, driving fundamental gains in unit economics and customer experience; and three, developing foundational capabilities. By these measures, 2025 was a resounding success.

In full year 2025, we grew retail units sold by 43% to a record 596,641. We integrated 10 additional ADESA locations. We expanded our digital auction capabilities nationwide. We reached multiyear highs on customer Net Promoter Score, and we increased adjusted EBITDA margin to a record 11%, again, making us the fastest-growing and most profitable company in our industry.

Moving to the fourth quarter. Retail units sold totaled 163,522 in Q4, an increase of 43% and a new company record. Revenue was $5.603 billion, an increase of 58%. Revenue growth exceeded retail units sold growth primarily due to traditional gross revenue treatment for certain vehicles acquired from a large retail marketplace partner. Consistent with past quarters, our growth in the fourth quarter was driven by our 3 long-term drivers of growth, a continuously improving customer offering, increasing awareness, understanding and trust and increasing inventory selection and other benefits of scale.

The fourth quarter marked our eighth consecutive quarter of industry-leading retail unit growth and unit economics. Non-GAAP retail GPU decreased by $255 primarily driven by higher non-vehicle costs, lower shipping distances flowing through to customers in the form of lower shipping fees and higher retail depreciation rates. Non-GAAP wholesale GPU decreased by $148 primarily driven by faster growth in retail units sold than wholesale marketplace units. Non-GAAP other GPU increased by $49 primarily driven by improvements in cost of funds and higher finance and [ VSC ] attach rates, partially offset by our decision to give back to customers in the form of lower interest rates.

Since our last reporting, we again expanded our loan sale platform by entering into a fourth loan purchase agreement with a long-standing loan partner for up to $4 billion of loan purchases through December 2027. This brings the total of our new partner loan purchase agreements to [ $12 million ] over the next 2 years in addition to $6 billion with [ Ally ] through October 2026.

Q4 was another strong quarter for levering SG&A expenses. Our 43% growth in retail units sold led to a 340 reduction in non-GAAP SG&A expense for retail units sold, including a $57 reduction in operations expenses and a $344 reduction in overhead expenses. Advertising expense increased by $83 per retail unit sold as we continue to invest in building awareness, understanding and trust of our customer offering. With approximately 1.6% market share of the used vehicle retail market compared to approximately 20% e-commerce adoption in nonautomotive retail verticals. We believe we are in the early days of customer awareness and adoption of our model.

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

Net income was $951 million, an increase of $792 million. Net income was positively impacted by a noncash benefit of $618 million, including a net noncash tax benefit of $685 million partially offset by a $67 million reduction in the fair value of warrants. Net income margin was 17.0%, an increase from 4.5%. Adjusted EBITDA was $511 million, an increase of $152 million and a new Q4 record. Adjusted EBITDA margin was 9.1%, a decrease from 10.1% primarily driven by increased retail revenue per unit resulting from the traditional gross revenue treatment mentioned previously.

GAAP operating income was $424 million or 83% of adjusted EBITDA, an increase of $164 million and a new Q4 record. 2025 was a strong year for our balance sheet. We ended 2025 with $2.3 billion of cash and equivalents, retired $709 million of corporate notes, and reduced our net debt to trailing 12-month adjusted EBITDA ratio to 1.3x, our strongest financial position ever. As discussed in prior quarters, we remain committed to driving toward investment-grade quality credit ratios over time.

In 2026, we plan to maintain our 3 key objectives from 2025, while placing additional weight on driving significant profitable growth at scale. Looking forward, assuming the environment remains stable, we expect significant growth in both retail units sold and adjusted EBITDA in full year 2026, including a sequential increase in both retail units sold and adjusted EBITDA in Q1 2026.

In conclusion, Q4 represented another strong quarter, closing out our best year in company history. We remain excited about progressing toward our goals of becoming the largest and most profitable auto retailer and buying and selling millions of cars.

Thanks for your attention. We'll now take questions.

[Operator Instructions] And the first question will come from Sharon Zackfia with William Blair.

I guess I wanted to kind of double clip on the reconditioning dynamics. So if you could maybe talk about kind of the challenges you're facing as you're growing at this rapid pace, which is certainly hard to keep up with. And I think in the shareholder letter, you mentioned something like if you got all of the locations or the top quartile, you'd get a $220 benefit per car. What is a reasonable time line to kind of move that bell curve to the right? And do you see the opportunity for GPU to be flatter up for the full year?

So first, I would say, I think that team has done an incredible job for a long time, and we've been obviously working hard to scale that part of the business. I think as we've said before, as a general matter, I think for any operational business, oftentimes the most difficult parts of the parts where you're moving the most people and things and for us, that's reconditioning centers. And so that tends to be the most difficult area to scale.

I think in addition to growing at 43%, supporting unit growth of 43% and also growing our inventory last year. That team also has been hard at work opening these additional integration sites which is great because it lays the foundation for additional growth in the future.

And then I think in Q4, I think there's no question that our expenses were a little higher than we would have liked there. And I think that is partially the result of these additional sites kind of having a single line, set of multiple lines and there being some extra costs that flow through there as a result. I think it's also partially a result of as we kind of spread out, we had some newer managers. And I think a trend that we've seen is locations that have matters that have been around for longer tend to perform a bit better. And so I think those are addressable issues. I think you've -- many of you have been to many tours inside of our inspection centers and seen all the work we've done in [ Carley ] to make that process as automated as possible. I think we've got some opportunities to also make the management of those processes more automated. And I think that those capabilities are kind of focused more on lifting the floor of performance instead of raising the ceiling.

I think a lot of what we've done so far has been about raising the ceiling. So I think we've got opportunities. I think we've got a very clear plan. I think this is one of those things where I think sometimes if you take a little step backwards, it kind of fires you up, and my strong guess is we'll be in a better spot in 3 to 6 months than we would have been otherwise. I think that team is fired up and ready to go and even no one's excited about taking a little backward step there. So we're focused on it. I do not think it will have long-term implications. I think I think we'll react to it very positively as we have to many other similar things in the past, and I think we'll get right back at it.

I guess as a follow-up, I know you have your AI brand, I think, as well in the shareholder letter, and it seems to me you would be maybe the most uniquely poised to benefit from what's happening in an AI. Can you talk about what the early kind of nascent uses are that you're implementing AI to do? And then if you're seeing anything in the competitive set or if it's just business as usual there?

Sure. Well, I think if we start with things that are visible to investors. I think we put some stats in there. We have 30% of our retail customers now go through the entire process [indiscernible] talking to a person until they get the car. We have 60% of our customers that are selling cars to us to go through the process out without talking to anyone until they drop off their car. That's only possible because of the systems that we've built and those systems being intuitive and automated and straightforward.

I think a major set of tools that contributes to that Sebastian and other tools that emerge from that AI brain. So I think that that's a very clear place where we're getting more scalable, where we're reducing costs. And I think very importantly, where we're improving customer experience. Those customers who go through the experience in that way have a higher NPS than customers they call us. And I think that, that also speaks to the power of those systems.

So I think that's an area where it's very apparent, I think, even from the outside looking in. And we've been focused on that for several years, and I think you'll continue to get better all the time. I think -- if you look at other parts of the business, including just the speed at which we're developing new products, that continues to get better all the time. I think there's been a couple of material step changes up in the quality of these different tools. And we're seeing internally those step changes start to flow through the business, and we're getting things done faster.

I think that is still relatively early. I think the last I mean the last year has been a massive step-up in the quality of these tools. I think the last 3 to 6 months has been another very large step-up in the quality of these tools.

But we do believe that we're fundamentally extremely well positioned to benefit from these things because we have a big deterministic system that's vertically integrated that has access to all the information and that brain has every system feeding it so we can give customers very simple answers to any questions they've got in really any software interface that we choose to put on top of it. So we think that's very powerful.

And then I think importantly, to try to discuss relative negative as something that I think is a long-term positive. I think even that -- a discussion today is what does AI mean for different companies in the long term? And I think we're sitting here talking about the realities of our business, including financing and logistics and reconditioning in these difficult operational things. I think that those are other areas of the business that are very important to deliver a great customer experience and those are areas that are not subject to AI disruption in the medium term.

So we think that we're positioned to benefit in a major way. We think that competitively, we're incredibly well positioned compared to the rest of our industry. And we think that our business itself is also positioned to be an AI winner and not something that is disrupted by AI. So our view is that some of all that is very positive, and we remain excited.

The next question will come from Jeff Lick with Stephens.

Congrats on a nice quarter and a great year. I was just wondering, Ernie and Mark, can you talk about the environment -- at least the depreciation environment is actually kind of reversed a little bit in Q1 so far. So I was wondering if you could just talk about -- you highlighted in the letter that you expect a sequential improvement, but maybe if you can just talk about the puts and takes and the path of travel for GPU, not only in Q1 but for 2026.

Sure. Yes. I could take that one. So Ernie hit pretty well on some of the cost dynamics of Q4. We do expect those cost dynamics to play out in Q1 as well and do expect our non vehicle cost to be up on a year-over-year basis in Q1. Despite that, we expect a sequential increase in retail GPU in Q1. So we expect to overcome those cost headwinds and demonstrate a sequential increase.

Beyond that, I don't have too much commentary to give. I think we'll see how the year progresses. Obviously, we've had a lot of success driving strong retail GPUs for a long period of time. And that's just one of the many places where we've demonstrated a lot of success over time, including obviously, the significant growth. But in addition to that, very significant growth throughout the income statement, including adjusted EBITDA operating income and net income.

So our goal in 2026 is to have another great year, to have another year we drive very significant top and bottom line growth, and that's what we're going to be focused on.

The next question will come from Daniela Haigian with Morgan Stanley.

First one, you might have addressed a bit with the retail GPU commentary. But overall, on EBITDA, the variable adjusted EBITDA margin decelerated down to 7% this quarter. Is this a one-off decline? How should investors be thinking about this metric longer term? And is the pace of growth needed to reach that longer-term target, the 18% to 38% CAGR like you mentioned, Ernie, is that supportive of incremental margin expansion?

Sure. So I think maybe the first thing I would say on the beginning point is I think revenue changes play a very big role in that calculation. I think if you look year-over-year, we moved away from marketplace units, and that meant we moved to more traditional kind of gross revenue accounting on a number of units.

If you look at EBITDA dollars per unit instead in Q4, I believe they were down by about $14 year-over-year, which is first order flat. So I think calcs kind of on EBITDA dollars, I think, would look significantly different. I think looking forward, we feel like we gave you a little bit of a walk, I think you can see where our margins are today. We clearly have significant fixed cost to leverage. We clearly have significant fundamental gains throughout the business. You can see those showing up in our expense line items, I think we remain very excited by the progress that we're seeing in operational expense despite the fact that we're passing value back to customers in faster delivery times and other ways that they do have some costs. So I think we still got a lot of room for that.

So we feel like the path to 13.5% is very straightforward. And not only is it straightforward, we think that there's clearly significant additional gains that can be made and handed back to customers along the way. I think our goal has been -- remains and always will be to try to make progress across all areas of the business. rapidly and simultaneously. So we're going to try to always push all those numbers up. Our EBITDA margin, our EBITDA dollars, our growth, our customer experience. And I think that that's where our priorities come in. We got to then try to figure out what are our priorities, and we had to pick projects that push us in the right direction. And so we try to communicate that clearly to investors as well in the same way that we communicate it internally.

But the opportunity is clearly there. I think in terms of the opportunity, the way we're thinking about the business, nothing has changed. I mean, really, since we started the business. It's just a function of how well we execute at any point in time, the opportunities there. And if we execute well, we'll go get it, and we'll get it all simultaneously.

That's helpful color. My follow-up is I guess the question on everyone's minds here. I just want to give you an opportunity to clarify some concerns around the related party transactions, does Carvana loans to related parties? Do the related parties originate loans for cars sold on Carvana? I think if you look at the 10-K you might have some answers there, but just any messages for investors on that topic here.

Sure. The answer there is very simple. All of our related party transactions are disclosed. In our financial statements, as a specific matter, we do not sell loans to related parties and have not done so for all of the years from 2017 through 2025. Recent short reports that suggest otherwise, are inaccurate. We have checked every single detail of those short reports to ensure that all of our reporting is entirely accurate and definitively say that those reports are 100% inaccurate.

So I think that we feel very strongly about that. We don't sell loans to related parties. We disclosed our related party transactions, and there's no ambiguity about that.

And then maybe friendly request to investors out there. If we have another shorter work during a quiet period at the end of the year, just maybe think back the last couple of years to recognize the pattern.

The next question will come from Brian Nagel with Oppenheimer.

So my first question, and I think this goes back to Sharon's question at the beginning of the Q&A session. But if you're looking at the reconditioning cost dynamic here in the fourth quarter, so I guess what I want to ask , that was more of a challenge for Carvana in the fourth quarter. What changed? Why did that become a more challenging year in Q4 than it had been in Q3 or prior quarters?

Sure. I mean, what I would say is I think that, that -- the most important answer, honestly, there's no unique dynamic that instantaneously changed. I think the execution of that team has been exceptional for a very long time, and we haven't spoken about this much, but I think we've been continually over time discussing the fact that if you look back over the last 10 years, the areas where we've run into more issues over time tend to be in reconditioning because it is fundamentally a very hard operational problem.

And so I think we try to set people up for that possibility because I think it -- wherever there's operational complexity, there's room for variation. And I think that will remain true forever. Like I said, I think that team is going to -- I really do believe that in 6 months, we're going to be in a better spot than we would have been if we didn't have a fourth quarter miss. I think the dynamics are straightforward. I think they're as described. We've opened a lot of facilities. We've grown quickly. We were growing inventory quickly in the fourth quarter. We're hiring new managers and kind of moving around some management layers to put us in a position to continue to grow quickly.

And so I think there are moving pieces and sometimes that leads to a little backsliding, but they're fired up. I mean just small anecdote, one of the corporate team members who runs that team, I was on a phone with this morning at 6:00 when he was driving out to [ Talison ] to go work on it. They're very aware that we had a little miss and they don't like it, and my strong guess is we're going to end up in a good spot quickly.

That's helpful. My second part, second is also on the retail GPU. You called out as you're positioning inventories better you're seeing as you indicated that your shipping fees now are declining. So I mean clearly, that's a positive for the business. It's very much a positive for the consumer dynamic. But as we're looking at the financials, how should we think about that? Because I guess that, to some extent, undermines the one driver of GPU, but there should be benefits either in sales or your SG&A, correct?

Sure. Yes. I think the simplest way to think about that is year-over-year by positioning cars closer to customers. Our logistics expenses were reduced by about $60 and our shipping fees were reduced by about $60, basically making it kind of a breakeven from our perspective, but making it $60 better for our customers.

I think we talk about fundamental gains, and I think that that's a fundamental gain that emerges from basically scaling, where there's just kind of cost savings in the system. And then I think the question is, if we want to keep the menu of options of equivalent economic quality as the previous year to our customers, then we would basically have the ability to raise shipping cost for any given distance. We would keep shipping costs flat year-over-year on average, and we would see lower cost and the same revenue.

If we choose to leave the shipping cost menu the same then we effectively pass through those cost savings straight to our customers, and that's the election that we made. We think over time, there's a lot of value to sharing that value with our customers and just continuing to separate the offering that we have. I think today, you can see in our financial performance and our growth in our NPS. We are dramatically separated from the outside industry offering, but we want to continue to separate. And we think that the more that we separate the louder customer support becomes and the more quickly we can take over more of the market, which is absolutely our aim.

So I think we try to be thoughtful about where that money goes. But that's an area where we got better as a business and customers benefited.

The next question will come from Rajat Gupta with JPMorgan.

Just one clarification. When you're seeing profitable growth for 2026, is it correct to assume that the EBITDA per unit should expand in '26 versus '25? I just want to clarify if that is the message. Then I have a follow-up.

Sure. I mean I think what we're trying to communicate there is subtle, and I think we're trying to communicate is kind of similar to the way that we're discussing internally. So in the letter, we talked about doing full build-outs of ADESA locations, for example. I think in market ops, we're making subtle choices to operate at slightly lower utilization, which happened in Q3 and Q4 of 2025, but results in faster delivery times because we think the math of that is good. And so those are some areas where we're making some subtle changes either in CapEx or in kind of transitioning away from fundamental gains and towards supporting growth at higher scale. Those are not big moves.

So I think what we're trying to communicate is we had those 3 priorities from last year. This year, we're leading a touch into growth. The other 2 priorities remain the same. Our goal is always going to be to make as much progress we simultaneously can across all parts of the transaction. We don't think there -- these are necessarily trade-offs. The trade-off is in our focus and where our priority is more than anything else. We think that there's room to get better at everything all the time, and we'll work hard to do it. And of course, it will be hard like everything the matters is.

Understood. Maybe a little more of a high-level question. I mean, you've tried to be as vertically integrated as possible on everything that occurs presell. Is it -- when is it the right time to start getting more vertically integrated on the post-sale side, maybe around loan servicing I mean I'm sure at some point, servicing cars with some of the franchise acquisitions you're doing comes on board. Just curious around your thoughts on that and the timing.

Sure. I think you can see from the sum of our choices over a long period of time that we're big believers in vertical integration, both because of the economic benefits and because of the customer experience simplification. So I think as a general matter, we are believers in that and I think that, that belief is deep. And so it will probably show up in lots of choice over a long period of time.

I think in the immediate moment, we're now at a place where our contribution margins are very, very high. And I think we've also put some data in the shareholder letter that talks about 70% of our customers referenced a recommendation from a friend or family member mattering when they buy a car from us and the majority of our customers 3 quarters are recommending us to multiple people after buying from us.

I think -- those are the sorts of things that tell us that there's a lot of value not just kind of in the math from scaling. The math is very clear because the contribution margins are very high, so that just shows up immediately, but also in just kind of laying the foundations for long-term secular growth in our market share because we're delivering great experiences to people that they're going to tell their friends and family about for a long time. I think those survey results are very consistent with individual conversations. If you talk to a customer, you obviously you get lots of stories, but the standard story that I feel like I hear is, yes, I kind of knew what Carvana was. I knew about your vending machines. I know you guys were innovative. I didn't really know what that meant. I went to your website, checked it out. Before I knew it, I bought a car and then I was almost nervous that I messed up and it got delivered and the advocates delivered, it was great. And then I felt so much better, and I was super excited and I told my friends about it.

And to me, that's like a very simple story, but that's just the way that actual growth happens. And so we're going to focus on trying to take the machine that we've got right now, growing it, delivering more experiences like that, that cause people to talk and we think that, that's going to pay us back, and we will always be looking at foundational capabilities would kind of be like the broad bucket that we use, that we discuss additional vertical integration.

I think the opportunities there are straightforward. I think you can see many of them you listed. I'm sure you can think of more if you sat here and thought about it for a second. We see them too, but we're trying to be focused on what's most important at any given point in time because we think prioritization matters a lot. And right now, it's the priorities we outlined for you.

The next question will come from Joe Spak with UBS.

I'm curious if you could comment on your feelings about what your customers are saying about affordability. I know you invested a little bit into rates and financing to sort of help this quarter. Curious to sort of see what the reaction to that was? And if maybe more is needed or is there anything as could do, whether it's longer terms or whatnot?

And somewhat related there's a lot of EVs coming back at some -- I think, going to some attractive rates at auction. And I'm curious whether you think that that's an opportunity to plug the hole, so to speak, at the lower end of the market?

Sure. I think that's a big question. I think -- there's no question affordability is always an issue, and we would always love for cars to be less expensive. And I think it's always helpful when we can find pockets where we can give customers an offering that's better. I think we're in a market that I think in aggregate is -- has relatively low elasticities. And what I mean by that is if you look at kind of aggregate used car sales across a long period of time, you tend to see used car sales that are relatively flat over a very long period of time across different economic environments and affordability environments and everything else.

So we think the thing that we can most impact is the quality of our offering relative to the rest of the market. And to do that, that's kind of that term fundamental gain that we throw around a lot. It's how do we lower our cost to give customers the same experience or get more efficient with our revenues. I think you brought up lowering rates by 1 point. That's -- I mean -- that's a big move. And I think if you look at other GPU year-over-year, you're going to see that approximately flat. That's pretty impressive, right? So how does that happen? How do we lower rates for our customers by about 1 point, have other GPU that's flat, we built better systems and processes that led to higher attach, and we lowered our underlying cost of funds by bringing on additional partners and getting more efficient in the way that we're structuring transactions and then that meant value for our customers.

So I think when we can get fundamentally better and when we're in the position that we're in, where we're already performing so well relative to the industry economically, we're in a position to share with customers. And then the benefit of that is that, that creates affordability for them and separates us further from the economic quality of the outside offering and drive long-term growth.

So I think that's what we're going to be really focused on is just trying to continually get better ourselves. And as it relates to EVs or any other segment that would allow us to try to plug some affordability gaps. We're always paying very close attention to all those things. But as a general matter, things that are easy, we'll get very quickly competed away. So if EV prices drop to a place where they're sufficiently desirable to many customers they're solving the affordability problem my at least expectation would be that many dealers will realize that and want to buy those EVs at the same time. I think we are probably a little bit better positioned because we've got a customer base that is more likely to desire an EV.

But the hard thing that we can do is make the business better and more efficient. And when the business is better and more efficient, we have money share with our customers that other people don't have to share, and that makes us different. And so that's generally what we're focused on.

Super helpful. Second question is really a housekeeping one [indiscernible] if I missed this in any of the prepared remarks, but can you just briefly touch on what happened with tax looks like there was some release and now there's a large deferred tax asset and a related tax receivable liability on the balance sheet.

Sure, I can hit that, and then there will be more details available on the IR website as well, that hopefully will be helpful. But the key facts there are -- we have an UP-C corporate structure, the UP-C corporate structure generates significant tax assets when LLC units are exchanged into common shares, and we've had those changes happening over a number of years. So we've generated very significant tax assets as a result of that. Up until the fourth quarter, we've had a full valuation allowance against those tax assets. But with the realization of sustained profitability. We've now released that valuation allowance leading to the significant deferred tax benefit in Q4.

The other thing I should note is the tax benefits from the UP-C structure are shared between pre-IPO LLC unitholders and Carvana common shareholders. And so the tax liability release is effectively reflects the portion of the tax benefit that are shared with LP unitholders. The remainder of that benefit then flows through to Carvana common shareholders, that was more than $600 million. So a nice win for shareholders in Q4 with those tax assets now being reflected in net income.

The next question will come from Chris Pierce with Needham.

Sorry. Just -- I hate to go back to this again because I know it just see it per unit is sort of what really matters. But can you just walk through a nonvehicle cost in an IRC? Because I'm thinking maybe you're less efficient car takes longer to get on the website, depreciates more, but then you might head, I think that's a vehicle cost. So like is there like an example you can give to sort of kind of talk about what might happen here and how kind of way you don't move past it?

Sure. Yes. Let me hit that. So by non vehicle costs, we mean not the acquisition cost of the vehicle, which is the largest portion of cost of sales. But then there's a number of other non vehicle costs like reconditioning and inbound transport being primary examples.

And so then just to go back, I think Ernie hit this earlier in the call, but recon costs in Q4 were elevated. We expect it to be elevated in Q1. I think a lot of that is driven by the success that we've had, adding new locations, Ernie touched on these points, but I think our reconditioning team had an exceptional year in 2025, growing locations more than 40%, growing total production more than 40%. I think our total production growth in 2025 is one of the biggest years, I think in the history of our industry in terms of increasing overall production.

So I think that, that team had an exceptional year this year. In Q4 with all the sites that we rolled out over the course of the year, costs were elevated, but we have a number of initiatives in place and are placing an increased focus on ensuring that as we continue to scale production capacity at very high rates that we're doing so efficiently and using software and technology as effectively as possible to make that process of scaling as efficient as we possibly can.

Okay. Perfect. And then I hate to call it topical because it's something haven't heard about for years but it came up this morning. Can you just walk through title issues, different titling registrations across 48 states, maybe touch on the restart program sort of -- I know that this affects a lot of deals, not just you guys, but maybe we hear about it more with you guys. I just kind of like to hear about just broadly what you can do there and sort of what you're at the restraints are because you've got 48 states with 48 different systems.

Sure. I'll tag on that briefly. And if you're listening out there yesterday, I passed the gentleman on the elevator that asked me to say Ratatouille. So this is, I think, my shot. But I think we've made tremendous progress in title registration. I think the reality is, as a bigger automotive retailer with more attention. I think that in the post-COVID period, we probably got more negative attention for that than was warranted by the performance. I think our performance at that time was very similar to the performance of many other automotive retailers.

But regardless, I think that was one of those moments where you kind of get slapped around with a concept a little bit, and I think it made us much better. And I think today, we're in a place where approximately 99% of our packets are completed by deadline, which means that we're in a spot to get customers there title registration work done quickly and on time.

And from all accounts, unfortunately, there's not like super simple to find benchmarking data out there, but from all accounts that makes us very likely best-in-class despite the fact that we have a fundamentally harder problem because we're moving cars across state lines from any locations to give customers the selection that they benefit from our website.

So I think this has turned from an area that I think was complex and was maybe a relative of weakness because we are taking on a more complex problem to an area that I think is now another area where we shine and outperform the market. So I think that's something that we're proud of. I think the teams that have worked on that, they just heard your project called out, I think you have a lot to be proud of, and we have a lot to be grateful for. So I think that's another kind of great bright spot in the Carvana story over the last couple of years.

The next question will come from Ron Josey with Citi.

2 parter here. Maybe Ernie we'll start bigger picture on conversion rates and we're seeing inventory grow, and you heard about passing on fundamental gains to customers with lower ATRs and faster shipping or delivery time down by a day. Talk to us about just how conversion rates are trending here progress as you're working as you -- I know you entered earlier on affordability, but just as you balance affordability with units sold and margins. So first is on conversion rates.

And then maybe, Mark, on guidance overall. Wondering when you think about 4Q, I think we talked about at least 150,000 units, we came in high single digits, maybe 9% better. Wondering what drove the upside in 4Q hear as we think about 1Q and the demand with tax rates falling and seasonality.

Sure. I'll hit briefly on conversion. I think conversion rates are something that we definitely kind of define what's the top and the bottom. But I think regardless of what we're talking about, I think that we've tended to see over a multiyear period, just continual improvement there. I think we're at a place now where we have a lot of website traffic if we use that at the very top of the funnel, if we want to go even higher than that if we say like aided awareness, I think we're in a place where there's quite a bit of aided awareness. I think our opportunity remains in kind of understanding and trust. And that's why I think we spoke about some of those anecdotes earlier.

I think as we pass value back to customers, I think we have very clear understandings because we run very clear test to make sure that we do understand those things. We know what speed means in terms of conversion. We know what price means or what rate means and the conversion and so that's math that we feel pretty good that we understand and that does flow through instantly. I think a lot of the bigger opportunity, though, I think, is more about creating an offering that is different by more that cause customers to tell one another about it more dramatically. And I think that, that's a payoff. It's much, much harder to calculate.

But I think part of the kind of math that sits underneath the idea that giving value back to customers make sense is that you have a long tail that pays you off over a very long period of time by just having an offering that is superior to the outside market offering. And so I think we do all the math and try to make very smart decisions as it relates to elasticities and conversion. But I think we also sort of from a principle and from a brand perspective, trying to make sure that we're giving customers an offering that's clearly different.

Sure. Yes. And then on the guidance front, our most important goal is significant growth in retail units sold and adjusted EBITDA in 2026, that's where we're going to be focused. We talked a little bit in the letter about, 2025 was a year where we had 3 key objectives. Significant growth in units and adjusted EBITDA, driving fundamental gains and also developing foundational capabilities. We plan to maintain those 3 key objectives in 2026 but to increase our waiting on really focusing on the things we need to do to continue to drive very strong growth in units I think we feel great about where the business is positioned today.

Our year end 2025 we think was exceptional. We think we're -- our growth in 2025 is in the top couple of percentage points of companies within the S&P 500, which is a stat we feel great about. I think we're starting to see now very strong returns on investments. For example, our operating ROA, operating income divided by operating assets for the year-end 2025 exceeded 20%, which we think puts us in line with very strong long-term compounders. A really big opportunity in front of us to build a very meaningful and significant company. And so we just want to make sure that we're doing the things to continue to grow retail units sold and top line significantly and then also continuing to grow on the bottom line as well. So that's where we're going to be focused in 2026.

The next question will come from Marvin Fong with BTIG.

Two, if I may. I think you referenced it slightly in the last answer, Ernie, but the passing along the lower APR about a percentage point you referenced. In retrospect, did that have the desired impact that you anticipated in terms of driving unit growth? And longer term, what sort of the end state there. Do you have a goal of actually being sort of best in class and offering the lowest APRs to supplying customers?

And then my second question, just on advertising, I noted on a per unit basis, it was down. And I was just wondering, you're obviously investing also in the business to drive great word of mouth, which is arguably your best [indiscernible] on advertising. So just are we at sort of a peak on a per unit basis with your formal advertising expense on a per unit basis? Or how would you kind of describe how we should think about that?

Sure. I mean, I think as it relates to kind of like the immediate elasticity as we are passing some of that rate back to customers over the last couple of quarters. I think I think, yes, generally, we believe that we saw the impacts that we would have expected. And I think that's generally been true, like I said, across time, and we've shared value with customers, and we feel like we understand those elasticities pretty well.

I think longer term, maybe I'll answer that slightly differently. I would say in the period between now and hitting our 3 million, 13.5% adjusted EBITDA margin goal, the goal is to make as much fundamental gain as we possibly can, of which we think there is lots of room. We think there's big opportunity in every GPU line item and every expense line item and all the teams are focused on those things and trying to prioritize and figure out where they can get the biggest yield the fastest, and we want to go get that. And then we want to give value back to customers. The more fundamental gains we get, the more value we can give back to customers. And we think the path to 13.5% is very straightforward, and it comes from scaling and kind of new markets acting more like old markets and just the benefits of levering fixed costs. So it's a straightforward path.

So I think that's kind of the 2030 to 2035 plan. And I think from there, we'll kind of reevaluate and I'm sure along the way, we'll be giving you updates as well. But I think that's what we're focused on. And so it's just about getting a little better all the time.

On [ AdX ], I think we brought up over the last couple of quarters that given the large contribution margins and given the desire to lean into growth and all of the obvious benefits that you get from growth because of the contribution margin and then because of the feedback in the system and because it creates more customers that can tell your story that [ AdX ] is a good place for us to invest. We continue to believe that, that is the case. And we've also made some other investments in other parts of the transaction as we discussed. I think we will try to be efficient with those investments and thoughtful about where those investments go there's obviously many different places where we can spend money with a similar goal there. So we try to be thoughtful and optimize as best we can, but I would say no major changes in any of our kind of general thoughts there.

The next question will come from Lee Horowitz with Deutsche Bank.

I guess as we look out to '26, the production growth algorithm looks quite strong as capacity comes online and throughput continues to improve. I guess how are you thinking about how that supply growth may be met via demand? And do you see any reason why the relationship you have seen in terms of selection growth and unit growth changing in any way relative to what you've seen historically?

I think we started the prepared remarks with something that we think is really useful is looking at the multiyear graphs and just trying to take away those big themes. I think we did have a similar kind of conversation here. I think if we look over the last 13 years of Carvana's life, I think as a general matter, the story has been that as long as we build the operational chain to support volume, there's demand for that volume. And I think generally speaking, that's been a pretty predictive, simple reduction of what's going on.

So I think we've got to keep building out that operational chain. It's a lot of work. Our foundation is good. We've got the real estate. We've got the people. We've got the team. We've got the systems. We're making the investments now as we speak, and we're building a system that scales better. but that's constant hard work. And I think that we would expect the future to look like the past on that because we still think we're a tiny portion of this market.

Yes, as discussed earlier, we're 1.6% of the used car market and 1% of the car market overall. So effectively, we still have first order of the entire market to grow into. So we think it remains very early in the game, and we think that making sure that we execute well and build out the supply chain is central to predicting where our growth is going to go.

Makes sense. And then I guess your competition has clearly talked about pushing on some price in the 4Q. The reaction to that in any way impact retail GPU? I know you give us the walk, but any color there? And maybe how are some of the actions taken by your competitors changing, if at all, the way you think about price competitiveness in 2026?

I think we gave you the walk. I think the story in retail GPU, I think, really is about a transfer to customers of shipping costs and then -- and then a little variation in depreciation that I think is going to happen quarter-to-quarter and is natural. And then I think most importantly and most controllably, it's about reconditioning costs. So I think that's the story there. I think we'll always pay attention to what's going on in the market, but as we've said before, I think one of the properties of this market that we think is very beneficial is that it's a market that is massively fragmented that has literally tens of thousands of players in it that share a cost structure and share a way of doing business.

And as a result, the way that, that market reacts in aggregate is pretty predictable because they're highly constrained by what their costs are, and it makes kind of the market very consistent and very predictable, and that's been true for our entire life and we'd expect to be true in the future. So with that being the case, we think that our focal point has to just be on us and delivering great customers and making our system more efficient. And if we do that, we think we'll keep getting better.

The final question today will come from [ John Babcock ] with Barclays.

I guess my question is really revolving around volumes. I mean you're guiding to sequential growth in 1Q, which seems to imply at least 22% growth, maybe a little above that. And generally, I think that's at least below where the Street was. Just kind of curious, I mean are you seeing anything in the market that's giving you caution at this point in time? And this also couples a little bit with your prior comment about shifting more to growth. So I just want a little more clarity there in terms of how you're thinking about that.

No, I guess would be the simplest answer. I think things look the same to us, and we're going to continue to run as fast as we can and just try to get a little better every day. I don't think there's any changes to what we're seeing or feeling.

Okay. That's clear. And then as far as -- I mean, you're expanding free at home delivery, free pickup should we think about that over time as potentially impacting GPUs, I mean we've clearly seen the impact this quarter at least of the shipping cost as more people are buying vehicles closer to where they're located. So just kind of curious if you might be able to go through that a little bit.

I think ideally, we're making fundamental gains at the same speed that we're passing them back. So that's -- or faster, frankly. So I think that's the general goal. I think in things like shipping fees, I think as we get cars closer to customers, what we're doing today is we're passing that benefit to customers. And I think as we scale that kind of naturally occurs. We have many of these inventory pools that are relatively new that have relatively small pools of cars in them. As those pools grow, that will bring our average car closer to our average customer, and we'll naturally cause a little bit more of that same impact, which we think is net positive.

I think that we've made some choices like we discussed earlier, in market ops, for example, to run at slightly lower utilization rates and the benefit of that is that means the delivery times are faster for customers, and we think the math of that is very good. That would mean all else constant, that would take a little pressure on Carvana ops expense. But we generally are making gains in other places that are offsetting that or more than offsetting that. And so that remains the goal. So I think we hope to continue passing value back to customers and to make gains that are of similar size, so -- or better. So we're not moving backwards.

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

Great. Well, thanks everyone for joining the call. Really appreciate it. Team Carvana, great job again. I think the year 2025 is a tremendous, tremendous year, and I think it's something that was very hard to foresee ahead of time and something that we should all be very proud of. I think Q4 is also an exceptional quarter. I think there were a couple of little line items where we all know that we could have done a little bit better. And I think in many ways, that's great. That's a good reminder for us. Let's use that and let's go do better tomorrow. But great job. We have a ton to be proud of, and we're going to keep rolling down this hill. So let's keep it up. Thanks, everyone.

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

Hi, everyone. Thanks for joining. My name is David Lantz, and I'm a part of the retail hardlines team here at Wells Fargo, and we're very pleased to be joined by the Co-Founder and CEO of Carvana, Ernie Garcia, as well as Mike McKeever and Austin Knutson from the Capital Markets and Investor Relations team. Thank you guys for joining.

With that, we'll jump right into Q&A. So units have grown significantly for the better part of 2 years. What have you and the team done to get the business back into a growth mode?

Yes. So I would say our version of the story would be that I think we were -- we launched the company in 2013, sold our first car in January 2013. And I think we were in growth mode from then until early '22. And then I think we massively made a huge strategy shift where we needed to no longer be reliant on capital markets to run business and that led to us doing all sorts of things that caused us to pull back quite a bit on growth and actually go the other way for 1.5 years, 2 years. .

And then I think we just kind of stopped doing the things that were designed to rapidly improve unit economics and led to business shrinking a bit and move back to the same equilibrium that I think we had for the many years prior to '22, and we're now growing again. And I think the fundamental driver, I think, is just that we deliver experience that is desirable to customers that's not completely understood. And so I think we have to keep delivering great experiences over time. And I think as we do that, our customers tell their friends and that drives more growth. And then the business itself has positive feedback through inventory growth and everything else. And I think we are leaning back into those levers.

Got it. That's helpful. And so you're aiming to sell 3 million retail vehicles a year in 5 to 10 years from now. So can you talk about the factors that could help you reach this in the earlier part of that or the later part?

Sure. So for perspective, for those of you that aren't that close to Carvana, we -- over the last couple of quarters, we've been run rating around 600,000 units per year, give or take. So I think getting to 3 million is around a 5x thing of the business. we've moved through several orders of magnitude since launching at 0 in 2013. And so -- and we're doing it into a market that has 40 million transactions per year. So that goal of 3 million units, while very large in absolute terms is only 7.5% of the market that we're in. So we think it's extremely achievable in terms of just the size of the market that we're moving into.

And our business is relative to most growth businesses. I think it's very operationally intensive. We buy cars, mostly from customers, but also from auction. We put about $1,000 of parts and labor into every car that we buy. We photograph the car. It goes up on a website, a customer goes through a process to get approved for financing. We do verifications. They select their delivery time. We deliver it to them. We use title and registration. So there's many components of the business that are complex. And so our view is just continuing to scale that system at the rate that we're continuing to benefit from constant growth demand for our offering is the hardest thing to do, and to hit that goal of 3 million units in 5 years equates to approximately 40% compounded growth to do it in 10 equates to approximately 20% compounded growth.

We think 40% is achievable, but obviously hard. And I think with relatively limited, if any, precedent for other businesses in history that have been disruptive concepts. So I think that suggests that it's hard but we've got a plan and we're marching as quickly as we can, and we'll see where we end up in that time frame.

How do you think about the balance of appropriately ramping production lines while also taking advantage of incremental near-term share gain opportunity? And I know in Q3, you had mentioned that the market is flattish and some peers have had some mixed reads since then. So I was just curious how you think about balancing the appropriate long-term stance with share gains today?

Well, I think our -- given our belief that ops is the likely driver of our time line to achieving any given level of scale. I think over time, we've been approximately operationally constrained. It's kind of how quickly we've -- what has driven our growth over time. I think we generally want to try to make decisions that smooth out ops as best we can, and make it easier for us to grow at high rates versus the same period. And so I think trying to continually open additional what we call lines. We have production lines inside of our facilities and then open additional facilities, which means that we have more places to open lines in the future, means that like the -- we reduced the actual hardest operational problem in our business. It is likely scaling inspection centers. And the work that happens to scale the business happens at the individual center level. .

And so by having access to more of these centers, which is more work today than just scaling in centers that we already have that have excess capacity. But by opening more of those centers, we basically make it. So in the future, we have an easier scaling problem because we have more locations to do that work. And so I think right now, we're focused on trying to lay out a multiyear plan to grow at high rates for a long time. And that means continually growing inspection centers. So we've been continually doing that.

Got it. And recognizing that it's a really fragmented category, where would you say that your share gains are primarily coming from today?

I think our view is that our share gains are very broad-based. I think I think an interesting -- I think an interesting result of the automotive retail market being so fragmented is that publicly reported companies are probably on the order of 10% of the market. In most retail verticals, the largest players, 20% to 30%, and the next largest player is 15% to 20%. And so if you have 4 or 5 public companies, you probably have the majority of that vertical that's reporting, and I think investors get a lot of visibility to that. I think in our market because it is so fragmented, a relatively small portion of the market is public.

And so I think oftentimes, the narrative that is dominant in our industry can be dominated by what a couple of companies are seeing or experiencing. I think as a general matter, given how fragmented it is, if we were taking share randomly from all other retailers, and we're currently 1.5% give or take the market. We'd be taking about 1.5% from everyone. That would obviously be very small and would not be noticeable to others. I think there probably is more concentration than like a true random draw across all the different retailers. But when we try to look at all the data that we have where we can look at all the cars that are listed online and where customers are buying from and we can look at cars that we value to then customers sell to a different dealer, and we can see where those show up online and what dealer ended up buying those cars.

And then we try to say who are we competing with? It tends to look like a mosaic of the entire industry more so than any concentrated number of players. So I think our general view is that we just got to stay focused on our customers, keep delivering great experiences and we know 1 player in this industry probably has a massive and direct impact on any other player in this industry. And we think that likely goes both directions.

And when we think about the go-forward growth potential and the 20% to 40% CAGRs that you mentioned over the next 5 to 10 years, how important is the used car auto backdrop in achieving that?

So I think as a general matter, used car retail has averaged for 20 years, about 40 million units, and it's probably been as high as 43% and it's probably been as low as 34%, maybe. I think the trough 34% was like 2009 or '10 post the great financial crisis. So I think generally speaking, like in our most recent quarters, we've been growing at about 40%. That's a very high rate of growth compared to the variation that we've seen over 20 years in the entire auto industry.

So I think -- our view is if the auto industry moves up or down by 2% or 3%, probably the best first guess is that we'll move up or down by the same amount. But that ends up just not being a huge part of our story in light of our growth. And so we're much more focused on laying foundations for sustained growth over a long period of time. And then I think we'll benefit when the market grows a little bit, and it will hurt us a little bit when the market shrinks, but on average about 40 million units.

And then I was in Orlando last week at the IRC tour, and there was some commentary around from the team that you're comfortable with the rate you're growing at the 44%. So can you dive into that a little bit more to especially as you get kind of tougher compares here over the coming quarters and into 2016?

Yes. Well, so I mean, I think -- again, I think growth happens at a location level. Like there's many different kinds of growth, but like some growth that is pure technology like functions that are pure technology, things like credit scoring for us. They scale incredibly well, right? Like you just turn on more servers, do more calc, the scale just kind of like shows up and it's very easy. The other side of that spectrum is reconditioning centers. And in between that, you have customer care and registration and verifications and you've got logistics I think when we look at all those different groups, we say, okay, let's look at the groups that have the worst scaling properties because you have the most labor and movement to physical things per unit of growth.

And let's look at what we've achieved in the past. When we look at how we grew in 2020 and 2021, and we look back at -- we averaged 10 to 12 inspection centers back then compared to where we are today, we're like, okay, we likely by adding the same capacity per center that we did in 2020, '21, we can likely hit the last year at 40% growth going from a little over $2 million to $3 million, right? If you compound out of that 40% the entire time. So we think that it's a problem of complexity that we have seen before and kind of executed against. But it's hard to sustain that over and over.

And I think when the team says that we're comfortable with our current level of growth, you are at an inspection center talking to the team on the ground that is adding lines on the ground, that's where work actually happens. And so, so far, I think the team on the ground, these locations and the corporate team that's overseeing a lot of this and the people ops team that's helping us hire in all these different locations. they've done a really good job, and I think our growth has felt comfortable. And I think there's reason to believe that we should be able to continue to grow at high rates. But of course, it's going to be hard. And so I think we'll work really hard to make that as smooth as we can.

Got it. And since we're at the TMT Summit, I'd obviously be remiss to not ask you about AI. So how is the company using it today? And how is it benefiting both internal processes as well as the customer?

So I find AI to be sort of hard question to answer because it's just -- it's everywhere. And then also I know how skeptically I look at the people and they start saying AI is everywhere, and they know it means higher multiples. And so I can only imagine everyone looking at us with the same skepticism. But I think it's in every part of the business. At this point, I think what's really beneficial about Carvana is we built our business in a way that led to everything being kind of designed in systems that are API accessible and all decisions being deterministic and all those things being able to be calculated very quickly. And all of the data being stored in places that we immediately have access to because it's all first party, we're vertically integrated throughout.

And so by virtue of just building the business that we've built over the last 12 or 13 years. We laid foundations incredibly well for an AI world where you can then take all of those services and you can take all that structured data and as long as it exists in a good place and it's immediately accessible, we can push it to these brains that can provide very high-quality answers very quickly. And so that shows up in obvious areas like our chatbot, it shows up in different tools we're building on the site today. It shows up in productivity throughout the entire organization. It's amazing many of our different groups are doing. I mean our modeling groups have built basically like collections of agents at different levels where you've got and agent that takes in a data set and goes through and cleans it. You've got another agent that converts that into variables that likely have intuitive meaning. And then you have an agent that goes through and generates models, then you have an agent that goes through and skeptically evaluates the result of those models to try to figure out where there might be hold.

And they're just now able to generate models that literally 100x the speed that they could even a couple of years ago. And then, of course, in like our development teams, development is like 1 of these areas where, I think if you ask 5 developers the best way to measure developer productivity, you're going to get 13 answers. And so I think trying to figure out what's the best metric to evaluate the speed at which we're increasing our output through our engineering teams isn't trivial, but I think we're materially up over the last 6 months to any of the metrics, and it seems like that's just continuing to happen. And so I think productivity, customer-facing capabilities is showing up everywhere.

Got it. And then shifting gears here to GPU. So you regularly talk about opportunities remaining across every line item within GPU. So can you talk about that in a bit more detail across retail, wholesale and other?

Sure. There's a lot in there. But I mean, so I think let's maybe -- let's move into retail a bit because we can maybe talk about it a little bit more deeply. But so I think in retail, there's a couple of things that are interesting that are going on. So I think that there's some like foundation laying that we think will lead to fundamental gains that will all else constant be a tailwind to retail GPU, which are things like rolling out [indiscernible] and having -- rolling out megasite and having both retail and wholesale capabilities at all these sites so that we can be a more efficient buyer of cars.

So basically, just between us and natural sellers of large pools of cars, we can cut cost out of the system and split the gains in them. So that's kind of like a structural improvement to the business that saves time and cost and energy and therefore, leads to gains. Then I think that we're constantly improving all of the ways that we buy cars and we price cars and we merchandise cars are informed by the quality of information we have about every car and the density of the information that allows us to understand how much any given feature is worth to a selling customer to a buying customer and where we're supposed to merchandise that.

And that data, the sum of all that data that we have is growing at approximately the rate that the retail business grows. And so your -- for any given model, you run into noise at a certain depth. And if you're growing at 40% every year, you can move down like a level of depth roughly every year in terms of what you truly understand that you're able to price intelligently without being overwhelmed by noise. And so just getting smarter with -- getting more data and then being able to utilize all that data to price on both sides of the market, merchandise in the middle and build search tools in the middle as well, also helps retail GPU.

So those are maybe like one is a structural advantage and one is kind of like a more of an analytical and data type projects. Both of those we expect to lead to increases in retail GPU, all else constant. And I say all else constant because we also definitely plan to pass back fundamental gains to customers as we think we're now at a spot where it's very easy to have line of sight to 13.5% EBITDA margins, which is a target that we set for ourselves for reasons we can explain if interested. And we think that there's enough fundamental gains to push us beyond that. And so we think it's going to be smart for us to utilize those incremental gains to pass back to customers to further differentiate our offering to enable us to play a really outsized role in this industry over a long period of time. So these are some examples.

Got it. And how do you think about the importance of passing fundamental GPU gains back to consumers as a function of achieving the 3 million retail unit target over the next 5 to 10 years?

So what I would say there is, I think -- I think a good approximation is that the quality of customer offering that we're giving to customers today versus the offering that we gave 10 or 12 years ago is about the same. And so we've driven for all about 1.5 years of that period, we've driven very outsized growth at constantly increasing scales from a base of 0 to a base of $150,000 a quarter with an economic offering that has been approximately constant.

And so I think there's -- and at that level, you can look at our older cohorts, and you can see that we have higher market shares in those markets. And you can look at our younger cohorts and see they're ramping at a similar faster pace than the older cohorts were, so you can extrapolate out to much larger scale we are today. And then you can look at those oldest cohorts you say they're still growing at very fast rates that approximate the rate at which the company is growing. And so you don't know exactly where that goes, but it suggests there's like a lot of headroom there.

And then I think we can look at passing economic benefit back to customers and we AB test all that through rates and do customer bids on buying cars from customers and through pricing. And we have an understanding what those elasticities are. But to me, those are all just tools in our arsenal. And I think in the best version of the story, and I think something that's consistent with historical data, it's not obvious that you need to be passing back a ton of those economic gains to drive continued high levels of growth because I think that we've got lots of visibility to continue high levels of growth with our offering exactly where it is today. I think that that's just kind of additional fuel that we think is going to be smart to use over time.

Got it. And on the EBITDA margin front, so you're in low double-digit territory today. Can you help us think through why 13.5% is the right target over the next 5 to 10 years? And I know you mentioned there's potential upside from that. But just as kind of a starting point?

Sure. So we can talk about for a long time, too. But what I would say is I think right now, like 1 way to articulate 13.5% is where we've been for the last couple of quarters, plus if you just look at our overhead expenses, and you assume that we lever that even partially with respect to growth on our way to these higher targets, it's very likely we would move through 13.5%. And then we're separately talking about all these fundamental gain opportunities that we think we have in every revenue line item and every expense line item that are going to be hard to unlock but that we plan to unlock over time.

And then that suggests to well, why don't you just go well beyond that? And especially if you believe that with a fixed economic offering quality to customers. We've driven all the growth that we've seen since inception to today. And I think that's a reasonable argument. But then I think the other argument is that there is elasticity, and even in our 3 million goal, we would be 7.5% market share. And I think while it's important to have a goal at any point in time, it's not hard to imagine that when we get to that spot, we will look further down the field and have bigger goals.

It's likely smart for us to pass some of those gains back because we can evaluate like what is elasticity and what is the value of incremental sale relative to the cost of getting that sale by having economics back to customers? And that math suggests that we should be handing some back to customers and that we could take a really meaningful share. And I think as we do that, we're also competing with -- we're about 1.5% market share.

For the most part, the other 98.5% market share of the market shares a cost structure and shares a revenue model that is very similar. If we put pressure on that, that business -- some of those businesses are not super well positioned to respond super easily because they just have a different lease structured business. And so it's probably smart for us to do it for that reason as well. And so I think 13.5% is not a perfect scientific exercise. It's like a bunch of science goes into it to approximate and then you try to pick a reasonable goal, and that's the goal we picked.

Got it. And on [indiscernible], you're completing about 10 integrations a year. So curious how you're measuring success there?

So I think the success is measured by opening the sites, doing the technology conversion so that we have the ability to run our play, getting leadership in place at those sites and then beginning to scale them produce cars and then have those cars -- we compare those cars when we do through what we call a global local process when we look at any given facility that's doing any given function, and we compare how that facility is performing compared to the other facilities that perform the same function. And so in recon, we want to look at cost speed and quality and just say, how well is this location doing in those 3 dimensions relative to our other locations? And how quickly can we climb that curve to be as efficient as other locations. And I think the steepness of those curves is a major way that we measure it. .

And as inventory pools ramp, can you walk through some of the benefits and risks associated with that?

I think -- let's start with the risks. The risks are it's inherently harder to open a new location and ramp up from 0 because you have the new technology rollout, you have new leadership. You have all new people you have to hire and train that don't get to learn from preexisting people that are already there doing the exact same thing. And so it's just kind of like inherently a harder problem. And I think that when you're taking on any operational problem. The harder it is, the higher the likelihood is that you stumble.

So I think that's the risk. And then I think the benefit is very mechanical. It's just in the most efficient version of the Carvana machine, you want to have many locations around the country that are distributed approximately similarly to the way the population is distributed so you can buy cars and minimize the transport to the location we're going to do the reconditioning and then merchandise it and then have ideally as much density in each one of those locations, so that customer as much dense as you can with the best distribution of inventory so that customers nearby are most likely select cars that are nearby.

So you also have less outbound transport. And so just the more locations that we add necessarily the shorter the distances for the average inbound transport and then either the short of the expected distances for the average outbound transport or the more selection you have this available faster depending on how you want to position the system from like a shipping fee perspective.

Got it. That's helpful. And so there are a lot of concerns out there today around the credit environment. So curious if you could talk about how you see the backdrop today?

So I think you always look smarter to be [indiscernible] and skeptical, and we have a really strong desire, especially in this beautiful stage to look smart. So I want to be cynical and skeptical, but I also think the data that we look at looks pretty good. And so I think it's been interesting to try to do some work on our side to tie out why do a bunch of smart investors feel like they're really anxious about credit. And why do most originators and investors in credit feel like things are kind of moving forward about as expected.

And I don't want to say that we have all the answers there, but I do think there's a good chance that a decent part of that puzzle is that every originator, I think, had tough '22 and '23 vintages and then virtually every originator tightened credit in late '23 or early '24. And I think if you're looking at portfolio level metrics, I think the '22 and '23 vintages are playing a bigger and bigger role in the overall portfolio and causing things to keep -- look like they're getting worse.

But if you're looking at actual vintages, I think it was easy to forecast where those were going to be 12 months ago, and most of the '24 and '25 vintages look pretty good. So it seems like consumer credit is better than the average narrative out there, but maybe we end up being wrong on that over time.

And then there's a big opportunity with brand awareness, obviously, with where your market share sits today. So can you talk about how you're going about capturing that and how you're using advertising as a lever?

Sure. And so I mean, to me, I would just say that like I think one of the interesting things for any like analytical mind to look at is to look at the cohort curves that we gave out every year up until I believe 2021, and you can kind of see that our oldest cohorts are ramping at a certain speed and then the newer cohorts were all ramping at a somewhat similar speed. And there's this question is like, okay, if you launched the market and then a bunch of time pass and you got to a certain market share, how come when you launched that next market? Why didn't it just start at the same market share that the other market was already at?

If you have inventory that can be shipped around the country and you have prices that are the same, you're bidding the same for customer cars and you've got financing is the same -- and you roughly are using mostly national advertising channels. Why don't you start at that same point and just kind of instantly jump there. What we actually saw was you started the origin and you built up over time. And to me, I think it's because in many customer conversations, it becomes clear that the actual question customers are asking themselves is they're saying, Carvana seems appealing? Like, first of all, I don't know what Carvana is. It's -- I've seen some ads and it's that vending machine company and how does it work? That's how most customers think about Carvana.

Then they learn more. And it's like, okay, not going to a dealership for 4 hours sounds appealing, A broad selection sounds appealing, a reasonable price sounds appealing, a 7-year-term policy that sounds appealing. But the other thing is I'm anxious about buying a car, right, like buying a car is an anxiety producing customer experience that has a reputation that has been earned over a very long period of time. And so part of what I'm trying to do is have it be better. Part of what I'm trying to do is make sure that I don't do anything done.

And a lot of times, the way to feel the least done is to do the traditional thing. And so I think many customers are like that's the debate that they have in their head. It's like, okay, Carvana seems appealing. But also if I just buy a car, the old way that everyone has always bought a car, I can't be that wrong. And I only buy a car 1, 3, 5 or 6 years. So what do I do? And I think what brand advertising is about and what delivering good customer experiences about is like if you have something that is actually fundamentally better, you just need that story to be in the minds of consumers to overpower the anxiety of I just want to make sure I don't look dumb.

And so I think that -- most importantly, that's about delivering good customer experience over and over again and having friends tell friends about it. But it's also about leaning into advertising a little bit and making sure that our brand is out there because even things like we all kind of know this. If you see an ad on Monday night football, you think that company is legit, right? You just do like that happens subconsciously, you believe that. And you don't necessarily believe it if you -- if it's -- or you'll believe it to a lesser degree, if it's a low budget ad during a local news broadcast, right? You're going to feel differently about those things. So just getting out there in the world and having people see you and make all those subconscious connections so that they don't run the risk of feeling like they made a mistake is I think a huge part of what we have to do over a long period of time to go from 1.5% market share to 7.5% to be on that.

Got it. And then on the same day and next day delivery, how are you measuring success of the pilot in Phoenix?

I think we feel like the benefit to faster delivery in conversion are very well understood. So I think it's about how well we're executing, how many customers we can get to have options where they have a same-day delivery option available to them. And then what is the customer uptake and then how well do we actually fulfill that promise, that's, I think, generally how we're measuring it. And I think the progress that we made there is very impressive, and it's more -- I think for a business to be able to grow really fast long period of time, you want it to be as simple as possible. But for a business to have moats that are defendable, you want to be as complex as possible. We happen to be the latter kind of business. It's complex.

Same-day delivery is not like a make a strategic decision, hire more people, deal with a little bit less labor efficiency and you've got it. It's -- there's a lot to do because like you have to manage different complexity of finance verifications for different credit types. You have to manage car picking, you have to manage presale inspections. You have to manage title and registration that varies by location. You have a lot of things that you have to manage that require that we kind of reoptimize our systems and design for them. And then you have to make sure that you also have staffing so that you can fulfill that very quickly.

And so it's like a real undertaking, and that's why we focused -- we rolled out the capability to many markets and sort of like our system as it was already kind of naturally designed without that specific intent and our staffing models as they were already designed about a specific intent. We let same-day delivery sort of happen in that way. And what's happening in Phoenix now is we're purposefully trying to increase the availability of that option to many more customers through system design and through SaaS models. And I think we've seen a lot of success so far and we hope to continue.

And to what degree is a broader rollout of same-day delivery embedded within your assumptions for 3 million retail units a year?

I mean I would go back to, I think a lot of what we're doing when we're estimating future retail units is we're looking at market shares of our earlier cohorts that are higher and then we're looking at the growth rates of those, we're looking at the various elasticities across the business. We have estimates for when you grow inventory. What does that do to conversion, what does that do to scale? And how does that kind of feedback loop play out when you -- we've made delivery times continually faster over that entire period of time. We have estimates of the feedback of that. And so we can kind of look at those things and extrapolate them out. And they definitely play into our models and into our confidence that, that kind of a number is achievable, but like we haven't broken that out precisely. .

And for those not familiar, can you talk about the differences between the full build-out of [indiscernible] locations that will begin in 2026 relative to the integrations that are already ongoing?

Sure. So -- the biggest difference is that auction locations forever, like as a seller of a car, when you go to an auction, you have an option to say, replace this windshield and clean up this headlight and bang out this debt over here. And I'm going to spend $500 to do that. And my hope is that I'm going to sell the car for $750 more. And so most auction businesses have some like reconditioning like mechanic capability that was already built into the auction business itself. So there's building and space for that.

So a lot of the initial rollout that we were doing was utilizing existing space that was underutilized maybe putting in some lift, putting in our software, putting in management teams and leadership in hiring and training and then pushing reconditioning through that pre-existing footprint. The full build-out means now we go to a site that's 50 or 60 acres, where maybe the initial build-out that already existed as part of the auction was enough to support 1 or 2 lines. And we want to have building capacity to support 6 to 8 lines.

We then need to maybe build another building, put down a photo booth, put in more lifts. And so that's more capital intensive. And so that's why I think we've been able to open some of these locations with very low capital intensity to sort of get a toehold for these different inventory pools and leadership and everything else. And then I think we will now go through and start to fully build out some of these facilities where we can do meaningful volume out of each one.

Got it. And then can you walk through some of the differences and to your point, the capital intensity of the fuller build-outs versus the integrations that are ongoing and kind of split that out?

Yes. Well, the integrations that we've done so far, for the most part, have been very low CapEx. And then when we bought [indiscernible], we sized the CapEx that would be required to do the sum of build-outs to get us to 3 million total reconditioning capacity to be around $1 billion. And I think that remains like a good ballpark estimate. There's been some inflation since then. I think it's probably ticked up a bit, but that's a good first order estimate. And so that's -- you take that divided by the number of sites that we'll do, and that's approximately the investment that we expect at these locations. .

Got it. And it looks like we only have a minute left. So 1 more here. Can you just talk about the significant -- the timing and the significance of the recent upsizing and new loan sales that were announced in Q3?

I think -- I mean I'm extremely biased here, but I think as a general matter, consumer credit is a deeply fundamental and highly valuable asset for people to invest in. And as a general matter, it's relatively hard for even pretty sophisticated investors to get access to many of these types of loans. And I think the way the markets have evolved there over a long period of time is that, generally speaking, you have companies that have kind of paired capital with sales teams that go out to many dealerships with verification capabilities and real-time credit scoring capabilities so that they can originate these loans and then investors have got access to the equity in those companies.

What our business does is we separate that. We basically have our own flow of customers that are coming to us. We've got our own credit scoring. We've got our own credit pricing. We connect it to verifications and to servicing. And then we create an asset that is easier for investors to invest in about having to build all those operational capabilities. And basically, we think that -- in many ways, that's the exact same trade that is happening in all of fintech. So I think that in automotive, we're sort of doing that same thing and that opens you up to an entirely new investor class.

And so I think we've got existing investors that we have long-term relationships with that we're still selling lots of loans to and have upsized, and then I think that we've been gradually getting deeper relationships with other new investors that are realizing even as they held loans, they went through '22 and '23 that were not great vintages -- the downside cases look pretty decent. And so they're more excited to invest more money in those assets. And our hope is that as we continue to get more scale, we'll be able to do that more. And if anything, drive down our cost of funds and therefore drive up our finance GPU, but we have to execute that to happen.

This has been super helpful. Thank you, Ernie.

Well, thank you. Thanks, everyone.

Good day, and welcome to Carvana's Third Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Meg Kehan with Investor Relations. Please go ahead.

Thank you. Good afternoon, ladies and gentlemen, and thank you for joining us on Carvana's Third 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 third quarter shareholder letter is also posted on the IR website. Additionally, we posted a set of supplemental financial tables for Q3, which can be found on the Events and Presentations page of our IR website.

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

Before we start, I would like to remind you that the following discussion contains forward-looking statements within the meaning of the federal securities laws, including, but not limited to, Carvana's market opportunities and future financial results that involve risks and uncertainties that may cause actual results to differ materially from those discussed here. A detailed discussion of the material factors that cause actual results to differ from forward-looking statements can be found in the Risk Factors section of Carvana's most recent Form 10-K and 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 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?

Thanks, Meg, and thanks, everyone, for joining the call. The third quarter was another incredible quarter for Carvana. We remain the most profitable and fastest-growing automotive retailer. These data points are exciting in isolation. Achieving them simultaneously is rare and points to an exceptional future. Achieving them by the margins we have been recently, profit margins more than 2x the industry average and growth over 40% when other public retailers are approximately flat points to something that is structurally different, something that is capable of achieving our ambitious mission of changing the way people buy and sell cars. That is exactly what we believe we are capable of, exactly what we are focused on making happen and exactly what the data is telling us we are marching toward every quarter.

Q3 was another large step on the path to achieving our current goal of selling 3 million cars at a 13.5% adjusted EBITDA margin in the next 5 to 10 years. We're getting better as we get bigger, aided by the feedback inherent in our business, the benefits of scale and our continued pursuit of fundamental gains as well as the addition of foundational capabilities. The positive feedback flywheel is spinning. The data that powers our decision-making throughout the business is growing exponentially and allowing us to iteratively improve the models powering every decision across the business.

Our sales growth allows us to keep growing inventory economically, constantly broadening customer selection. Year-over-year, our inventory turn time is approximately flat, yet our customers have nearly 50% more cars to choose from. And the benefits of scale are also allowing us to make investments that magnify these advantages. Over the last 18 months, we've added reconditioning capacity to 15 ADESA locations, allowing us to position inventory closer to our customers, reducing customer delivery time by a day in the last 5 quarters. We've developed our digital auction capability, ADESA Clear, delivering a best-in-class digital auction experience to our wholesale customers, allowing us to add wholesale capabilities to 12 of our inspection centers and counting.

Having the strongest retail and wholesale channels to sell vehicles makes us a systematically better buyer of all cars from our customers and our partners. We've also been working on making dramatic improvements to delivery capability that will show up over time. We are currently using Phoenix as a test market to optimize our finance verifications, registration processes, vehicle staging, delivery scheduling systems and staffing models for speed. As a result, 40% of customers in Phoenix are now getting same or next-day delivery compared to 10% that get same or next-day delivery nationwide. On any given day, customers in Phoenix have about 2,500 cars available to be delivered that same day. That's worth pausing on and taking time to think through the implications.

Thousands of vehicles that can be purchased in minutes and delivered in hours is a highly desirable and extremely difficult to replicate capability. Like all good things, this will take some time to optimize the rollout across the country, but it is coming. Another set of statistics that demonstrate meaningful progress are that today, more than 30% of retail customers now complete the entire process without any interaction with the customer advocate until their delivery or pickup appointment. For customers selling their car to us, this number is more than 60%. To make this possible, our business must be vertically integrated, data must be well organized and immediately accessible. Decisions have to be deterministic and automated. Workflows have to be concretely defined inside of systems and all that has to be wrapped in intuitive interfaces that make customers feel confident.

It's hard. Our team is doing a great job, has detailed plans to keep making it better and is nowhere near satisfied. Looking forward, we continue to see opportunities for fundamental gains in every line item. Opportunities that will make our customer experiences simpler and more fun, will make our costs lower and will make our business more efficient. Our plan is to unlock these opportunities with the same discipline that has driven our success so far. Something that has always been true in the past remains true today and that we suspect will be true for a long time is that prioritizing our opportunities is the hardest part of making significant progress quickly.

With constantly evolving technology, constantly evolving customer preferences and expectations and an ambitious group of thoughtful people, new opportunities emerge faster than we are able to take advantage of the ones we previously saw. With AI, this is more true today than it has ever been. The future is bright. Selling 3 million cars per year with 13.5% adjusted EBITDA margin in 5 to 10 years is very achievable. There's a lot left to do, and there's an excited team ready to do it. We will continue to aggressively pursue rapid progress, and we aren't tired. The march continues. Mark?

Thank you, Ernie, and thank you all for joining us today. The third quarter was another very strong quarter for Carvana that was driven by our team's continued focus on identifying further fundamental gains and operating efficiencies and developing foundational capabilities while also pursuing growth. We set new records for retail units sold, revenue, adjusted EBITDA and GAAP operating income. And for the first time, our annual revenue run rate exceeded $20 million, a significant milestone pointing toward the long-term scale of our business.

Moving to our third quarter results. Unless otherwise noted, all comparisons will be on a year-over-year basis. Retail units sold totaled 155,941 in Q3, an increase of 44% and a new company record. Revenue was $5.647 billion, an increase of 55% and also a new company record. Revenue growth exceeded retail units sold growth, primarily due to higher average selling prices and traditional gross revenue treatment for certain vehicles acquired from a large retail marketplace partner.

Consistent with past quarters, our growth in the third quarter was driven by our 3 long-term drivers of growth: a continuously improving customer offering, increasing understanding, awareness and trust and increasing inventory selection and other benefits of scale. Our strong profitability results in Q3 were again driven by our team's focus on driving fundamental gains and operating efficiencies as well as levering our overhead expenses.

Non-GAAP retail GPU decreased by $77, primarily driven by higher retail depreciation rates. Non-GAAP wholesale GPU decreased by $168, primarily driven by higher wholesale depreciation rates and retail units sold growth outpacing ADESA marketplace growth. Non-GAAP other GPU increased by $63. This change was primarily driven by improvements in cost of funds and higher finance and VSC attach rates, partially offset by higher-than-normalized loan sales relative to originations in Q3 2024. Looking ahead to Q4, we expect sequential changes in retail GPU, wholesale GPU and other GPU in a similar range to last year, with the latter primarily reflecting sharing fundamental gains with customers through lower interest rates.

In October, we expanded on several existing loan sale partnerships with agreements for the sale of up to $14 billion of future loan principal. First, we upsized and extended our Ally agreement for up to $6 billion of loan purchases through October 2027, an increase from $4 billion through April 2026. Second, we entered into a new loan purchase agreement with a loan sale partner for up to $4 billion of loan purchases through October 2027. Third, we entered into an additional loan purchase agreement with another loan sale partner for up to $4 billion of loan purchases through December 2027. The latter 2 agreements formalize existing relationships and establish defined expectations for sale volume and sales procedures throughout the agreement period, highlighting the significant fundamental strength of our vertically integrated finance platform.

Q3 was another strong quarter for demonstrating the power of our model to lever SG&A expenses. Our 44% growth in retail units sold led to a $319 reduction in non-GAAP SG&A expense per retail unit sold. Carvana operations portion of SG&A expense decreased by $96 per retail unit sold, primarily driven by our operational efficiency initiatives. We continue to expect Carvana operations expense per retail unit sold to decrease over time as we deliver fundamental gains and operating efficiency. The overhead portion of SG&A decreased by $314 per retail unit sold, driven by continued leverage of our overhead expenses with greater retail units sold. Advertising expense increased by $139 per retail unit sold as we continue to take advantage of opportunities to invest in building awareness, understanding and trust of our customer offering. We expect advertising expense in Q4 to be similar to or slightly higher than Q3.

We continue to see opportunities for significant SG&A expense leverage over time and as we scale, driven by both continued improvements in operational expenses as well as leverage in the fixed components of our cost structure. Net income was $263 million in Q3, an increase of $115 million. Net income margin was 4.7%, an increase from 4%. GAAP operating income was $552 million, an increase of $215 million and a new company record. GAAP operating margin was 9.8% and an increase from 9.2%. Adjusted EBITDA was $637 million, an increase of $208 million and a new company record. Adjusted EBITDA margin was 11.3%, a decrease from 11.7%.

As previously discussed, our adjusted EBITDA is very high quality compared to many rapidly growing companies due to our relatively low noncash expenses, which we'll continue to lever with scale. We converted approximately 80% -- 87% of adjusted EBITDA into GAAP operating income, an increase from 79% last year. 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.

In the third quarter, we took additional steps to further strengthen our balance sheet with a continued goal to drive toward investment-grade credit ratios. In Q3, we retired the remaining $559 million of our 2028 senior secured notes, primarily through proceeds from $539 million of equity issuance through our ATM program. Following quarter end, we also retired $98 million of 2025 senior unsecured notes due October 2025, bringing our total quantum of corporate debt retired in 2024 and 2025 to $1.2 billion. With more than $2.1 billion of cash on the balance sheet, our net debt to trailing 12-month adjusted EBITDA ratio is now down to just 1.5x, our strongest financial position ever.

Our results through Q3 position us well for a strong finish to 2025. Looking toward the fourth quarter, we expect the following as long as the environment remains stable. Retail units sold above 150,000, and adjusted EBITDA at or above the high end of our previously communicated range of $2 billion to $2.2 billion for the full year 2025.

In conclusion, Q3 marked another outstanding quarter for Carvana. We remain very excited about progressing toward our long-term phase of driving profitable growth and pursuing our goals of becoming the largest and most profitable auto retailer and buying and selling millions of cars. Thanks for your attention. We'll now take questions.

[Operator Instructions] The first question comes from Sharon Zackfia with William Blair.

I guess the topic du jour is kind of subprime loans. And I know we can see a lot of your subprime loan performance and your prime loan performance through various different vehicles. But can you talk about kind of the health of the portfolio, whether you foresee needing to take incremental reserves there at all? And then separately, the timing of the formalization of these new third-party agreements, kind of what brought on that timing?

Sure. I can take that one. So the very simple answer on loan performance is our 2024 and 2025 loan originations are performing extremely well, both in an absolute sense and relative to industry comparables. I think some of the chatter out there about loan performance more broadly, we think has a lot to do with the 2022 and 2023 industry-wide cohorts, which did underperform initial expectations. I think most of the industry ourselves included tightened credit in late 2023. We certainly did, and we've maintained that tightness here through where we are today in 2025.

As a result, our loans are performing strongly. I think the best evidence of that is twofold. One, just the stability and strength in our other GPU. And then secondly, the outside validation of having Ally upsized from $4 billion to $6 billion based on the performance trends that they're seeing and additionally, the addition of these 2 new purchase agreements, I think, are great validation of the strength that we're seeing given all the fundamental gains that we've made in the program over time. So I'll start there.

In terms of the specific timing of these agreements, I think it's really just a continuation and a maturation. These 2 large agreements are with existing partners who we've been selling loans to over the preceding periods. Those previous loan sales have been more on a one-off basis. And so what these agreements do is effectively formalize the sales procedures and set volume expectations with those partners to essentially make more programmatic, the more one-off sales that we've already been doing. And so really, I think there -- the main point there is it's a maturation and a continuation of something we've already been doing, but now just in a more structured and formal way.

The next question comes from Marvin Fong with BTIG.

I hopped on just about 5 minutes ago, so I apologize if I missed this. But the OpEx, the operating expense per unit, I noticed ticked up sequentially, although it was down year-over-year. And I just wanted to understand, is that a better way to measure that metric? And can you just kind of talk about your future opportunities to continue to kind of like drive down your operations cost per unit, that would be great.

Sure. Yes. So I think it's useful to maybe break total operating expenses up into a few different categories. I think we -- let me break them into operations expense, overhead expense and advertising expense. I think we start with advertising expense. We are starting to invest in the multiple levers of our 3-part growth driving plan, which includes continued improvements in product offering, building understanding, awareness and trust and growing selection and driving other benefits of scale. Advertising hits the second of those. And so we have been investing in advertising as part of that longer-term 3-pillar growth plan.

I think looking at overhead expenses, I do think we saw nice leverage year-over-year and some leverage quarter-over-quarter there. Within overhead, I think that's grown much, much more slowly than retail units. I think in recent periods, there's been some lumpy expenses there that we think are more transitory in nature that's caused it to be a little bit higher than it otherwise would be. But overall, we're seeing very strong performance there with nice leverage on a year-over-year basis and then to an extent on a sequential basis.

Last, on operations expense. I think another place we've seen very strong gains on a year-over-year basis. That can bump around quarter-to-quarter, just depending on the presence of onetime items or other nonrecurring expenses. So it stepped up a little bit sequentially. But overall there, the trend is down, and we expect to drive that down further over time as we continue to drive fundamental gains in operating efficiency.

Great. And if I could maybe sneak in one more. Just skimming the real-time transcript here. So I believe you said retail GPU will be similar to last year. And I was just kind of wondering what's sort of underpinning those dynamics? So are your recon and logistics efficiencies sort of being offset by the macro environment and what's going on with depreciation rates? Or just kind of maybe double-click on what's kind of behind the year-over-year flattish retail GPU guidance?

Sure. So I think let me first just hit Q4 seasonality. I think most listeners have a good sense of industry seasonality in Q4, but typically, it involves higher depreciation rates, both in the retail and wholesale markets. And then it's typically industry-wide, the lower period for demand, whereas other quarters have more strong depreciation rates in both retail and wholesale and stronger seasonal demand. As it relates to retail GPU, I think what we called out is we are seeing for Q4 sort of sequential change off of Q3 that is in a similar range to what we saw last year, driven by seasonality. I think that looking at year-over-year trends, I would say that the number 1 thing I would say we feel like we've seen is I think Q2 was a bit of a strong depreciation quarter in the retail market.

We attribute that to some effects from the late March auto tariff announcements. I think on the contrary, Q3 was a bit of a softer depreciation quarter on a year-over-year basis. I think we would attribute that almost an offset to the Q2 strength. And so I think some of those depreciation dynamics would be the -- I guess, the one thing I would call out and also the thing that I mentioned in my prepared remarks about Q3 retail GPU.

The next question comes from Rajat Gupta with JPMorgan.

Just on the fourth quarter, like unit commentary, should we -- I mean, it looks like the guidance would imply a little more normal industry seasonality type numbers, at least the low end of the guidance. I'm curious, is that a change in terms of how we should think about the seasonal behavior of the business from here? I know in most years in your history, you've always grown units sequentially from 3Q to 4Q. So we're a little bit surprised by the guidance this time. So curious if that is a change in how we should be thinking about seasonality? Or is it just more being conservative around the macro backdrop, anything you're seeing out there from a consumer backdrop standpoint? And I have a follow-up.

I'll jump on this one. I think it's largely more of the same. I think when you look at the last several years, Q3 to Q4 for us or for other retailers, there's a decent amount of variability in the shape that you see Q3 to Q4. And so I think we're taking that into account and we're guiding. But I think we continue to see extremely strong growth. You saw it this quarter. We expect that heading into Q4 and into next year. I think we're on a great path and everything remains the same.

Understood. Okay. And then just on the other GPU within that, just the ancillary product penetration. It looks like you're starting to chip away at that. Can you maybe size for us what the penetration levels are today in that business? Or how much was it up year-over-year? And curious like how we should think about benchmarking that? I mean if you look at some of the franchise retailers out there, they make right roughly $1,500 a unit or higher at a 45% penetration. I'm curious, is that kind of a benchmark in terms of the long-term opportunity there? Are we thinking about this differently? Any thoughts there would be helpful.

Sure. I think there's a number of parts to that. I think as a general matter, I think other GPU is an area with a couple of line items underneath it. And like everyone else in the business, it's an area where we believe there are fundamental gains to be had. And I think we've been working on those for a while, and I think we've got plans to continue to work on those, and we think there's certainly opportunity there. Just to generalize a bit, I think that's true in every GPU line item and every expense line item. We continue to feel like we've got extremely exciting opportunities and the hardest part is just prioritizing those.

I think thinking about any part of our business, I think, relative to the kind of mature pre-existing automotive retail industry, I think, is a reasonable starting point. I think as a general matter, we've always sought to outperform the benchmarks that you would see if you compared us to the outside industry. But I think in ancillary products, I think something we want to make sure that we do is we deliver very simple, high-quality value-added products to our customers. And so I think that's a guiding principle that we'll make sure that we continue to adhere to. But there's definitely additional opportunity, and we definitely plan to go unlock it.

The next question comes from Brian Nagel with Oppenheimer.

So a couple of questions. My first question, look, we -- obviously, the results you put up there on the used car side are very, very strong. The question I want to ask, I mean, there's been other data points within the space that have suggested weaker, choppier used car demand. So is there anything you're seeing that's below the reported results that suggest a more difficult demand environment? And I guess maybe the ancillary to that is, is there something changing here to allow Carvana to capture even greater share in this most recent quarter?

I think as a general matter, I think things continue to look pretty similar at a high level is I think how we'd characterize things. I mean we're always paying attention. I think we get a good read on what things look like, obviously, looking at retail sales and also, as discussed earlier, looking at loan performance across the loan book. And I think as a general matter, things feel relatively stable. I think we're always paying close attention. And I think, as you alluded to, I think while we don't see signs of macro weakness today, that we're very well positioned if -- I guess, when that does come to pass. At some point, there will be cycles.

And I think where we are from a financial performance perspective relative to the industry and then where we are from a cash perspective and a balance sheet perspective and where we are from a consumer offering perspective and a business scalability perspective, I think the sum of all that is very good. And so I think as a general matter, like I said, things look good. The most important ways that we measure ourselves is how are we performing relative to the industry in customer experience, in growth and in economics. If we're always progressing in those areas, we're going to be on a really good path because this is obviously a very mature industry. We know what the scale of the industry are and we know what the economics of the industry are. So I think that's the single most important thing, but nothing notable to call out.

That's very helpful. And then my follow-up question, I guess, longer term in nature, but you mentioned in your script, just AI and to the extent to which AI is helping to enhance that consumer offering. And maybe if we could talk a little bit further about that. I mean as a consumer of Carvana now, where is AI helping my experience? And kind of how far along are you in this process now of integrating that technology?

I think we're pretty far along. Unfortunately, every company in the world knows they're supposed to talk about their AI strategy and every investor in the world knows that every company knows they're supposed to talk about their AI strategy. So I think what we try to do is we try to put in some anecdotes that are hopefully clear that demonstrate real capabilities. So I think there's 2 chats that we put in there that are super interesting and point to what we're capable of doing. One that we put in our shareholder letter, kind of -- it just shows a customer asking about a car and when it can be delivered and they ask for a specific color and they ask for a specific payment. And for that to be -- for this agent to be able to answer that question, it needs to be able to interact with our finance service, with our scheduling service, with our search service. It needs to be able to do a lot of things.

And then it also, interestingly, in line, we drop an image of the car that is clickable and pulls them into the VDP. It has to be able to have a designed dynamically rendered response to the customer that is sort of like a very early iteration of a dynamic UI, which I think is really interesting. So there's at least kind of 4 key capabilities there. And those capabilities exist not to serve our AI processes and capabilities, they exist to serve our entire business. The entire business is built to be automated and self-service and simple for the customer. It's just traditionally been in more of a standard UI structure that is click and scroll.

But I think as all these teams build these services and they embed all of the business logic into our systems, and then they make those systems and all that data readily accessible. It makes it very straightforward for us to build these very complex tools. I think we showed another one that's on the right of the page in the shareholder letter that is also very interesting and is interacting with very different data. And that shows a customer that is uploading their insurance document to kind of have that taken care of prior to taking delivery of their car. To do that, we have to know state-by-state rules. We have to be able to absorb the document. We have to be able to scrape down that document, convert that to data, apply that against business rules, figure out where we're in compliance and where we're not and then articulate to the customer what they need to do. And all that has to happen in an automated way.

There's a number of systems that are required to do that. So I think those 2 chats, chat is one possible interface, but they sort of reveal the brain behind the chat. And I think across the business, there's very interesting things happening everywhere. We're generally a very technology-forward company with a lot of ambitious, curious, excited people. And I think as a result, we tend to adopt technologies very quickly. I think another very different but extremely fun anecdote that is pretty recent from inside of Carvana is our team calls these ambient agents. I don't know if that language is an industry term or it's just what they call them, but I think it's descriptive.

We now have some agents that basically have triggers, so they don't require a human to pose a query. They just have triggers that can be data informed. A customer can run into a bug on a website, and it can automatically kick off an agent that then knows to go investigate that bug, try to figure out what's going on and then inform us what might be wrong. We recently had a version of that, that was triggered by one of the triggers that we set and no human kicked it off. It went and identified a bug. It suggested a solution. It wrote code. It sent it over to a person and then that person approved the code and the code was deployed. That's really like that's basically sci-fi from the perspective of 2 years ago. And I think that's also indicative of what's going on inside the company. So I think we are structured to benefit from this. And I think that we've got a lot of very high-quality people that are working very hard to make sure that we take full advantage of it. And I think that we're well on our way.

The next question comes from John Colantuoni with Jefferies.

I just wanted to start with the EV tax credits. Given your mix of EVs is greater than the industry average. Can you give us some perspective on how you see the elimination of the federal tax credits impacting demand for used cars in that space? And how you're making any necessary adjustments to minimize the impact on Carvana's growth trends? And I have a follow-up.

Sure. I think as a general matter, the expiration of those credits clearly mattered and clearly shift customer selection. I think the evidence so far is pretty clear that it's just a shift in preference of vehicles, not a change in aggregate demand, at least not one that is noticeable. So I think our system is well positioned to handle that. We've got -- our system is, for lack of a better description, sort of listening all the time to what our customers interacting with and what is that they want. And then we're making sure that we replace the cars that they want based on the actions that they're taking. And so we kind of have a system that pretty naturally adapts.

And I think that what you'd expect, we have seen, we've seen a reduction in EV purchases as a result of the expiration of that credit. And I think the system has adapted in a way that in the numbers is basically not something that you really see or need to be called out. And then I think as a general matter, I think we continue to be believers in EVs. I think all these new technologies go through their positive moments and their tougher moments. And I think it is true that EVs are a very high-quality fundamental technology that's early in their curve. And we expect over time that they will make a come back, and we'll be well positioned for it when they do.

Okay. Great. And you announced sort of a second franchise dealership acquisition last month. Can you talk about the results from your first foray into physical dealerships that made you acquire a second? I'd be curious if your findings suggest that this could be an area of investment for you in the coming years.

Yes. I appreciate the question. I think it remains early. It would be a bit premature to comment. So we're going to kind of stick to focusing on the core business and stay tuned for the future.

The next question comes from Christopher Bottiglieri with BNP Paribas.

First, I was hoping to delve into the same-day delivery test, which sounds pretty exciting. The logistics per unit went up for the first time, I think, in 10 quarters, which tells me people are using it significant. But can you just frame -- and obviously, it's going to pay for itself if there's a sales lift, but can you frame for us how performance in Phoenix is doing versus the control market that hasn't seen this type of increase or whatever you can tell us because it sounds like this might be an area you're going to invest in '26.

Sure. Well, I think, first of all, there clearly is a very clear relationship with speed and conversion, just like every other e-commerce business. I think that's something that we've seen across the business across time, and it's something that we continue to see in the business today. So I think that, that is a reason to focus on this and build this capability out. I think from a bigger picture perspective, we also just think it's tremendously differentiating and very exciting and kind of strategically important to be able to do something that other companies just simply can't do. And so we -- in my prepared remarks, I had my dramatic pause where I asked you to contemplate what it means to be able to buy thousands of cars in minutes and have them delivered in hours.

But I really do think it's useful to think about what that means and what that looks like as it feeds back over time, and we get more and more inventory pools closer to more and more customers and those inventory pools get larger and larger and customers have more selection and we automate more and more of our processes and the speed and ease gets simpler. We think that we're building a machine that is qualitatively different and structurally different than any other machine that's out there. And so there's certainly -- we would expect for there to be conversion tailwinds as we continue to work on this in Phoenix. And then once we feel like we're in a really good spot, start to roll it out to more locations. But more importantly, we think it just continues to separate us as a completely different business and a completely different offering to consumers that will enable us to have completely different kinds of results over a very long period of time.

Got you. That makes sense. And then wanted to parse the other GPU commentary out a little bit more. So it sounds like attach rate was up. You probably benefited from rate cuts because you don't perfectly hedge. There was another Fed rate cut in Q4. So that should be another tailwind that mitigates lapping that. But it sounds like you're going to reinvest that into the consumer proposition to offer lower rates to the consumer. I just wanted to, a, confirm that. And b, how do you think about beyond when there's some more rate cuts and you kind of lap this into '26? Do you feel like the rates go back up? Or how do you think about the value prop to the consumer on financing once the rates stop going down?

Sure. Yes. So I mean, I think we talked about some of the drivers of strength in other GPU. I think strong loan performance, strong performance on loan sale monetization and cost of funds. There's some positive trends we're seeing in finance attach. I do think those are driven by lower rates. We're also seeing some positive trends in ancillary product attachment rates as well. I think our viewpoint, and you'll notice we had a record in other GPU this quarter. It's our highest level ever. That's really driven by these fundamental gains that I was just pointing to. I think in Q4, our plan is to pass these fundamental gains back on to customers. So other GPU in we think we'll end up looking something much more like Q4 2024 rather than Q3 2025. And I think that's something we feel really great about. We really have driven meaningful fundamental gains in the finance and ancillary products platform, and that gives us an opportunity to pass some of those gains on to customers, for example, in the form of lower interest rates.

The next question comes from Daniela Haigian with Morgan Stanley.

So first, clearly, Carvana has built a strong digitally enabled mousetrap in the dealer business. But how do you think about competition from new entrants such as Amazon that also have warehouse and logistics capabilities? How does that feed into your, I guess, expected return on ad spend? And then also on that same line is what is the biggest gating factor in your near-term growth curve?

I think as a general matter, we try to think about making sure that we're delivering the best customer experience as we possibly can. We try to make sure that we're paying close attention to every line item in the business and doing all the hard work that's necessary at the detailed level to constantly make sure everything gets better. And we try to focus less on any given competitor. I think that served us very well over time and brought us to this place where depending on what profit metric you're looking at, we're 2 to 2.5x as profitable as the average automotive -- the other average automotive retailers. And I think that to me, that's, I think, probably like the most important single way to look at this.

I think there's a question about what new entrants can look like over time and how many there will be and what scale they will come at and what approach they will take. And those are all fair questions that we can all speculate on. But I think there are also facts that today, 98.5% of used cars and 99% of cars in some total are sold by traditional retailers that have the economics that we discussed earlier that are materially different than ours and aren't super well positioned to build a machine that looks like ours. And so I think to the extent that we just stay focused on ensuring that we've got a scalable business that's delivering great customer experiences with different economics, I think anything that is likely to come is unlikely to be powerful enough to change that 98.5% or 99% of the industry that looks the way it looks today.

And so that's where I think continually, at least from my perspective, my personal favorite metrics are how are we doing from a growth perspective relative to the industry, how are we doing in customer experience versus the industry and how are we doing in economics versus the industry? Because I just think that when you have a capital-intensive business, that requires lots of work and lots of scale to deliver good customer experiences, you're competing against the industry, and it's unlikely the entirety of the industry can move very fast in light of all that capital investment that's necessary.

You see all the things that we're having to do to move at the speed that we're moving. And I think what I would say is the simplest reduction of kind of what is the constraint. It's basically just the sum of effort across this large complex business where you're moving things and you're organizing people, and it's a lot to do. And I think that, that gates the speed at which you can run. And that's why we're doing all this work to make sure that we stay in front of ourselves. not certainly not what you asked about, but relevant, I think, in this conversation.

We talked a lot about what we're doing with ADESA and ADESA Clear and our inspection centers, and we kind of put this new concept in the shareholder letter about having retail capabilities, wholesale capabilities or retail and wholesale capabilities at all these different centers across the country. That's the kind of work that you can see in that graph, that's us doing work as fast as we can that is very complicated to be able to unlock those capabilities over time. And I think it's positioning us well for a broad future, and it's indicative of the kind of work that's necessary to scale a business like this.

Great. And I guess on that piece of your moat of what you've built out on this physical business, you also have a very low capital intensity in building this out. I think a lot of your fixed costs are already embedded. And so as you think about making progress towards that 3 million unit target in 5 to 10 years, what do plans look like to expand production capacity beyond that 3 million? And what are the capital requirements to get there?

I think our eyes are as big as anyone out there. And I think the opportunity in front of us is very, very large. And I think there's no doubt that the goal that we're chasing today that is time bound is our current goal, and we expect to have other goals beyond that. I think it's premature to talk too much about those other goals because I think that we've got several years here of hard work to make sure that we get to the $3 million and the 13.5 million. But I think there's no question that there's opportunity beyond that. And I think that you can probably look at our past when we've attacked problems in the past to get a sense of what that future could look like. But I think it's early for us to be giving specific guidance and expectations on that today.

The next question comes from Jeff Lick with Stephens.

Congrats on a great quarter, guys. In terms of the sourcing environment, I was just curious if you can comment on any evolutions of that. I know your relationships or how you're doing business with some of the commercial rental providers has changed a little bit. And then also just as you grow into sourcing 600,000, 700,000, 800,000, 900,000 units, buying from people's driveway, just any evolution there would be helpful and just the color on that.

Sure. Well, I think the most important fundamental there is what we alluded to a bit a moment ago, it's just making sure that the business is structured to be a structurally better buyer of cars so that we can be a better partner to partners out there, and we can give very exciting bids to our customers. And I think if we divide the types of cars in the world into wholesale and retail with retail being defined as a car that we're well positioned to retail, it's very obvious that we are deeply structurally advantaged in buying cars that we are well positioned to retail. I think as one of the many benefits of partnering up with ADESA is that it put us in a spot where we're also structurally advantaged to be able to buy cars that are wholesaled.

And then I think when we do the further work to unlock both wholesale and retail capabilities at the same locations, I think we become a better buyer again because not only are we well positioned to dispose of both types of cars, we're also well positioned to reduce the expenses that are traditionally inherent in the system that take the form of time and extra shipments and cost. And so I think we are doing the work today to go unlock those capabilities. In that graph, we've got 74 sites. We now have 41 that we label as wholesale only. That's the original 56 ADESA sites minus the 15 where we have added reconditioning capabilities. And so those 15 now represent both wholesale capable and retail capable sites.

We have 6 sites that are just retail. Those are the 18 inspection centers that we had prior, minus the 12 where we've added ADESA Clear, which is a digital auction capability. And then we've got 27 that are both, which is the sum of the 12 inspection centers that have ADESA Clear plus the 15 integration sites where we've added reconditioning capabilities to ADESA. So we now have 27 sites where we're well positioned to handle any type of car very efficiently, not just because we have a great wholesale distribution channel and a great retail distribution channel, but also because we can do both more efficiently.

So to me, that's the structural thing that we're doing. And I think the more progress we make there, the better position we're going to be. And then I think we continue to make progress with our partners. And I think there will probably be more to talk about there over time. But as long as we position the business for it very well, I think we continue to be in a great spot to take advantage of that.

And when you get to the retailing of 2 million to 3 million cars, do you think the proportion of where you source will change much? Or will it be pretty much the same?

I think we'll see over time. I think it's early to call a shot there. I mean I think at like the simplest, most fundamental level, most of the used car market is customers swapping cars with each other. And then they just do it through many different mechanisms. That's not strictly true because you do have off-rental cars and then you do have cars that flow out of fleets. I think you could call kind of off-lease cars, something sort of in between because it is a customer car that makes it to another customer.

But generally speaking, cars are just moving through some elaborate mechanism from one customer to another. So we think having the business of buying cars from customers is essentially important. I think there's many forms that can take over time. And then we think having a business of being able to buy cars very efficiently from business disposers of cars from fleets is also centrally important. And the machine is being constructed in a way where we feel like we're an advantaged buyer regardless of where cars are coming from. And then I think if you look at buying cars from customers, that is a slightly different offering than selling cars to customers.

But now for probably 5 or 6 years, those 2 brands have grown pretty much in lockstep, whether you're looking at the percentage of cars that we're retailing that were sourced from customers or if you're looking at our wholesale to retail ratio, they bounce around a little bit. But generally speaking, they've been pretty consistent. And I think that just speaks to, a, the fundamental that largely this market is customers swapping with each other. And so there's a similar sized market to buy cars as there is to sell cars; and b, the fact that those 2 businesses are growing at about the same rate as we continue to grow our brand in a way that benefits both sides of the business. So like I said, I think we're well positioned either way. I think it's early to call our shot. We'll hope to succeed in both areas.

The next question comes from Andrew Boone with Citizens.

Ernie, you talked about scale in the beginning of your prepared remarks. And then you mentioned automation multiple times as we've gone through this call. Can we just step back? And can you just talk about what are the biggest opportunities that you have to increase automation as you do gain scale? Like what are the key variable costs that you guys can really drive down that still remains in the model?

Sure. Well, I'll point again to the anecdote because I just think that they communicate very well. So what I would say is if we look back to that chat that we demonstrated in the -- or that we showed in the shareholder letter that shows like an insurance document and the customer interacting with that, I think that gives you a sense of the kind of thing that can be done. It's basically just expanding automation at greater depth so that the entirety of the process can happen in an instantaneous way where very clear instructions are given to the customer. They know exactly what to do, and they're able to complete a task with no latency.

I think that's been part of a progression over years as we've kind of built those capabilities. We first have to learn all the rules across different states. We have to make sure that those are written down and codified. We have to figure out what our particular rules are going to be for our business. We then have to go and find a way to get data to get uploaded into our site. And initially, that data is manually looked at and checked against business rules and the customers approve. And then you add the ability to scrape the data off of the document that's passed to us and then the tools are built to make that simpler.

And then you scrape the data and you automate the checking of that data against that business logic. And so to me, it's just that constantly deepening level of detail of automation that is very valuable. And I think that's certainly valuable to reducing costs. I think what we at least tend to think is the maybe even more exciting thing is just being able to differentiate the offering. Just making sure that customers can know exactly what to do and shop with extreme confidence and get offers that are amazing. Going back to being able to sit there in minutes, look at thousands of cars can be delivered in hours. That requires -- that's a very different kind of offering that we think is very strategically valuable, but requires a lot of things happening in the background.

So I think every part of the business, finance verifications, registration, customer care, every part of the business, continual gains in reconditioning and things that we're doing there, things in logistics across the business. I think there's opportunities to make every single workflow simpler and more automated, more repeatable and more scalable. And I think we've just been continually doing that work over and over. And hopefully, you feel like you see it showing up in the results.

If I could sneak in one more quick one. How do you think about the guardrails of expanding same-day delivery? How do you guys think about making sure that rollout is smooth? And what are the profitability metrics that you guys are involving to make sure you guys are containing what may the cost for that?

Sure. Well, I think like anything in the real world, I think the first thing you have to do is you have to kind of aim for something that's hard and then you start to see what are all the constraints in the system that are causing you to be limited in what you're able to achieve and then you have to go attack the biggest constraint and then move on to whatever the next constraint is that emerges. And I think that's why we're working really hard in Phoenix right now to attack those constraints one at a time. And I think we've seen a lot of progress there. Phoenix looks like other markets in the country just several months ago.

And now we've got 40% of customers getting same or next-day delivery compared to approximately 10% in the rest of the country. So we've obviously made rapid progress there. I think we will continue to try to progress in Phoenix. And then undoubtedly, the next step is going to be to roll that out to other inventory pools that are near large population centers, and we'll prioritize that intelligently. And then I think that's another place where you can kind of see the entire playbook. And then as we add more integration sites with ADESA, so we've got retail capabilities in more spots, then we can have inventory pools in more spots that are closer to more customers, and we can roll out that same-day delivery capability in more spots. So I think it's going to be a multifaceted, multistep approach over the next several years. But I think step 1 is proving out that we can do it at meaningful scale. I think that box is checked. Step 2 is making sure that we really nail it in Phoenix. And then step 3 will be continuing to roll it out from there.

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

There's a lot of talk out there about the K-shaped economy where you have lower income cohorts of consumers seeing relatively more pressure relative to higher income. Curious if there's anything that you've been able to see on that front, demand trends between the 2, especially since your unit guidance implies some deceleration. Is there any notable deceleration from lower income cohorts specifically?

I really don't think we have anything interesting to say there, and apologies. I think there's no question that -- there's a lot of story lines out there that point in that direction. And I think in our data, we can look at sales data or we can look at credit performance data, and we can kind of try to cut it in many different ways. I just don't think that there's interesting super validating data points that we can point to for that story. I think what we see tends to look a lot more consistent than that particular story, but we'll obviously continue to pay attention, and we'll follow the data where it goes.

Got it. And then in Phoenix specifically with same or next-day delivery, I'm curious, can you discuss kind of what you expect for GPU or EBITDA per unit or anything that you could give us kind of what that investment, if you will, looks like to deliver the cars more quickly? Or is it pretty seamless since you have that infrastructure there built out already?

Yes. I would say it's really more the latter. I think that the same-day delivery is really more about a technology investment at this stage and a process investment, making sure that it's a complex transaction. And in order to have same-day delivery, you need to nail every single aspect of a complex transaction accurately and in a short period of time. And so that's a technology focused investment. It's also -- it requires strong processes from the operators that are executing that. But that's really like the main investment. There's some incremental investment in staffing just to make sure that you have the capacity available to execute same-day delivery. And so you have a little more slack capacity there. But that's not a very large dollar amount in the grand scheme of things. The way that we're executing same-day delivery today, it's really more about a focus, a technology and process investment more so than a cost investment.

The next question comes from Michael Montani with Evercore ISI.

I joined a minute late, but I did want to ask if you discussed at all the advertising expense. It sounded like that might be expected to go up. And I just want to see is that quarter-over-quarter or on a per unit basis? Any color that you could provide on that one? And then I had a quick follow-up.

Sure. I can take that one. The outlook that we gave for advertising expenses on a dollar basis for it to be similar in Q4 to this Q3, maybe slightly higher, but similar to slightly higher. And again, where that comes from is really just continuing to invest in building our brand, building awareness, understanding and trust of our brand is one of the 3 key pillars of our long-term growth strategy.

Okay. And then just on the wholesale GPU, were you signaling that, that could step down quarter-over-quarter by about 25% to 30% the way it did last year? And if that's the case, I was just thinking there could be opportunities for improvements given some of the enhancements you've made in terms of processes. So I just wanted to make sure I had that right or if there's anything else to dig into from a depreciation perspective, et cetera, to know.

So I think we really think of sequential changes on a per unit basis, what we called out. And so I do think that there's seasonality in a multiple of the GPU line items. I think in wholesale, that takes the form of higher wholesale depreciation rates in Q4, lower auction volumes in Q4 than other times of the year. So we do typically see a seasonal pattern there. And we called out something seasonal, something similar to last year sequentially on a per unit basis.

Last question comes from Chris Pierce with Needham.

Can I just ask one big picture question. The 3 million unit goal, I guess, is that strictly around what determines when you could hit it earlier or later? Is that about adding recon scale personnel? Or is it about -- did you consider end markets or credit cycles or anything? I'd just love to know kind of big picture, how you came up with it, what drives it and what could pull it forward or push it back?

Sure. I would say at a high level, the time lines we provided there were 5 to 10 years, which correspond to 2030 to 2035. And I think the fast end of that is approximately 40% compounded growth and the slow end of that is approximately 20% compounded growth. I think as a general matter, we view that as largely driven by our ability to continue to execute is probably the biggest determinant of that. There's a lot of work that has to be done across the entire business to make sure that we're buying cars, reconditioning cars, delivering cars to customer long leg and last mile, handling customer questions and just scaling the entirety of the business. So I think there's a lot of work in there. And I think our execution is the primary driver that we think will dictate when we achieve that goal.

That's all the time we have for questions today. I would like to turn the conference back over to Ernie Garcia for any closing remarks. Please go ahead.

Great. Thanks. Well, thanks, everyone, for joining the call. Carvana team, another awesome quarter. Thank you guys so much. You really have a lot to be proud of. I hope you are proud. I hope the high fives fly, and then let's come back tomorrow and keep it going. We have a lot more work to do. So thanks to all of you.

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

Okay. Great. Thanks, everyone, for joining. My name is Rajat Gupta, member of the Automotive Equity Research team at JPMorgan. Very pleased to have with us Mark Jenkins, Chief Financial Officer of Carvana. Mark has a few slides he'd like to run through. And after that, we'll go into Q&A. Thanks, Mark.

Great. Well, thank you very much for having me. It's always nice to be back at this conference. And excited to be here today talking to you about both our medium-term plan and also our Q2 results, which I think are a nice step forward in executing our medium-term plan. The standard safe harbors apply to this presentation.

So Carvana is the leading platform for buying and selling used cars online, as many of you know. We recently put out a medium-term goal to sell 3 million cars annually in 5 to 10 years and to achieve a 13.5% adjusted EBITDA margin when doing so. Our Q2 results are a really nice step forward on executing that plan. It was a quarter of many records. We set a record for the number of retail cars that we sold in the quarter at just over 143,000. That was a company record. It reflected growth of 41% year-over-year.

We also set company records on many key profitability metrics, including adjusted EBITDA margin, net income margin and various operating and net income dollar metrics as well, which I'll talk a little bit more about our future slides. So we're marching forward. We're growing fast, and we're doing so at very strong levels of profitability, which is all part of our plan.

I think one of the things that we've been most excited about over the past year or so is our competitive positioning. So the platform that we built, which is highly vertically integrated and has a customer offering that customers love is leading to both industry-leading growth and industry-leading margins at the same time. And we think that it's historically unique. We think that positions us extremely well for a long growth trajectory, particularly in light of the fact that where we stand today, we're only about a 1.5% market share in our core market of U.S. used vehicles. And so I think we have a long growth runway.

We're achieving this level of growth of 41% in Q2 in an environment that is pretty stable. We have some data here on traditional auto retailers. We grew about 1% same-store sales year-over-year. So we're outgrowing the average of the public used retailers by about 40 points. And so I think we'll talk a little bit about some of the fundamental drivers that are driving that growth of which we'll point to 3 that really feed back on each other. But I think that's obviously a very strong performance and very strong growth profile that demonstrates how much customers love our offering.

At the same time, we're operating at adjusted EBITDA margins that are roughly 2x our peers. I think that's really stemming from the benefits of vertical integration. So we've built the Carvana platform from the ground up to be deeply vertically integrated. We have our own logistics and delivery network. We have manufacturing style reconditioning that is integrated with that network. We've built a website with an integrated financing platform to try to give customers a seamless experience. But all of that vertical integration and all of the components of the platform that have been built together from the bottom up to provide this online experience are also leading to very strong margins.

We hit a key milestone this quarter. So we've been the most profitable auto retailer by adjusted EBITDA margin for several quarters in a row now. But this quarter, we hit a new milestone, which is now for the first time, we're the most profitable auto retailer by GAAP operating profit as well as net income dollars. And so for a long time, really in our entire time as a public company, we've had a goal to be the largest and most profitable auto retailer. We think we've definitively checked the second of those boxes. We're very clearly the most profitable auto retailer. We're also the fastest-growing auto retailer.

We're not yet the largest, but that certainly our goal is to move from being the fastest growing and most profitable to the largest and most profitable simultaneously. All right. So what is driving this growth? We really talked a lot about the 3 fundamental drivers of our growth. We really see these as key growth drivers for the past and how we've gotten to where we are today, selling now 143,000 units in Q2 at industry-leading margins, but we also see them as key fundamental growth drivers for where we go from here.

So there's 3 that I'd point to. One is just continuously improving the customer experience. This means lots of things, but I think we had a nice example in our shareholder letter of a situation. It's a record for us, where a customer came to carvana.com, got a value for the vehicle that they wanted to sell and then had dropped off that vehicle and gotten a check in just 38 minutes. And that's a really fast and seamless transaction. That transaction is an outlier, but it's the type of customer experience that we want to provide to customers and the type of customer experience that we believe is very, very differentiated and also one that requires very significant investments in systems and a fulfillment network to be able to make those sorts of customer experiences possible. So continuously improving the customer experience, a key driver of our growth and one we expect to benefit meaningfully from as we continue to move forward.

Second key driver of our growth is increasing awareness, understanding and trust. I think the simplest way to think about this is for people in this room, Carvana probably feels really familiar. But the reality is we're in the very early days of e-commerce adoption in automotive retail. If you look across the broader retail economy, e-commerce penetration is getting up just shy of 20% on that order, whereas automotive retail is down in the 2% range. And so we're really early in the e-commerce adoption curve in automotive retail compared to other retail verticals. And as a result, we think there's still a lot of opportunity to raise awareness of our offering, explain to customers the benefits of our offering, continue to build trust in the offering as a long-term fundamental growth driver.

And then last, in terms of the fundamental growth drivers that have got us here, and we expect to drive us going forward is inventory selection and other sources of positive feedback. Selection is a big growth driver. The used car market is a market with many, many SKUs, when you look across year, make, model, trim, mileage, color, packages and options and so forth. And I think we're also very early in our path of having the broadest selection that we can have that drives positive feedback. The more selection you have, that means more inventory pools, which puts cars closer to customers, gets faster delivery times and so on and so forth.

So these are the 3 fundamental growth drivers that we are executing against today. It's driving our 41% growth, and we're achieving that growth, like I said before, at industry-leading margins.

The last component of our strategy that I wanted to talk about. It's one of the key things that we're focused on today is really just expanding our network. So in 2022, we acquired ADESA, a physical -- nationwide physical auction with 56 physical auction locations. And we're in the process of integrating those locations with the Carvana Retail platform. So one of the things that we've been focused on is site by site going in and integrating ADESA physical auction location, bringing in Carvana retail reconditioning processes, technology, including our proprietary CARLI inventory management system, connecting it to our first-party logistics network that allows us to get cars from those integrated ADESA locations to customers as quickly as possible.

And we've been steadily doing that. That increases the number of inventory pools that we have available. And that puts cars closer to customers where we're acquiring them. And one stat on that, by integrating more ADESA locations, we've actually seen the average inbound transport distance from cars we acquire to customers and then recondition drop by about 20% year-over-year. It also puts cars closer to customers for the purpose of selling cars to customers. And so stat on that note is we've seen outbound transport distances down about 10% year-over-year as well. It also leads to faster delivery times to those customers.

So integrating ADESA locations, adding more inventory pools, increasing efficiency of our fulfillment network, giving better customer experiences, including faster delivery times, is core to our strategy today. And that's something we've been marching out over the last 12 months or so and would expect to continue marching out in this early phase of our multiyear growth plan. And so that's a little bit of an overview where we are industry-leading growth and industry-leading profitability as well as the core element of our strategy.

And then this last slide is just some additional highlights. I'm not going to go through each of these so we can move to Q&A. But I think we're very strongly positioned with just a 1.5% market share, a strong nationwide infrastructure and industry-leading growth and margins to continue to execute against our goals.

And with that, I'll pause, and we can take some questions.

Great. Awesome. Thanks for that quick summary. I wanted to start with just the fundamental gains topic. I believe it was last year in the third quarter when you had first hinted or talked about passing on fundamental gains to consumers in conjunction with the Phase III entry. If you look at your like last 12-month growth rates quarter-by-quarter, they have continued to accelerate. While at the same time, your margins or EBITDA per unit have also continued to expand. So I guess the question is, have you already started to pass on these fundamental gains that you're seeing over the last 12 months? And if you could highlight some areas where you have passed those on or you haven't really entered that phase yet?

Sure. Yes. Well, let me start by talking about some of the key areas where we see opportunities for further fundamental gains and unit economics. And I think it's natural to think, okay, you already have industry-leading margins. Is there more room for you to continue to be more efficient? Is there more room for you to continue to drive additional sources of revenue on each car you sell? And the answer that we really believe is absolutely yes.

So wherever we look throughout the business, whether it's any gross profit line item or any expense line item, we still see meaningful opportunity for efficiencies in variable costs and revenues that we call those fundamental gains, so reducing variable costs, increasing variable revenues. And we also see very significant opportunity for overhead leverage.

So as a data point on that front, our current physical infrastructure, we believe supports annual sales of over 1 million units, and we're selling meaningfully less than that today. And so there's real opportunity for overhead leverage as well. And so we -- importantly, most importantly, as much progress as we've made over the past several years on the economics of our business, we still see meaningful opportunity for fundamental gains, both in variable costs and revenues and then certainly an overhead leverage as well.

Now on to the question of passing back gains to customers, that's something where we also see opportunities to do so over time. So we've laid out this medium-term goal to sell 3 million units annually in 5 to 10 years and do so to 13.5% EBITDA margin. From our perspective, you add up all the areas where we see opportunities for fundamental gains as well as the overhead leverage opportunities we have, we believe we'll have opportunities to pass fundamental gains on to customers. And so that's something that we do want to do as we continue to make fundamental gains. And it's a place where we see a lot of opportunity.

But not something you've already meaningfully started to pass on to accelerate the growth that you're seeing right now?

So I think we don't expect to be overly specific on the breakdown of how many fundamental gains are going to margin and how many fundamental gains are going back to customers. But I think we're -- I would say most of what I just described, I would see as future opportunities.

Understood. Maybe you're hitting on one of the points that was on the second quarter call and kind of tie into the advertising question a bit. We know that used car demand is highly seasonal with peaks around tax refund season, slower periods later in the year. How do you manage staffing, reconditioning, logistics capacity to handle those peaks without overbuilding permanent infrastructure? And when seasonality creates excess capacity, how do you decide whether to fulfill it through demand generation investments like advertising or just maintain steady operations to protect economics?

Sure. Yes. Yes. So there is seasonality in our business, and the business has some seasonal peaks and then it has a seasonal cadence over the course of the year. And that seasonality is just like other used car retailers. It's not unique to us. And I think when you're planning for seasonality, I think there are various approaches. If you have a, I think, seasonal surge, for example, you might plan in some flex capacity. So most of our operations have some degree of flex where you could shift hours up and down. You can drive your transportation fleet more or less.

There's a number of places where our operations have flex capacity to handle things like seasonal or week-to-week variations, and we take advantage of those. And then -- so that's sort of a tactical point. But then also to your point, I do think there is some operational benefits from trying to smooth out seasonal fluctuations to some degree because it means you don't have to flex your operations quite as much. So I think there we have some tactical levers to manage seasonal fluctuations that are common in the industry for sure.

Understood. Just in the same vein around advertising, if you look at a site traffic, it's back to levels we've seen at past peaks. So clearly, the top of funnel looks pretty healthy. As you think about taking the next step in growth, how do you balance putting more dollars into brand advertising to expand reach versus focusing on converting the traffic you already have more effectively? And just given the long purchase cycles in used cars and auto retail, how are you evaluating the ROI and payback from these campaigns, especially when AI, automation could just be lowering the cost of creative testing, personalization, et cetera.

Sure. Yes. So lots in that question. So one of our fundamental growth drivers and a place where we expect to invest over time is building awareness, understanding and trust of our offering. A key way to do that is advertising. And in particular, brand advertising is helpful in telling your story, telling customers about the strengths of your customer offering, what differentiates it from the other things that they're used to that have been out there historically. And so we do expect to invest in advertising over time. And I would expect a strong component of that to be brand advertising from the standpoint of telling that story.

And I think we've actually seen really good results from our brand advertising in the past, just going in and looking at individual markets and seeing what happens when you do brand advertising in individual markets, how the sales grow over time, how your market share grows over time and how your advertising cost per car sold actually decline over time, as you stack brand advertising on top of brand advertising in markets. So I think we have good data points that the long-term payoff for brand advertising is meaningful and expect to continue doing so.

In terms of measurement, so you made a couple of other points. One, I do think we're optimistic the way that we look at it, that AI will be helpful in making brand advertising more efficient. It just allows you to test more messages and more diversity of content more quickly at a lower cost, which I think can raise the overall efficiency of brand advertising.

And then in terms of measurement, I think brand advertising is more challenging to measure than deep in-funnel performance marketing. But I think we have tools to do so, including market or regional testing and other ways to actually try to get attribution from your brand advertising.

Understood. Maybe one question supply before I open up to the audience for more questions. You've mentioned, I think, in the past that your current selection is still only a small fraction of the total used SKUs in the market. How do you prioritize with segments, trims, configurations to add to maximize the match rate? And how does that expansion translate into higher conversion rates and faster delivery times? And relatedly, as you grow your breadth, how do you balance the benefits of just that wider selection with just the complexity of stocking and just moving more of these unique SKUs?

Sure. Yes. So to hit on the beginning of your question, we absolutely see an opportunity to expand the selection of vehicles that we have on the site. That's a nearly uncapped growth lever over time. There are so many SKUs in the used market, having more selection, just makes it more likely that you're going to have the car that a site visitor is looking for. And so I think we absolutely plan to grow selection over time.

I think growing selection over time can also have benefits for delivery time if a customer is looking for a specific car, and they're more likely to find that car in their market or one market over as opposed to only being able to find that car or something that's close enough for their preference as many markets over. And so definitely a long-term growth driver.

In terms of how we determine the right selection, it is highly algorithmic and highly data-driven. So we're constantly looking at the demand that we're observing on the site, what vehicles are people searching for, what vehicles are they clicking into on the search page, certainly what vehicles are people moving down the funnel on and transacting on. And so we take all that information into account about what we're seeing on customer demand at a very granular level.

I think the level of granularity that we use actually increases over time as our data grows. So one of the places where we've been seeing fundamental gains over the last 12 months and would expect to see fundamental gains going forward is just making use of our growing data set. So we've now bought and sold, I believe, over 6 million cars, if you count both retail and wholesale. And that data set is growing exponentially as our business grows, and we're just constantly looking for ways to make that -- make more efficient use of that data in things like building the right inventory selection.

So that would be a few examples, but it's certainly an opportunity for us over time to continue to grow selection and make use of our data to do so as efficiently as possible.

Understood. I'll just take one more before handing it over to the audience. Just on the lending side of things, if we look at your finance attach rate last quarter, just per our calculation, we think it was the highest ever. We have seen around 85%, 86%. And you've suggested that this increased attach rate has been driven more by just the integrated experience than just simply offering like favorable APRs.

How do you think about maintaining that penetration as you scale while also protecting underwriting quality and loan performance? And just compared to traditional indirect lenders, what do you think is unique about your selection and approval process that allows you to achieve both high volume and also favorable credit outcomes?

Sure. Yes. So I think from a customer experience perspective, having a vertically integrated finance platform is very valuable and very convenient. You can go on to our site. You can fill out a short credit application form and our algorithms will then tell you exactly your financing terms down to the penny on every single car in our inventory. We have tens of thousands of cars. You know what your financing is going to be. It's very convenient. It's very transparent and a lot of customers like it and choose to use it.

So I think the -- having a vertically integrated finance platform, very efficient for the customer and very great for customer experience. It also allows us to streamline the process through the transaction because we're fully vertically integrated, and we control everything. So I think that's been a big driver of our finance attach rate over time.

I think if you look at our growth from being a very small company to where we are today with 143 retail units sold, we -- for the most part, I think there's been some movements. Finance attach rate has gone up a little bit over time as we've made the product more convenient. But really, we always offer that level of convenience, and we've always had a high finance attach rate. And I think it's just the convenience drivers that I was just describing that has been driving that, not -- certainly not just this year, but over the last 10 to 12 years.

Anything in just a specific underwriting capability you would say is differentiated or just the approval process versus more traditional lenders that you've created.

Yes, sure. Yes. So I think the -- so I've talked a little bit about our vertically integrated financing as a driver of customer experience. I think it's also a driver of unit economics because we believe that a vertically integrated finance platform model is much more efficient than the traditional indirect lending model. So if you think about the traditional indirect lending model, the customer goes to the dealer. The dealer is the party that has contact with the car. They're the one that has looked at it and inspected it. The lender hasn't necessarily seen the car and the lender doesn't necessarily interact that much directly with the customer.

Moreover, in the typical indirect model, you have the dealer sitting in the middle, the customers here, and there's multiple lenders competing over here for the dealers business and the customer's business, and that can give rise to things like adverse selection. If you're bidding in an auction against other lenders, that's an environment that can give rise to selection effects and things like that.

So I think our model where we're fully vertically integrated, we know the car extremely well. We put it through a 150-point inspection in our manufacturing style reconditioning centers. We have a 100-day limited warranty after the customer purchase of the car to help ensure anything that comes up shortly after sale is also covered and the car is good quality at that phase. So we really know the car well. We also really know the customer well. We're the only party that's interacting with the customer. And so we can have a very robust lending and underwriting processes there.

And then lastly, we're not participating in an auction like many indirect lenders have to do. And so I think those are some real fundamental advantages of vertical integration in this part of the business. We have vertical integration in other parts of the business as well that yield similar types of benefits, in particular, vertically integrated logistics network. But I think vertical integration is a powerful tool for driving better customer experiences, which supports growth and then also driving better unit economics.

Understood. Wanted to see if there's any questions in the audience, one back there.

That was very insightful. I wanted to touch on your point on variable costs. And just would you offer some more color on how you're thinking about lowering variable costs? Is there any strategic or operational levers that you're thinking of? And what would be a good milestone as you trend towards that?

Yes, absolutely. Yes. So we've made significant progress lowering variable costs over the past couple of years. For those that are interested, we report a cost line item called Carvana operations expense in some of our financial tables attached to each quarterly earnings. And that number has declined significantly over the past couple of years. The Carvana operations expense is about $1,550 per car today, of which around $300 is the 100-day limited warranty expense. So excluding warranty, all the variable operations associated with fulfilling these sales costs about $1,250. That's fulfillment, that's last mile delivery, that is customer care centers and transaction processing, any other operational expenses that are more variable in nature. That's very efficient. That's actually very efficient.

I think if you think about, yes, for near nationwide delivery network and executing a fully vertically integrated transaction, including financing, ancillary products, trade-ins, et cetera. We think that, that's very efficient today and a big part of our success. Having said that, we still see meaningful opportunity, which is where your question was heading.

If I talk about a few of the key sources of that opportunity, adding more inventory pools is one. So I talked about as we integrate ADESA locations and add more inventory pools, that lowers inbound and outbound transport costs because we're just putting more cars closer to customers. AI is a huge opportunity in this area. I think we've made very significant gains on some of the more centralized tasks like customer care, various forms of communication, whether it's phone, chat, e-mail, that's a big opportunity for AI where we've made gains, but still see significant opportunities for further gains.

I think things like document processing, title and registration. These are very fruitful areas for AI to do an amazing job at having a streamlined and efficient and very accurate transaction. And so those are a couple of things that I would point to.

There's also the business as usual elements of continuing to develop our technology systems that underlie logistics and last mile delivery network, the reconditioning centers, the customer care centers, continuing to focus on operational excellence by having regular operating reviews and making sure that all the teams and operations that underlie those variable costs are executing as well as possible, always working to identify locations that are performing below the median and pull those to the median, identifying locations that are at the median, pull those to the upper decile, those sorts of operational efforts have yielded meaningful gains over the past couple of years, and I would expect them to continue to yield gains over the coming years.

Any other questions? One here?

[indiscernible]

Sure. Yes. Yes. So our CapEx budget for 2025 is around $150 million that is split across a number of different categories. A component of that is ADESA integrations. But just to be a little bit more specific about ADESA integrations, it's -- each site costs $2 million to $3 million. And the reason that, that is a fairly CapEx-light is in this first stage of building out retail reconditioning capacity at ADESA locations. We're utilizing existing structures at ADESA. And what it means to integrate at ADESA location, it basically means take the existing structures, build it out with retail reconditioning equipment, install the CARLI proprietary inventory management system and then implement Carvana style retail reconditioning processes.

So it's a CapEx-light integration. I also mentioned you connected to the first-party Carvana logistics network. Over time, we would like to build out the ADESA locations much more fulsomely. And so that will mean looking at the selection of 56 ADESA locations and actually constructing new structures on the plots of land where these ADESA are housed, and that will allow us to significantly further increase retail reconditioning capacity at those locations.

The way we've sized that build-out in 2022, we sized a full build-out of ADESA at around $1 billion of capital expenditures. I think with inflation, it would be a bit more than that today, but it gives you a sense of the order of magnitude. And then we would expect that to play out over a period of multiple years investing in that full ADESA build-out as we march toward our 3 million unit goal.

We have one more question here in the front.

As you're starting to work with a more -- and I don't want to say mixed fleet, but that's the only word I can think of EV and ICE platforms. How does that change some aspects of the economics of the business just for how you evaluate, recondition and make sure you're getting the right value for a car?

Sure. Yes. So I think the very simplest answer to that is we don't view EVs and ICE cars really differently from the standpoint of executing our business. There can be small differences in reconditioning, including what you recondition, right? There might be certain parts that tend to wear more on EVs and certain parts that exist and tend to wear more on ICE cars. So it can change your mix of exactly what you're reconditioning. But overall, I would say we don't view it very differently.

I guess another thing that is different is EVs require you want to have charging infrastructure, certainly at your inspection and reconditioning centers, but also at things like your last mile delivery locations or vending machines so that you can make sure that cars are charged up to standard before you deliver them. Things like charging also involves a set of operational processes.

What are the standards for charging? How frequently do you circle back to a car to ensure that it has the right level of charge? So there's a number of operational processes. We've implemented most of those. We're selling a lot of EVs today. And I think that our EV market share is noticeably higher than our ICE market share. And so we're having great success selling EVs. But I gave you a few examples of the little differences. But overall, those are little differences between selling ICE cars and EV cars and we view them much more of the same more than we view them as having meaningful differences.

Okay. We have like a minute left. I want to make sure I ask a standard CFO question. You've said you wanted to operate with investment-grade metrics long term, especially after the lessons of '22, '23. As you get closer to that rating, how should we think about the sequencing of deleveraging, refinancing some of this high coupon debt, maybe more investment in like M&A, like the franchise acquisition type stuff and just eventually maybe returning capital?

Sure. Yes. So I think that the -- we're generating now significant amounts of adjusted EBITDA. Our adjusted EBITDA is very high quality. So a large portion of that is cash. And then there's a question of, okay, what do you -- where do you invest the cash? So I think priority #1 is investing in the business, right? We're integrating ADESA locations. We want to have more selection. There's a number of places where we want to invest in the business, and I'd say that's priority #1.

I think a second priority is we do have goals to deleverage over time. We want to do most of that deleveraging through EBITDA growth. But we have repurchased some of our senior secured notes over the last year or so, and that has been a use of some of the cash that we've generated from operations. And so those would be a couple of things that I would point to. I do think over time, a lot of refinancing opportunities. Those don't necessarily take cash from operations, but they do improve your capital structure if you have a lower interest rate as your credit metrics improve.

And so I think that's another opportunity. But for today, in terms of using cash generated by the business, I would point to investment in the business and then to a lesser extent, selective opportunities to delever.

Understood. Maybe we can take one more question.

[indiscernible]

I think some of the key things that I pointed to, deep knowledge of the car and ensuring that it's a very high-quality car, a first-hand knowledge and interaction with the customer versus going through a third party to interact with the customer and avoiding an auction or adverse selection. I think those things are difficult to quantify. But I think that you -- we can see them in our results where we have very strong and fairly stable other GPU, which is our F&I GPU, is how other dealers might refer to it. But we generate a lot of F&I GPU and I think that, that's where you can see some of those effects flow through into our financial results.

Understood. Great. I think that's all the time we have. So thanks, Mark, for joining us.

Thanks a lot, Rajat.

Good afternoon, and welcome to the Carvana Second Quarter 2025 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.

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.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 meaning 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.

A detailed discussion of the material factors that cause actual results to differ from forward-looking statements can be found in the Risk Factors section of Carvana's most recent Form 10-K and 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?

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

Excitingly, not only with the most profitable 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 carry 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 [ Taylor ] 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 that the market we are changing 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 about 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. Hard is the ultimate competitive moat. 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 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. 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 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 remain focused on giving customers the simplest, most efficient, most on 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?

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 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 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.

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

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 points 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. Adjusted EBITDA margin was 12.4% in Q1, a 2 percentage point increase on 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 noncash 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. 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 billion 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.

[Operator Instructions] Our first question today is from Daniela Haigian with Morgan Stanley.

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?

Daniela, I think that's obviously a great number. 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%. I think 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.

Great. And then, Ernie, second one, a bit of more of a longer-term question. I'm sure you saw Avis announced 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, 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 TAM to expand beyond used cars?

I think -- Part of the sickness that, I think, we probably have as we always see opportunity everywhere. But I think part of what we try to do is stay focused and figure out where is 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.

The next question is from Jeff Lick with Stephens.

Absolutely magnificent quarter. You guys are keeping track of that. So in our work, it appears this quarter, you did some experimenting or just 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?

Sure. I mean I would say I think the way that we try to focus on this is we 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, 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 movements 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. I think quarter-on-quarter, you can see things jump around, but the overall results is what we're focused on.

And Mark, a question for you. Our work kind of -- so you've got about a 300 to 400 basis point higher APR, but you're only maybe costing you 60 bps of 61 day plus delinquency.

I'm just curious, I guess, how are you doing that? And what are the metrics that help you deliver that?

Well, I think what you're asking is about the strength of our vertically integrated finance platform. And I do think the -- 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 -- versus a non-vertically integrated model.

We've talked about some of those advantages over time. We intimately know the car that we're selling to the customer. We've done 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 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 as it relates to financing. I think, obviously, we take great -- we've invested a great deal in making the best possible use of our data.

So we're rapidly growing the number of transactions that we've executed and all of the data that our finance platform is growing, that leads to better models over time, and that's a place where we've really placed a lot of focus. And so I think there's some real meaningful advantages of being vertically integrated, being very large scale, and those can lead to very strong outcomes in something like the finance platform.

The next question is from Brian Nagel with Oppenheimer.

Great quarter, congratulations. [indiscernible] the volumes here continue to strengthen, if you will. I mean how should we think about -- or in particularly the balance of this year, the new reconditioning capacity coming online, whether what you're doing at your legacy IRCs or with these converted ADESA centers.

So how should we think about the pace of the cadence of that? And then any commentary as we look at these recent trends as the capacities come on, to what extent that's helping to satisfy -- and bolster sales?

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.

We now have 12 sites integrated with ADESA. We've been doing that at a pretty quick clip. We've been averaging on the order of 3 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. I think we have this planned cadence where we aim for Q2, and we set a new set of projects, and new set of goals and we aim for the next Q2. And I think looking forward 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 focus down the field. It's a $3 million goal, and we're just going to keep moving as fast as we can towards that milestone.

That's helpful. I appreciate it. And then 1 quick follow-up. And I don't know if you addressed this in your comments or maybe I read it in the letter, too. But was there -- did you notice any type of demand choppiness, do as consumers may be reacting 1 way or another to the tariff environment?

I would say -- 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 -- 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 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 a little slowness immediately thereafter. But I think for the most part, it was relatively flat. We called out $100 retail GPU impact due to some pricing changes we made as we are riding through that period. I think our goal there was to make sure the machine was just operating as balanced a way as we possibly could keep it.

I think there will be other dynamics and catalysts and little moves 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 moving forward effectively and build tools that enable us to absorb whatever bumps and make whatever changes we need to and if we see them.

So I think overall, nothing super material, a couple of little things week-to-week, but nothing that matter at the level of the quarter.

Next question is from Sharon Zackfia with William Blair.

I wanted to dig in a little bit on the marketing side. So it completely makes sense 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 2, 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?

Sure. Well, so I think let's start with 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 are 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 1 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 2 numbers. So that suggests opportunity. We run various surveys every quarter that we update to try to get a sense of where all 3 of the considerations. 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 in awareness and gets through across the country. I think it's true in many even 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 1 at a time. But I think we're leaning into marketing a little bit 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 pretty immediate to more brand marketing, where the response is long term. I think we're testing both.

I think that 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, we're putting out another brand campaign. We're testing a number of different channels. So I think we see that as 1 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.

But Ernie, do you have any metrics for what aided brand awareness would be for Carvana versus maybe some of your peers?

Of course we do. But we very purposely didn't provide them. And then you followed up and made it awkward.

The next question is from Brad Erickson with RBC.

I had 2. First, just for the capacity expansion going forward. Mark, this might be a few.

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. Yes. There's lots of things to hit in that question. So I think the -- just to talk a little bit about our strategy. So core to are production expansion strategy right now is ADESA integrations. I think we've had great success with that over the last year or so, marching up integrated ADESA locations steadily over time.

I think that is something that we intend to continue through the back half of the year, but also I would expect that we continue to march out integrations in 2026. Those are obviously CapEx light, integrating these ADESA locations. We're really utilizing existing structures at those ADESA facilities and just layering in Carvana, Carli technology to run the centers layering in Carvana retail reconditioning processes. So those are -- that's sort of the first phase.

The next thing -- the next phase that we'll enter into as we proceed with our growth plan is to actually start building out some of those ADESA locations and really actually doing more fulsome build-outs of the locations to increase the capacity at ADESA. There, I think the way to think about that is back at the time of the acquisition, we basically gave a number, we thought it would cost roughly $1 billion to build out all the ADESA 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 a pretty reasonable sense. And then that would be something that would play out over time.

Got it. That's helpful. And then how should we think about kind of your ability to source vehicles from consumers and 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?

Sure. I'll take a swing on that one.

I mean, I think it just makes things better and it makes the machine more efficient. I think we talked about in the letter, our inbound transport is down about 20% in terms of miles traveled. As we open more facilities that should continue to go down as we convert all these ADESA facilities, we have room for more than twice as many inventory pools as we have today.

And when you think about kind of what that means for the reduction in distance of miles, the 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. So I think that that's 1 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 we just spoke about advertising and brands generally a moment ago.

I think a number that is pretty interesting is in the last 2 years, we've grown retail sales by approximately 80%, give or take. And if you look at, say, wholesale to retail ratio, it's been approximately flat at that entire time. And I think that speaks to the fact that these 2 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 that 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 continue 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.

The next question is from Andrew Boone with Citizens.

I wanted to ask about retail GPUs in the quarter had a really strong quarter. .

Mark, I know you called out the onetime $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 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 is showing up in a driveway?

Sure. Yes. Let me start with the first question. So retail GPU was up about $200 year-over-year on a non-GAAP basis. That really breaks down into 2 primary categories. One was just improvements in reconditioning and inbound transport costs. I think that's an area where we've had a 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 were driven by continuing to integrate ADESA locations, which leads to lower inbound transport costs, which is one of the -- those retail cost of sales. And so I think just fundamental gains and reconditioning costs and inbound transport cost was about half of that year-over-year gain.

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 really linked to the announcements of auto tariffs in late March that 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 building a better business as the foundation of word of mouth. I think there's a lot of stuff that we are doing and a lot of goals that we have, but I think 1 of the frames that we've used in the past, we want to give customers the best selection, the best experience and a fast fund fair experience and a low price. .

And I think that we've got the ability to continually build that 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 to some of all dealers in their city or state.

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

And I think 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 can imagine a version of that conversation that hopefully happens between millions of customers in the future that is they had every car, you could possibly want. The prices were incredibly fair. And I got the car faster than they could have driven down to the dealership and come 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 in the conversation for every single customer thinking about buying a car anywhere in the country. 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. 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.

Next question is from Rajat Gupta with JPMorgan.

I think in the letter, you had a comment that you want to look at the business more holistically going forward, focused just in [ units ] in EBITDA could you elaborate a little bit more on that? What that means, what those levers are?

You talked about advertising as 1. And maybe if you could just elaborate on what different kind of levers that you can manage within those different line items? And I have a quick follow-up.

Sure. Well, I mean, that's a big opening to run through because I think that basically every number that we tried to provide in the letter is a lever that we're looking to improve.

So again, I'll go to customer experience, a 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, how we're merchandising those cars. Build tools and make it easier for customers to find those cars.

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 intelligent and as autonomous as possible. but obviously, that have our oversight. So we decide on key levels like overall pricing level of any given lever, but we try to be intelligent and use analytics to determine where those prices are placed on various cars. And so I think continually improving those tools is an opportunity we've got. I mean, I think there are 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.

Understood. Yes, I figure it would be and that could have framed it differently. .

The other question was just on the cohort data. In the past, you've given us managers around the Atlanta, from your cohorts. Anything incrementally can give us how you plan or like from the 2013 or '14 cohorts performed relative to the overall company this quarter?

I think we'll kind of stick with what we've said in the past, but all the trends that we 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.

The next question is from Michael McGovern with Bank of America.

On the really strong leverage in 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 -- or what else is driving the bulk of that operational efficiency?

Sure. Yes. 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 our multicar 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 store. .

It also includes 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. I think that over the last couple of years, we've certainly made gains across the board. I think the -- we've talked about some of the efficiency gains in fulfillment, for example, that come from technology process as well as adding things like adding ADESA inventory pools, which puts cars closer to customers.

We've talked a bit about some of our early efforts in using our large data sets to fuel AI models. I think we're in the relatively early days of that. But some of the early applications have been in customer care, and document processing, where 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. I think operations expense per unit, it's an area where we've seen really strong gains over the past couple of years, but an area where we do see opportunities looking forward as well.

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

Sure. So I think the -- what we mean by that is really just the count of units that are immediately available for sale on the website as a measure of selection. .

Typically breadth increases with inventory count as well. So that metric specifically points to just inventory count of immediately available units, but breadth typically increases as well with that metric.

In terms of where we want it to be, 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 cycle is 1 example of that. The more selection you have on the website, the more customers you convert, the more efficient your advertising becomes.

And so the more you can leverage advertising to build understanding awareness and trust. So that's just 1 example of the type of positive feedback that 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.

I think the used car market has a 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, material and so on and so forth. You really get down to a very large set of unique combinations. And so compared to that very large set of unique combinations, our inventory today is small. And so we really do view growing our effective SKU count, i.e., growing our inventory and the breadth of our inventory as a powerful long-term growth driver.

The next question is from Chris Bottiglieri with BNP Paribas.

The first 1 is, can you talk more about the large build of inventory in the quarter? Does this primarily relate to the expansion selection or the change in the agreement with the commercial party just have an accounting impact that drives that balance higher? I just want to think if it's growth or just accounting that drove that?

Sure. Yes. So there are 3 drivers that 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 we did see our average selling prices/average cost of our vehicles increased in the quarter, which also was a driver of that quarter-over-quarter increase in inventory.

Actually leads me to my next question.

Can you kind of talk about that mix shift into more expensive vehicles and kind of what's going on there? Are you sing you a more prime customer? Are you anything differently in terms of the rates that you charge prime and shipping fees like -- or is this just an inventory initiative right now?

Sure. Yes. So this is 1 of those areas that relates to earnings answer earlier, where I think we're not particularly focused on specific ASP. We're really focused on units and driving strong company level outcomes. But we have some mix shift into more expensive vehicles.

That's largely just driven by our algorithms that are tracking real-time demand trends, tracking real-time supply trends. And then selecting inventory on the basis of what they're seeing in supply and demand. That has led to an increase in ASP. We called out that we do expect a further increase in Q3 beyond where we were in Q2.

But it wouldn't surprise me at all if after Q3, we saw it declined. I think it really just depends on what are our models are telling us at any point in time. And 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.

Your next question is from Michael Baker with D.A. Davidson.

Congratulations guys on a good quarter. Can I ask 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 the signal increased investments around price or bids or anything else along that or as we just simply we're coming up against big numbers last year?

Sure. Well, I think just to reiterate, I think our guidance was for sequential increase in units in Q3 versus Q2 and then for $2 billion to $2.2 billion in EBITDA for the full year. I think we're not going to give a ton more color than that, but obviously, those are big numbers and exciting numbers. I think we grew by 41% in Q2. Last year was a record EBITDA year for us. It was incredibly exciting at just shy of $1.4 billion.

So I think those are big numbers as you guess, we're on a good path. And so we're just going to keep marching. I think that's another milestone on the way to $3 million, which is a milestone on to wherever we end up after that. So we're just going to keep trying to march through these various gates and make improvement along the way.

Okay. Fair enough. Maybe 1 other one, and it will probably be the same type of answer. But to get to $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 $3 million in 5 years?

I think at a really high level, the 5-year time line was approximately a 40% compounded growth rate and the 10-year time line is approximately a 20% compounded growth rate. We just printed 41%. We're excited about that. I think -- very importantly, 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 is getting simpler. We're adding additional locations to hold inventory to recondition inventory. We're making it so 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 those stories customers tell even better.

So I think we feel like we're on a very good path. There's no question that growing at 40% for 5 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.

The next question is from Chris Pierce with Needham.

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 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 attached broadly?

Sure. Yes. So I think the attach rate of ancillary products and I would include BSE and also other ancillary products in that is definitely an area where we've made progress over time.

And through constant testing and iteration, I have been able to identify wins the quality of our communication of those products, the way those products are structured, things like that. I think 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 constantly iterating and seeking to get better.

One of the areas where we're always getting better is each year, we have more and more data. So we have more and more observations to help us evaluate what exactly do our customers like in these products? What are they looking for? And that helps us improve attach through communication and product structure, things like that, that I mentioned previously.

So 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.

Okay. And then just a real big picture question on gain on loan sale. If we think about -- 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 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?

That's an interesting question. I think we often hear a related but different question as well of are we going to outgrow that market.

And so let me let me just try to give you the way that we at least think about it. I think we are a small part right now, 1.5% 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 some of those originators, there are still hands that are hungry to hold those loans. And so I think 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 pool sales, and it can go the other way as well.

So I think 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.

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.

Okay. 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 how -- I just want to make sure I understand where you're coming from with that comment, and then I'll pass it on.

Yes. No, sure. 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 got larger. And I think that our best expectation is that will continue to be the case.

The next question is from Marvin Fong with BTIG.

Congratulations on a great quarter. Just maybe 2 around other GPU also looking into that topic.

But you referenced a lower sell-through rate in the quarter. Was that related to, I think, another player in the space in commented that there was more cash buyers that kind of came up because of the tariffs in the quarter.

Is that related what you saw? Is that related to that dynamic? And 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, we can always drive that lower. But if we sort of level set maybe in a 1- to 2-year horizon, how much more benefit do you think you can extract from lower cost of funds? And how could you kind of give us a relationship to how that translates to actual GPU? That would be great.

Sure. Yes. 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.

The -- on the question about cost of funds. So I think what are some drivers of cost of funds. One I think is the number of load 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 earlier in the call, but our origination platform has generated assets that have performed very well, offering very strong returns to investors. And so I think continued strong performance from a vertically integrated platform is a driver of cost of funds gains as well.

Your next question is from Alex Potter with Piper Sandler.

So you mentioned that 40% CAGR, if you're able to sustain that. Obviously, you've been doing very well recently, that sort of implicit in your comments earlier about that being a difficult thing to achieve in 5 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 red lining at the top end of that growth range right now.

Sure. I think it'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 imediately 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. 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 over the last year, plus a little, we've integrated 12 ADESA sites, that's been an investment in certain ways.

It's -- the payoff has been that we've added additional inventory pools until we have less miles traveled. The investment has been that we've had to open those sites higher 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 think what we're doing in reconditioning, which is probably the operation 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 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. So we have to make sure that we're in front of that. And we're -- 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 is 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 1 of the areas where we're 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 and getting more efficient. 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. 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.

Next question is from Ron Josey with Citi.

Two please. Just can you remind us, Ernie and Mark, just when megasite or the deposits 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 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 1 or 2 changes that have had an impact on improving those conversion rates.

Sure. Well, so I think first, to -- it's going to take a little bit of time for the ADESA sites to get up to the efficiency level of the existing Carvana sites. I mean, at 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 ADESA sites are -- 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 ADESA 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. 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 we also -- because there's less utilization at those sites, we have more expensive cost 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 assume tote 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. So I think 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 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 are -- 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. And I think also kind of minimizing anti-fund in the form of when we make mistakes. And 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 it more in retrospect than we do ahead of time.

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

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 on these calls, but the results that you've been able to put up over the last couple of years are something that nobody could have foreseen. I think this quarter is another example of it.

Thank you so much. I hope that you're proud. I hope you find 1 another tonight and give each other over aggressive high fives with some serious eye contact because you've absolutely earned it. And I think we've got a lot more to do. We've got more high fives to earn. So let's put our heads down tomorrow and go do it again. Thanks, everyone.

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

Good afternoon. I'm Sharon Zackfia with William Blair. Thanks for joining us. Really happy to have with us today, Mark Jenkins, who's the CFO of Carvana. Carvana has been 1 of the most explosive growth stories over the last several years. And I think the good news is we're probably in the early innings of seeing what this model can do over the longer term. It's clearly a huge TAM. Used cars are about 10% of all retail sales, and they're only really 2 national brands. And I think the power of the economics of this model are just starting to unfold, and we're very excited about what Mark has to share with us here today.

I need to tell you, before I let Mark take over that there's a complete list of research disclosures and potential conflicts of interest at williamblair.com.

Thank you. Well, thanks, everyone, for coming today. It's great to be here. I think -- I was thinking back in preparing for this presentation to the first time we were here. It was just a few weeks after our first earnings report as a public company in 2017. And since then, we've grown about 16x over the last 8 years. We've improved our margins by just over 30 points over that same period to -- from just over a negative 20% adjusted EBITDA margins to now industry-leading at 11.5% adjusted EBITDA margin in Q1.

So it's been a great 8 years. It's great to be back, and I look forward to talking to you a bit more about Carvana over the coming minutes. So the standard safe harbor statements apply to this presentation.

So I'm joining you today coming off of a record quarter. We had an amazing quarter in Q1. We set a company record for retail units sold at approximately 134,000 retail units sold. It's our first quarter over $0.5 million annualized run rate of retail units sold, making us the second largest seller of used cars in the country. We're also, by far, the fastest growing, which is something I'll talk about a little bit more on the next slide.

We also had a record quarter on a number of profitability metrics, including our company record for adjusted EBITDA, just shy of $500 million for the quarter, a company record on GAAP operating income, approximately $400 million for the quarter. First quarter records on adjusted EBITDA margin and net income margin and a number of others that I haven't listed.

So it's a great quarter, and I think that is the result of a great couple of years of strong execution from our team, paired with a powerful differentiated business model. I'll talk a bit more about that as we continue on over the coming slides, but we've positioned the business to have the industry's leading offering. I think there's a couple of ways that you can see that in the data. One is that we are significantly outgrowing our industry today. So we grew retail units sold by 46% in the first quarter of 2025 compared to a range from negative low single digits to mid-single digits for other large players in the industry.

So we're meaningfully taking share with our customer offering. At the same time, we're doing that, we're taking substantial share with approximately twice the average industry margins based on publicly available data. And I think that those 2 things done in tandem reflect a very powerful customer offering that our customers love and a very powerful business model that is based around vertical integration and providing a great customer experience. And so I think these are -- we feel very, very strongly positioned. I'll talk a little bit more about where we want to go using this as our starting point. But we feel like we've positioned the business to become a very powerful long-term profitable growth story, and that is what we are going to be seeking to do.

So moving forward, the next thing I wanted to spend a little bit of time talking about is our growth is significant, and the significant growth is happening at a substantial scale. So more than $4 billion in revenue in Q1, growing at units at 46% year-over-year. A natural question to ask might be how is that happening? It's not happening by giving away a lot of margin given that we're operating at 2x the industry margin. And so how is that happening?

And I think the answer to that question, we break down into 3 fundamental drivers of this outsized growth, the first of which is just having a better offering. And so we, over the last decade, have invested significantly in providing the most seamless customer experience for customers who want to buy a used car and want to do it entirely online, either by clicking through their phone or purchasing a car entirely on their laptop and having that car delivered directly to their door. We provide a seamless built from scratch, from the ground up online experience for that, and it's resonating with customers.

As we've improved our profitability over the last few years, we've also improved our customer experience ratings. We're providing an experience that customers love, and this is a powerful driver of our growth. We also expect it to be a powerful driver of our growth looking forward. And our goal is going to be to continue to improve our customer offering, a more seamless website experience, faster delivery times, better selection, improving the customer experience across the board, we believe will continue to be a strong driver of our growth going forward.

In addition to that, we see lots of opportunities across the business to drive further fundamental gains in unit economics. And by that, I mean fundamental gains in our variable costs and our variable revenue streams where we see meaningful opportunity to improve those, and we would like to pass those fundamental gains on to customers, further strengthening our offering relative to the competition and providing further differentiation. So this is a very powerful source of growth. We're seeing it in our results today, where we have like I said, 46% retail unit growth in Q1, paired with improving margins and industry-leading margins. And that's only possible if you have a better offering. We think we have a better offering, and we think there's lots of ways to improve it going forward as a long-term fundamental driver of growth.

The second long-term driver of growth. And I think this is also fueling our growth today is we have a big opportunity to continue to increase awareness, understanding and trust of our offering. I think a simple way to think about that is just where we are today on the e-commerce adoption curve in auto, relative to where other retail sectors are on the e-commerce adoption curve. And we have this chart here in the slide that shows using some of the federal data, e-commerce penetration over time in non-auto, the broader retail sector.

And as you can see, it's been a steady tailwind. Customers want to purchase this way as the offering continues to get built out as selection continues to improve, as delivery times continue to improve. Customers have demonstrated that they want to buy goods online in a seamless, mobile-driven transaction and have the goods delivered to their door. That's proven. In other parts of the economy, we've seen e-commerce penetration go from below 1% up into the high teens, even 18% or 19% across non-auto retail verticals. We are incredibly early in that journey in auto down in the 1% to 2% range. And so I think we just think we are as large as we are today, and we're 1 of the 4 fastest companies, along with Meta, Google and Amazon to join the Fortune 500. We just jumped up 60-plus spots in the Fortune 500 this year.

So we're at a powerful scale today. But as far as we've come already, we think we're incredibly early in the overall story about e-commerce adoption, awareness and trust of buying a car online. And so we just view that as a long-term tailwind. We want to help aid that tailwind, of course, by providing great customer experiences and by continuing to advertise, share with customers the benefits of our brand, the benefits of our offering and play a part in driving that story.

So growth driver #2, which we absolutely think we are benefiting from today, but intend to benefit from even further over time is building awareness, understanding and trust in our offering and in Carvana as a brand. The third driver of growth that I think we're benefiting from, from a degree today, but we also view as a powerful long-term growth driver is benefits of increasing selection and other forms of positive feedback. I think the used vehicle market has this unique feature that unlike some other retail verticals there are a very large number of unique SKUs.

There are so many specific cars, if you get down to option and feature, mileage condition, interior color, exterior color and so on and so forth, level. There are a very large number of SKUs. And at any point in time, as big as we are today, the cars that we have available on the site, providing selection for our customers are a very small fraction of the total SKUs available in the market. This creates a lot of white space to be able to expand our selection over time, satisfying more customers, give them a better ability to find a match on our platform with the car that they're looking for.

And this also creates forms of positive feedback in the rest of the model. So as we're having a greater selection selling more cars, our advertising becomes more efficient. That's a positive feedback cycle. As we have more selection and add more inventory reconditioning locations, that creates more inventory pools that puts more close -- more cars closer to customers, increasing delivery speeds for those customers and further improving the customer experience. So there are all sorts of positive feedback in the model of which selection is 1 component that we view as a powerful long-term growth driver.

And so putting these 3 together, I think, it underpins our next set of goals that we intend to pursue, which is to go into a phase of very meaningful and sustained long-term profitable growth. And so building up to that a couple more points about our progress.

So I talked about some of the drivers of growth. We're also generating very strong margins, and that's both adjusted EBITDA margins on a non-GAAP basis, but also very strong GAAP operating margins. We've had 4 consecutive quarters within our long-term financial model range. I'll talk a little bit more about this as I move forward in the presentation. But in 2018, we laid out a long-term financial model that sought adjusted EBITDA margins in the 8% to 13.5% range. And it took us about 5.5 years to get there. We've now been there for 4 consecutive quarters, I think, demonstrating very strong execution by our team in achieving that long-term goal. And then as I alluded to, we also have very high-quality adjusted EBITDA.

In Q1, we converted more than 80% of adjusted EBITDA into GAAP operating income which, of course, is a very important long-term profitability metric. And we expect to be able to drive that even higher over time as we scale and lever some of our fixed costs. So I think we've really proven out the profitability of the model. Where does this profitability come from? I've touched on some of the key points. We have a tremendous customer offering, great demand for our product. In addition to that, we have really invested in vertical integration through all parts of the business and that vertical integration has given rise to very powerful unit economics. That have put us in an industry-leading position on these key metrics.

Okay. So with that said, I wanted to spend the remainder of the talk, talking about our next objective. So following our Q1 results, we retired our previous management objectives and outlined our next objective, which is to sell 3 million cars per year within 5 to 10 years at adjusted EBITDA margins of 13.5%. And the reason that we laid out this objective is to provide you all as well as other stakeholders, including our employees, partners, et cetera visibility into our medium-term goals and set a key milestone for what we're going to be working toward over the next several years.

And I think, this goal, the combined volume and margin and the time line, I think, creates a lot of clarity, we hope, about where we hope to take the business in the coming years. And I think 1 question you might ask is, okay, why now for this goal? And I touched on this concept a little bit. But the primary reason for that is we achieved the previous goal that we had set out. So I talked a little bit about our 2018 Analyst Day, where we set long-term financial targets for 8% to 13.5% EBITDA margin. At the time, we were selling just under 100,000 units per year, just under 25,000 units per quarter. At that time, we had a negative 9% EBITDA margin when we set out this 8% to 13.5% adjusted EBITDA goal. And here we are, about 6.5 years later. We've achieved the margin goal for 4 consecutive quarters and we have improved margin by about 20 points over the last 6.5 years. Having achieved that goal and really done it on a very strong time line with very meaningful unit growth made this feel like the right time to set a new set of goals that we could all concentrate around and really manage the business in order to achieve.

And so on that note, putting our next objective in context when we last had our 2018 Analyst Day and set our long term financial targets, at years and goal carries some meaning. And I think the one thing to take away from that is we really believe we could achieve our goal just by continue doing what we're doing and by getting better at it every single day. So a question that people have frequently asked us about the 3-million-unit goal is, well, what do you have to do to achieve that goal? Do you have to go into different vehicle segments, do you have to tackle different customer segments. What else do you have to change about the model?

And I think the simple answer to those questions is we believe running our playbook, executing our model, taking it to more and more customers is what we need to do to achieve our 3-million-unit goal. And that really mirrors the way that we felt 6.5 years ago when we set our long-term financial model goals, and we were about 1/6 the size of today.

So at least in our minds, when we think about this goal, we think about it as a parallel to what we set out to do in 2018. I've also put up on this slide, the margin goal, we're at 11.5% adjusted EBITDA margin in Q1. The goal in -- the 3-million-unit goal would be 13.5% adjusted EBITDA margins achieved on the 3-million-unit volume within 5 to 10 years. So that's the new goal.

Now a natural question you might ask is, okay, well, how do I think about what needs to happen in order to achieve that goal. And a big part of that is execution. So I think 1 of the most important aspects of running our business is being able to operationally execute at greater and greater scales. In order to execute an online used vehicle transaction add strong unit economics with a great customer experience, you need to have a number of things working well together. And in particular, you need to be able to inspect and recondition the car. You need to be able to transport the car from these inspection and reconditioning centers out to the markets where the customers live.

You need to be able to effectively deliver the car out to the customer's door, and you need to be able to provide good sales support in centralized operations functions such as a contact center or document processing functions. And so to be able to execute this plan, we need to have well-oiled scalable operations. And we think we're very well positioned on that front for a few reasons.

The first reason is compared to previous growth phases, we now have a national footprint. So as many of you know, we acquired the ADESA physical auction network in 2022. That came with 56 geographically distributed locations. That really expanded our nationwide footprint of automotive infrastructure. That positions us very well to have the scaling of our operations be more seamless before. And I would say we're seeing that play out so far this year. So growing retail units sold at 40% plus and doing that at a level of customer experience that is improving with unit economics that are improving with costs that are declining.

And I think a big part of the reason we're able to pair all those things together is that we have a lot of infrastructure in place to help us achieve these growth goals and help us do it as efficiently as possible. So this is 1 of the, I think, biggest assets we have is our footprint of automotive infrastructure that we think strongly supports the goal. And so to just build a little bit more on that, I think 1 of the key dimensions on scaling to our 3-million-unit goal will be scaling production capacity. And to provide a little bit more color into how we think about that.

The way that we're really thinking about it is how much production capacity can we add each week as a company. But then in addition to that, how much production capacity can we add each week per location per active location. And so we've been adding about 80 units per week of production capacity in total, which across 23 existing locations, at least over -- average over the last 12 months. That's about 4 units produced of incremental production per location per week. And we think that's a very manageable rate that we've obviously demonstrated that we can achieve, but I think our playbook from here will be to continue to add locations. I think the first way that we plan to do that.

The primary way that we plan to do that is by integrating more ADESA sites into the Carvana retail reconditioning footprint and then steadily march up production across that set of locations in order to march toward our 3-million-unit goal. So I think this slide has a bit of granular numeric detail. But I think it's a way to illustrate the operating plan that underlies our 3-million-unit goal, where scaling production capacity, scaling the other operational functions that pair with production capacity in order to increase our overall capacity, how we think about that playing out and how we think about our ability to achieve that.

So I think that's a bit of the detail behind this new goal that we have. So with that, I'd like to just do a quick summary of where we are today. So I think we find ourselves in a very exciting position. I think we're a leading large-cap growth company. I mentioned 1 of the quickest companies to reach the Fortune 500. We're quickly moving up the Fortune 500 list from a revenue perspective. And our Q1 growth was greater, is faster growth than 98% of companies in the S&P 500. So we're growing very, very quickly. We're doing that relatively comfortably with improving margins and with improving customer experiences. And it's a very powerful combination.

We've set this long-term goal to continue to build the business. Our goal is to be the largest and most profitable auto retailer where we've achieved the second dimension of that as measured by adjusted EBITDA or GAAP operating margin. We're getting closer on the first part of that, but we want to really continue to run our playbook and grow to become a very large and profitable company over time. And with that, I'll wrap up. Thank you for your time, and I look forward to answering your questions in the breakout session.