Carvana (CVNA) 30 Oct 202020 Q3 Earnings call transcript

Good afternoon and welcome to the Carvana Third Quarter 2020 Earnings Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mike Levin, Vice President, Investor Relations. Please go ahead.

Hallie. you, Thank and on ladies thank for you Good third gentlemen quarter us Carvana's earnings joining afternoon and conference call. this section corporate Please the that call simultaneously be note webcast Investor Relations at of website company's the investors.carvana.com. will on

also The on website. the posted third letter IR shareholder quarter is

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

Risk limited financial results meaning assumes are found Before comparisons results forward-looking update to including or contains forward-looking of and discussion from that otherwise. the we actual that following laws and expectations opportunities start, I market obligation Securities forward-looking Carvana A basis. within on developments The those Carvana's Factors would cause involve of noted today's on today be Form XX-K call Carvana's to otherwise cause statements risks and as differ on discussion of uncertainties Form can to new the them in future conference all discussed that may most like but based a call, or and this whether the Federal section recent detailed from that statements a year-over-year XX-Q. of to of not to actual remind current risks Unless material in and factors no are the differ you as result revise the materially results here. statements

the GAAP to in website. for that found Ernie? and be over copy Our commentary now our Investor which today, metrics between issued be to I'd non-GAAP our like Relations today letter Garcia. of non-GAAP Reconciliations on include reported measures. turn said with shareholder call results will our Ernie financial can And found can

thanks the Thank everyone for joining you, Mike call. and

exceptional The quarter financially operationally. was third an for and quarter us

headline biggest was Let's a first company. quarter that The it with the financial our EBITDA highlights. positive is as start

long-term the are more financial GPU numbers context. exciting. significant crossed flexibility. strategic and margin all almost XX%, performance last time. putting our The for EBITDA think when making XX%. of margin four These SG&A We've by them and revenue XXx. profit carry to and as that percent both than themselves the over about the gross meaning even by progress XX%, while incredible grow they implications made remarkable milestones improved also years, business in and a necessary of investments for our the first $X,XXX are We simultaneously are In more by We we've

In incredible also third addition achievements. saw operational quarter the

created, customers our over cars previous in sequential we bought sequential growth of the unbelievable, XX,XXX but units. operations from we our from handle team sold by quality these In bought it had accomplishment impressive of and first notable we our the experiences team. most at even infrastructure scale. them bought we at In cars customers than we one to a of is over quality order our time customers twice our think it's almost effort possible current more an quarter to in achieve more building, brand our increase cars in The and times we the to for is three at customers peak we our Herculean made customers was QX of quarter, only the bought quarter. the as bought our we many of This in put that and deliver first forth we've many third from amazing this the was as that as the kind as That are second from our cars pretty year history.

progress In team made addition the ops alleviating inventory constraints. our toward quick

of inventory the to retail by substantially end During increase the grew quarter, further, for the us production caught then sales quarter. our up enabling

to the pandemic. customers then than impressive progress, we our prefer as was just current we prior immediately even higher lot do levels area. our half another with make a to quarter very the While inventory the expect next us of team growth and rapid At The available have we that big still continue to in progress demand were therefore several in unbelievable is for much still this this over to months to is work XXXX. to the job we well we position ended be doing and had for year an

step back. to like I'd Now, take a

are While to the perspective results focus of to maintain on and the important our what significant, underneath and the numbers. exciting third quarter is it's

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customer-centricity, and our get it better We couldn't power our team. a as to to ask gets position. better our bigger. scalable mission, focus, the demonstrated a We offering be in long-term We've incredible have our of

of to be the better. the becoming going way we're that, largest satisfied, we our cars is allow hit job selling will marching. of we're and Our If do get profitable two fulfill goals the along that of retailer. the way to overcome keep to most always buy to And to arise ourselves automotive Mark? challenges and never continually cars. changing mission year million-plus per to our going people To

constraints XX%. was of revenue in by nonetheless profit $X.X quarter. achieved limited thank $XXXX and sold our accelerated time and for financial made increase which reached our XX,XXX goals. an XX% first selection an QX you for EBITDA in throughout the for increase path was us today. metrics production per billion, company a year-over-year. QX history of from all highest on impacted and Retail unit in long-term growth record on We in history, Thank financial exciting QX, the significant unit company's step in achieving website We was an available gross joining you, the key $XXXX Ernie of progress units but several on Carvana. quarter totaled Total was Total capacity all of increase a XX%. toward on the level significant Retail our positive milestones. our vehicles QX

in our the to SG&A driven and cost due increased in environment gained wholesale this our an sold primarily In gross GPU to improvements Growth customers time. nearly improvement was $XXXX positive we $XXXX $XXXX Retail $XXXX ago. expect and of $XXX. by GPU QX, from increase GPU increase a in in We and wholesale in laid for per reflecting driven volume customers over level, increase Our sustainable up reflecting primarily profit units advantage, of our and $XXX gross quarter in credit resembles our volumes. over long-term by from from vehicles sold pandemic record our of we increase an as customers QX, was Other retail by progress the out revenue QX gross as gain expect GPU customers renewed to an EBITDA high a was seasonal higher GPU in market SG&A. from a to us gains as retail to and the from a benefits GPU. sourced many our the model. to XX% finance tightened in vehicles share a during have depreciation experience believe our year XXXX continue At EBITDA long-term to normal we was record benchmark in continue in wholesale in more year sourcing to investments from in by was milestone QX, rates. buy of margin XX.X% offset creates midpoint of This of target X.X% which trends growth pricing. a from than unit was goals. XXXX. units we leading QX both provide was of by time wholesale to sourced we customers. lower XXX% wholesale levered accentuating cars margin sold for In a QX record GPU expect GPU Other wholesale normalized sold $XXX, of X.X% retail XXX% The primarily interest X% Record $XXX. efficiencies XXXX. Vehicles of acquired a of drove was $XXX. positive customers high-quality GPU margin strong Total The November by benefit the end significant to change more XX% the industry-wide QX of percentage significant partially toward QX, transition by was reached $XXXX in see to Wholesale seasonal closely profit exceeding we wholesale long-term that driven ago. expect GPU to grew driven QX GPU standards in increase driven a by near XXXX. a channel

similar expect expenses as in to show years leverage XXXX Looking we leading while continuing QX also in the to past versus to pattern we for a investments in prepare business XXXX. make SG&A to have seasonal seasonal forward,

positively In increase EBITDA carrying sheet. of a impacted leverage, receivable that the of finance carrying $XX.X these related values addition in to the decrease values in increase EBITDA our million QX. strong SG&A This GPU offsets balance was assets assets by and in on impacted partially

quarter near end, Ohio. or tenth following opened During opened our reconditioning Florida. we our near the IRC quarter, ninth Columbus Orlando, inspection we center And and IRC

logistics XXth We IRCs total vehicles by a play utilization. also expect open selection delivery offering. our for by at efficiency. scaling also year-end remain building model our our on and production our in allowing IRCs role to to times approximately capacity of meet expand out our key our plan annual We demand while of and network XXX,XXX our increasing IRC network increasing to full to speeding production focused capacity us

building inventory, to run on focus promotion Monday to Cyber we have this continue year. elected we As not our

we selection we result, retail the unit Monday Cyber expect tailwind and time continue of to a growth on a website. building As the face headwind as around a

issued $X.X senior Following XXXX by rate quarter reduced $XXX billion and in and more our end, notes new to three points notes new existing interest we The due extended XXXX. than of percentage maturities and senior annual notes million XXXX. redeemed

As part be refinancing, to expect interest onetime we expense QX. $XX.X debt in a of of incurred extinguishment expense we included the in that million

Following the liquidity profitable now goal significant $X.X retailer. balance senior your becoming toward auto us and largest total questions. drive our more resources Thank We'll billion notes, we you our attention. issuance our than flexibility take for most sheet of to the in of giving had on

session. question-and-answer the begin will Zack Our Wells from question come Fargo. now will with Instructions] today [Operator Fadem first We

for Hey, progress. and Thanks all on congrats the taking question guys. my

is comment dealing in first talk about you to to how your the And that Curious demand supply outpaced been you've bottlenecks question on to then if constraints to some you're for So catch IRC the right vehicles much pre-pandemic inventory on back things your could you're to QX website time levels? the frame with demand. with. willing with the if the return and you inventory that up And doing of think respect QX?

try can on I'll I Sure. best that. the

the in therefore been there's think no want to customers what what more we goes levels, up. for selection. have but likely if are So precisely to they're doubt find more have quantify had I looking on third you And inventory demand had quarter conversion the that significantly sensitive higher to cars we they're and site wouldn't would

in so And things way think impacted likely. a it that there's most material pretty I doubt little

half we cars click of I we for we third the the think that that kind terms as our what inventory start in volumes exited purchase Pre-pandemic a were roughly had today. to buy sales pre-pandemic. was available on ready with and was than were it quarter significantly process they of that have customer could lower

then that than be ideal we inventory higher So pre-pandemic. be sales believe would our be would inventory have And still higher again. our we and our higher we would probably so were inventory ideal

in to right progress think can. months. in an quickly now as ton of And job. I in incredible we of So Mark end; opened that year-end. The the team our terms at his in we think to as has before build open forward. the the opened I a goal even prepared We've we've quarter; we three laid last new make is about we're talked tenth moving everything done facilities: doing inventory foundation progress made XXth our faster to quarter opening ninth the our we plan remarks

get to our us to bring we possibly come the and in up to total we future. to the So XXX,XXX capacity out can expect units train build a to demand that many as best going doing And that's of ready and about units. we're then staff serve to

optimistic where precise then impacts. I yet continuing don't build I think focused we it out production. that out and are. to the to actual fill now can So want with know we're quickly really about we to quantify we're we capacity Right But as on that

makes on that you color Thanks, to across to for quantifying Ernie. And GPU any go QX QX sense. the quick can would Mark the any your drivers you what the bridge would those And GPU or then And of the expectations. provide about to a if curious of you GPU I'm line. That QX impacts? extent one buckets? forces from describe gap as how various market there's transitory all the upside

Sure. Yes.

number So to bridging we historical mean, different a starting with I sort at I QX retail ways GPU. think previous of in of period. looked

the then buying So think you in I driver was since our customers. in from QX progress cars if look biggest back more XXXX,

And our XX% strong I from quarter. saw the year this cars sourcing saw on margins source a consumer which think we we to step-up from a rate this quarter ago. is increase best-ever meaningful significant a we that also customers

you if to the a that into look other enter there's think I dynamics QX couple of bridge.

purchasing in XX one on order following to peak period. sale think the pandemic much meaningfully down move more resume and we quarter-over-quarter normalized started cars began averages that as days I pace a we of selling

balance think of end $X,XXX do retail QX think bridging I to I to sheet roughly QX, GPU adjustment. we in you prior if that in our were quarter COVID-related

think I of sort bridging similar from a you're QX so QX to story. And

I buying most more change, primarily of think the by driven success cars from customers.

looking sort So we're I drivers think of I think – retail that's the major GPU QX XXXX some from at back periods. as previous

in cars I currently more about think think, the I QX we're phases we're forward to our buying pricing. XXXX expecting that's to think still QX optimizing XXXX way seasonality as than we the bidding early QX, thinking – I of and when XXXX, from is we're – QX look sort customers, similar of at

some I think non-normalized to dynamics. led that

thinking really QX than XXXX seasonality QX XXXX. QX, thinking that's about we're we're when about like So more

percentage as the trying that gross year? mean just you of seasonality as profit by or mean you of sense a a to GPU I'm get step seasonal what down? When

sort think about I mean in of GPU. it I in thinking terms we're seasonal changes retail Sure. of

Driven by et rates, variation depreciation in cetera.

makes Appreciate the sense. guys. That time

Thank you.

Our Jones next with Nick question comes Citigroup. from

Thanks questions. my for taking Great.

from fair I investment IRCs to two kind Cyber on impact color the profitability on guess, versus supply The retain you is, deal? not Monday? XQ. kind that in I the magnitude of be great. to is Cyber replicating first -- the Monday from saw second headwind is overshadow on aggressive Any Thanks. assume to standpoint, investment running supply How one, of guess, would not lines we of question XQ does a kind I kind constraint rank of of -- growth XQ unit from maybe opening focusing would finding what of the there maybe again. mean kind in and And trying kind I back Like guess, it the really maybe here? of the in

Sure.

to normal major of across provided units. trends So kind I to of seasonal QX shareholder prior. outlined do and year focus first don't was you kind that relate Monday outlook the think, I big the we would and this a two be will to as then big be expect differences versus promotion And all retail we XXXX. that so that in to expect we on volume, plan more run also that letter with that items years line going build we the we think building we a Cyber our as inventory One for tailwind the on half to conversion. continue first two preparing inventory And

of produce for build I seasonal years that's past. kind think, expectations kind for to it been and to a our centers for ready similar deliver lead while and in been in of part of out most inspection longest and customers sits intensive to relates inspection customers to the so to terms is investment And trying operationally what plan. long-term that's cars cars And we're lever capacity in Building clearly out time shape our then that business. of mode are and underneath as the a centers, have

can. that to in always And best general we're we in out so front trying of stay as

billion investment from lot got of obviously resource about of as we you're different the ways liquidity finance we've Now can that on thinking got cash that. balance a an We've roughly perspective, cash to cash we sheet market purpose. use so those we want to or financial can can we to sale-leaseback those the with finance if our that choose for choose own just in don't $X.X

not that as centers that's flows kind depreciation cost way then there. those super more think of marginal terms the units, can fewer a centers and that but driver. of open we in material through we're of it as earnings centers inspection impacts impacts And of the the So I be flexible there the

be that wouldn't huge part of story. a to expect our So I

Great. you. Thank

Thank you.

Our question from with Ron comes Securities. JMP next Josey

think for therefore now trade-in Hi. selection talk third-party better those the Can willingness laid high you kind the your can level you just Carvana's car Thanks kind additionally cars users to dealers? Boone would This sale the out this to about that to for of platform, guys site. it marketing platform is then and I improve bringing buyers, seeing as a dealer accelerate you're selection first efficiencies for convert sellers flywheel and of Andrew same well taking conversion. you're more on If question. about seems you message? not this any buyer from be a conversion third-party meaning get really marketing that talk if to at As of inventory the your great on acquiring And versus adding test increasingly effect of the a Ron. about inventory kind more We're car will specifically and ability you of time? at with seeing leading Thank you. your the that more a

the Sure. Thanks for question.

to the constantly as at delivery get letter, inventory, where And to first I giving bigger. to we forms growing think customer having growing focused in the going selection, more get the scale we the experiences we're think more that incredible there's very locations better kind get business out on takes. In -- very, to inspection of centers, I of and inventory shortening flywheel that So on times. discussed we deliver build customers lots continuing

forms of takes. lot different a there's So that

from our we're We're of other at lot those of that we those and do better resources running what benefits seek good where say lenses and other in what continue even of in tests could them perspective, think tests. lot yet that them tests a invest could feel our do opportunities have customer general, we've we'll and mean got lot time, about In the on what to from build when we more feel likely look through buying to run experience, that those they the also take kind three a that mean things the we've those the they to from in grow customers. are we think describing. tests bucket have our are reforms and we're pour to like And perspective. those to economics to really customers. they out place there point for we'll you're them would running do level offering several of additional out to at a tests any discussion. we'll then that risen a a that value mean an We'll scalability for fit cars outcome grown when same going don't customers. into But that and theoretic our But make to way for do through of them I talk I there projects I any about lens we

to question, retail customers enormous still small very, very second are the buying the market customers to their buying We're compared of of Going in that of there us. of cars cars. the and number are terms also customers there. your I opportunities to out the very, think, of that cars small there's fraction market We're compared very disposing those from

road. the think trade-in becomes a months a giving I are they are so customer happen to things it seek to when then six buy simultaneously both do down we where look a like car. get can with those or think well. to and the connected offering if to seller or customer if two interactions, on becomes a What want other do they seller as I six a car is independent happen that best the chooses buyer months And and make those And then do sides explain degree or transactions to that a to we two want transaction I to And a trade-in. we through simultaneously think buyer an them sure sell some have the to going a that markets a of the road opportunity lag as we customers we're they're that available would to can down

want make then so matters sure And very, their we're our there customers is the good I spot. most both are compared again, really sure offering we the in because on experiences a think, make is to just opportunity. great, we quickly focus small our as as scale that And can to thing very

Thanks.

Our next Adam Jonas Morgan question Stanley. with from comes

Hey everybody.

So other say always dealer seeing woken really these auto call, touch to franchise or the flattery. etcetera. list retail is up imitation you ultimate them any they're of If sign it's They're at their -- never talking calls about you've any some right? get that anyone's at omnichannel, at even Are Ernie they all inventory have way form impacted listened any flywheel like digital, including of may or they're the efforts your nowhere share nascent pressure full and you least in admittedly that etcetera, anything? near if acquisition there, the have the attempts auction business

we question the this them I of in I'm because the think the list answer we're And to are surprising I'm market we that then to up depending competitors probably that that add not not additional market. referencing In the on using probably the top on than And if of of do transactions probably no. share far market should -- quarter a small five total very a all market. think that be I more lot that. simple from you're X.X% X% around sure add might perspective, to so compared is that what

more the focused starting are market. So them to compared I that think this think to are even sum if I all the bigger you get in still direction, of players small

need on opportunity you of the telling important be really, we're what's just kind us, think important on leaders this and for overall I would the really and that we think the space large. have because to on think we us think is our for that think focus customers we area is clear decide go. to most they're we what in when to like where about So you And to our I focus

and and And of that true to fragmentation dynamics that that the be And the e-commerce we then to really area have focus. that's investments there. best got a discussed so platform large not we putting market scalable invest the most the that we've past customer out suggests sheet the our the relatively focus we've and capacity think to really we players through most model that capacity able through we financial our performance financial where of we're now in think the should few make the continuing building in be the necessarily We that and our also have to experience that offering. our balance offer the

on focused And our focused that's from impacting we're any on us. yet We're so I And customers. think execution. competitive focused We're don't moves. on us anything we're seeing

X, help lot to car different new talk We're the opportunity? in years about Is Carvana XX superior could buying And topic a way used that into just and market with There And is Great. of are I Okay. improve look guys XXXX it's platform of I now, could if right? exist that my are far consumer ways opportunity cars. is and consumer the about. part engage in a a to legacy follow-up of companies not an want and buckets an these get know talked to in at and the story you test with sorts electric you carved you discussions out better way even the engage not there's it right vastly wondering the out digital of relevant to model U.S. lot than I'm increasingly beyond a Thanks. selling externally frequency thinking something But of may the if all of start-ups that with having know entrant companies today? how perhaps. these different car kind a in companies, internally, BXC and the doesn't even a of way? things improve and experiences with traditional just some

Thank Yes. you.

I experiences has cars. remains and been to delivering what focus are would our customers So that say buying used on is, great

cars best connect the kind being is want strategic customers make for can think those between got sits at of available connect thing that acquire inventory different -- ways sure we've have them everything I and do, our the we sure And customers. make and think you to and think looking I and cars platform simplest customers up of as can our to that we're we to our is cars. our transaction that we that that lens

continually I And of that company opportunities point toward stay it's in interesting any things are sure time as But theoretically most at important kind future. that's in to the things. focused the you think those on important that given any so you also for make I think, drive

sell is delivering great used for that so thing making to buy who want that customers And to us sure experiences or we're our cars.

with next Our question comes Sachs. Daniel from Goldman Powell

to a you at step things that One for depreciation for up seasonality in those you're XQ? such those about XQ and question. would that and the all sell-through and at you the and it schedules another drivers for retail tailwinds you more guess maybe guess still consumer outperformance in looks that of catching taking would GPU expecting? thanks drive efficiency, Because drivers that the glance talking on like expect which of more being one I based enough of nice be you're the back actually first some in should three follow-up, faster of reconditioning the sourcing XQ, Hey, run I

the fourth in year variation start quarter rates So with there depreciation across tending the depreciation have normal fastest with rates. is seasonality. to I just the would Normally

kind of quarter. You about And the -- depreciating fourth depreciation can highest happening day per tends be time. the in think in to depreciation

sale, of if sorts you and there. and bought from so in kind just at kind to out massage back of of days look cars those trends see numbers And customers our you historical

that driver we've the many that's think expectation launching XXXX. and I over something so years our seen since in underneath And that's major that's

there the reason question the really that Okay. in, you're we're somewhat strength any receivables tighter seeing the on there, with a Thanks. like strong And on that reason? deteriorate that of that related finance type performance. any sale you conversion in the meaningful for rate then Thanks. in credit there obviously, on on GPU, would quarter? the And site interest the note Similar environment was impacted standards anything the felt

Sure.

and is directional with patterns. would our I there we we in finance shareholder for to I some letter seasonal what GPU So for gave follow color normal think the expectations said expect it start also

number relatively seasonal a but of pattern small there is the pattern. some factors, to So to relates data there create which the

those dive underlying right won't into I factors all So now.

finance of terms things there quarter that a were what GPU, think lot were in moving. this I think happened I with of

the a And out we and believe so helpful sustainable you figuring for quick would give hopefully to run. is that long list what I'll in try be

fundamental So more credit most our and I believe think things. first pricing all some just scoring platform. getting made and credit importantly those we structuring, efficient and and at credit that do I That includes in improvements improvements credit to

we tightened -- pretty there expect to going dramatically. think constant would We've more tighter generally loans. persist. fundamental standards credit was that credit the tighten we I expect be would today. that are to certainly One normal credit pandemic else So some and When you than maintained all valuable is through improvement continuing you originating

of the sales volumes. would sales. and to normalize to You that to as a finance tailwind little clearer. some lower But think would a credit expect expect that environment as point GPU And markets tend so that tailwind we to also likely kind be current bit at to then I unwind finance GPU be it you'd becomes relates would a

execution got in the clearly of better general. markets credit market the terms just of in think I

the that kind prices to was rates generally are generally So reducing think benchmarks I QX but rates that underlying clearly normal spreads think finance interest to QX, and going value lead I went the rates a else of would market. moving All than from more reducing -- increases just in more function kind would down. are and of receivables, because to that interest of benchmarks. it's Interest be stickier constant a consumer tailwind

that discussed We But in generally efficient our those that going past flexibility is as which reliability is that this That one longer not And would think And the not didn't provides economically some that through but we monetized persistent and expect including long vast the Ally, pandemic. of securitization. strength the benefits through period of the the fact time, out as monetize originate I degree bit we a with the many little in run. that partnership majority that's in play speaking then ABS quarter. be we've in to partnership with over would to platform the so be think tailwind. I can we great a so that by and that saw offset I our markets channel

that against went quarter. I kind So of us different think the a in was that something worked direction and

vetted taking going where seasonal that to a we immediate are there's out believe high ourselves we trends at end it QX. thought XXXX. a And model spot that finance of I hard time November about it operating they are that GPU. now, sure was lot the to could would kind long-term dots the QX from along a of GPU but the pretty think from kind there's under a carefully in this put to longer things clearly where there's be make And bumps that expect don't forecast think of finance and in somewhat lens the that quarter then we we of in I remain and in bit the to not the basically sustainable term that see connecting of we we the potentially in run move there. that numbers, sustainable and those a normal anything at way, some little assumption long-term found here I'm think between the but perspective macro long similar to going big that's factors clearly

it. Appreciate very Thanks, helpful.

Thank you.

Our comes Rajat JPMorgan. from next with question Gupta

Good afternoon. question. evening. taking for Good my Hi. Thanks

on Just the a GPU. follow-up on previous finance question

those Both spread put higher. the when your and But benchmark you long-term are now. were $X,XXX out your high smaller higher the much target rate end. at were assumptions assumptions I You mentioned high think had also targets tighter

your Thanks. $X,XXX So I meaningfully lower stay that than fair is that higher is to had potential longer or upside for rates there assume a not? if And follow-up. it

us enough seen that haven't financial should our we think change targets. yet we I order, to materially First long-term make think

of I value about the kind and think underlying between interest we the loans the should that think capturable and consumer rate the value driven by benchmarks. the being of spread

those stream adjusted it get the kind down that And interest between the necessarily loss so of we as move doesn't benchmarks and spread of kind move.

And so sustained short-term I shouldn't probably impact, think a that when long-term interest rates are moving have impact. that a can it but have

would in So I our to think sufficient vacuum that not be model. long-term change a

it. Got Got it.

progress then quarter. here third And nice in just leverage SG&A the sense. Makes Okay. a on

other back curious Thanks. different we where Or that advertising in normalized Within around you or to as maybe forward. should third temporarily Just more takes should it overhead we buckets, puts a expenses as spend go areas view and might start the have are as there come the there tightened quarter? to being any the future? the level in

Sure.

seasonal total fourth think I we expecting if on And in SG&A the the the during So and seasonal to think start first for as start quarter, to QX are half. normal where for we're SG&A process next we for prepare I we're us patterns up investment into ramp QX normally year. periods XXXX investment

expect this leverage well the be while total we'd that XXXX. showing case so SG&A also as on And to year over

sort I So I think the pattern that of leading QX. would suggest that's for

leverage bigger forward think we're about I I expect now that into a now certainly the COVID. a the show We that leverage think future. in picture more excited we're moved from steps sense of year-over-year looking away showing very we've couple to

seeing markets, where expense seeing excited give lot logistics and unit where tend unit cohorts very we're market I unit. And us our we SG&A of than about of all head advertising overhead that lower think than last newer means thing that lower markets, delivery that time. SG&A those patterns one think mile the lower markets in then to patterns a per expect cohorts per per and all I much expense shares, older which have over in think in to significantly newer significantly higher I we're the about is excitement that we're

comes question next Sebastian Our with from Baird. Colin

for on Kern Dalton is This Colin.

for forward longer like the inventory the constraint benefits just And about if leverage? much to that the separately long-term when that your of lot rather we of just talk be and help anything cohort, network. you contribute primary of I in the them the make to absolute question older to than a can you going of in to how But flow expenses. through? getting kind profitability give through on But on it is and you've scale of you trending How up reconditioning And advertising IRCs relative Thanks. can term sounds it in proximity sense expect that anything near ramp learned seems advertising long applicable cohorts online? how logistics to then targets lower Orlando your kind know the bring and to another the strategy start term? to in terms in looking think able SG&A your QX. Just like does capacity Ohio and specifically. sense to there are A is driving should topic capacity acquiring the pipeline take and

Sure.

those to quickly how we also we is up. I ramp would choice out once that the working we're what make say we it sure IRCs we We're on facilities enable sure to can. have have our So that hard it And quickly then becomes up working it new quickly facility make that to that we're goal we capacity laying to is a up ramp can as as as as process but to it build the on up ramp we running. and

right seen coronavirus is in a that I hiring and than I a efficiency caseloads cases training because when think has normal perspective do perspective. from an more little from it's recently. Now think forecast And higher, which now things a to perspective from harder impacted get true we've certain

that centers seen impact in yet certainly there's haven't inspection the today, that but risk future. the of We some

be hand we And you? as continue ramping that. I want so several we want now Mark can we'll over don't know our And Right little more to quickly that it ramp months expectation and to it to I think precisely over inventory. I how will potentially has don't faster to is forecasting be it bit a but last quantify than it that the

seeing feeling in think good about there. Sure. then cohorts, Yeah. we're And pretty I we're advertising older so on patterns that the expense

we've terms lower ad a always awareness in are ramped per and have of accumulate getting unit time to word cohorts of of as think raising cohorts meaningfully that have or advertising where ex seen I mouth, expense older our offering. we're newer of percent revenue than awareness just had up more in

to our as closer are that significantly early certainly model is than whole the long-term that company older or are a what cohorts means in cohorts that phase. I newer think average our

cohorts older long-term our of points so our probably of QX are maybe XX in the basis order think I on or target. outside

just and a lot model as pretty by was about feel think the about growth good seeing have. that that path unit encouraged I we're mentioning cohort give to of in and very the And for SG&A. the obviously economics, I opportunities And we us think given all long-term so I we're continued that which improvement earlier our conviction trends we continued

Perfect. Thank you.

Our with next question comes from Exane Chris Bottiglieri Paribas.

you question. Hi. profitability with of margins my EBITDA on milestones. have I Congrats early Thanks markets By to X% around X.X%. earliest the taking your your math, for

of long-term target your long-term a was your your margins. market these bit at your still midpoint little share the you'd below at overhead your markets be essentially long-term If it's Yet in early targets.

like you certain is guess years targets? segments that I structures, more might backdrop, seen the with anything bullish than question sort that's two where had visibility you better today or long-term Are constructive there So your ago? made is on of you've you into there's or have have cost

performed. extremely hit bunch milestones where how are. with We of a think quarter. happy obviously company We're this the happy with, extremely has we I we're

think great. We're I be that. about think, focusing to happy I it's also look early much on, cohorts the kind model. raising extremely too underlying the of long-term

out to to becoming, put We think clear thought very model there believe getting a path clearer all least that it's is a clear And we the the We feel path we got But a clear all I long-term outside that time. of at world we into. the like, while. it's time. there. been we've think put lot the think I outside for

sure have further. toward raise prudent are to point lot SG&A keep do to work it to that continue as be level, We're we would that. the marching though. good. I'm financial going we're things still looking a to at the But lever obviously long-term company not very expand this I of At we think and model, So confident. really

question next Securities. B. Our with Krowl Riley comes from Lee

Great. questions. Thanks my for taking

digitally kind shareholder wondered new migration a to we've dynamics the it I as of First more preference mentioned dynamic durable you mix the the dynamics? the have versus of particularly dealership. of than letter kind guys the that, times. a consumer detail seen a bit near-term And over versus expected? question, you little seems get faster of summer, also shift seen? just bit more what on seems bit several purchasing but in against kind of What versus the used little little What

Sure.

happened. of So I think it's have probably that number things a

one everything, is think toward move everything. in clearly in a digital I but is not car, in a just buying

to choose people to I home more And choose distance as others. think more. stay from

comfortable I think people online just happen things more things formation. more get And things doing generates happening that in more habit are online. online. general And as I think

biggest generally habits And inhibitor new to you speaking, They I And change like when, like are things. this things. is new go are habits. where the created. through try think something to new pre-existing people habits forced change

that the do another years happening seems think year. the ownership. last acceleration, personal be change. prior our be likely persistent And is to underway, results that's an a shift X.X I think be shown to an is to car over acceleration is But that given would toward think of it's thing last a that I we've the already likely that that were there clearly I so, And expectation trends there

drivers being like hard that over at the moment. exactly be of is the over seems it's of how think will have able likelihood I be that time. to strong that to time. high persist a real But say and trend seems persistent to a that It seems fairly underlying

from shift to most the used new think likely transitory. is, I

fewer new of just you production actually I have. can then, and impacted the And cars, manufacturers. just think being kind just biggest a on there how driver cap that with putting being the the mechanical that's driver many sales of is

So biggest that's the probably driver.

is driver cars. other expensive less The in periods tends distress into there be substitution to speaking of generally economic

to play And a so, that is probably also at lesser degree.

implications I for should forecast. to But I have that of think of the And those transitory. kinds trends. the think are car migrate of And hard things, time. those including those different prices think will way think major it's we all I as over both probably

trend other places other lack the pandemic was car. think There buy I a options. weren't of basically just the in that a was other present early to

that. I we've through moved think

that that I I so of is us at transitory think the most one that point. was this And behind think But forces.

And a Could offering. implications then, quick broaden the about it. the priority Got perhaps just into the luxury talk of out obviously those? focus from on of of your SKUs, maybe and inventory competitors and inventory the shifting your that value type just kind scale some to center GPU is you core follow-up, and

a confidence they're buy go back They the between, those And Sure. specific, job discussed building make think shape. we level simple our confidence doesn't things with a car. At any don't want return think a specifics We a life specific it. cars. up more way earlier, want if go want to just and then, shape They process. really car spring decided less think car, for. a when we can great customers offering we way car they that want mistake have they the They transactions want fair a I cars. fit They a process and they type the do as find going customers to looking nothing in expensive do. way that or good form is They to their of of view expensive they're to in to car. a the the best selection. that's a they're cars. to can And they've They down want to what think deal. to high And fast looking want we once we that could we is We our going think

at lot cars has go, both, and tackling of customers there's have cars. But cars think to point to in given like, car more time. just very diverse a got we're been the what of we our offering. just So all our priorities of opportunity but to time. other room And we swath broad cars managing to customers for And can things we trying I from cars job more looking of access expensive an do over think we're we've feel and steadily with a I I best which buying broadening think types especially us cheaper serve all

room of relatively do think it's price and think, But of the can have the lower moderately not price higher fixed car. portion to cheaper huge one margins portion margin finance more the it GPUs cars and the generally then small being -- can of a a from And I the as is impact that of speaking, GPU And flow the way. to retail moderately think They have then that, GPUs. proportionate large But we're way car. there's kind the being think think a selling that. material about a perspective, kind for More impact with is it today. simplest that's don't more level happening a is I clearly that GPU expensive would that cars would of then a the super the cars of level expense high to related at So be a the that in to related -- moderate from very through, impact that's you a GPU, and of of kind of I car. being perspective,

So I expect to a having the kind other. about think relationship does there. as car, you can don't I of that you'd that the strong Wholesale, think has nor think relationships very the

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Needham comes Company. Our with next question from Brad & Erickson

Hi. Thanks.

more Can a that five just on for which because the average? they guess going provide you growth any I lower, but those in corporate called can color may cohorts be a relative letter, in I were to wrong, I if QX me. markets, give just solidly that's couple on inherently the they're rates Just in there? mature, get oldest guess us curious you another positive. one sense EBITDA just you of out

Sure.

awareness faster. we've correct. So, I They life. inventory pre-existing of benefit early And markets from newer to is think, to tend trends would grow their older slower. frame generally historically the tend is, then markets lot a and in grow seen say, I that

of they base, As so they're they quickly. grow working continue just bigger off a bigger, get to

the got the I especially time. at looking by different markets, think, right different When impacted business. we're unique in different you're ways markets are in operational constraints different we've the now, in an that

and looking newer consistent But at to it's or to of underlying at cohorts And credits to at of those on haven't internally, different in what's sales, the traditionally delivery are things level, of and impact in in happening so, underlying looking markets, different of happening to between happening markets, annual impacts conversion inventory is detail and older the of massage cohorts and And we're together we what's we where we're which else, to cohort outside drivers country, inventory that that when very of across is trends the the different relative individual focused relative close this when that markets, by demand, on the I what's distribution you sales ton aggregating looking we're drivers look is what why are times our lot different say think, a be out distribution credit much always anything looks There provided what growth. what in seeing a there at just demand demand. that's what's markets. markets or can happening distribution looking demand include kind markets. at that looking whether can how our is different we policies to can inventory generally at generally, sold all and different to what at like geos

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a you pricing like for into of which can QX? is more tell just So important us force those

Sure.

that clearly So think extra There start in would look that wholesale, if let think, vehicle cars. provided been probably, or with stimulus an let's really months, the driving to demand it simpler. I force, migrated think, six had was -- dynamics -- for that I take. have was over at was probably you the what probably give that's And pricing I abnormal way me the last,

less services, cars. time gave more people spending think it to more time at on them and I spend home money on

So it positive to was demand. probably boon a

was which manufacturers, cars the I cars also there and production the and was But potentially pricing think flows down less kind new helpful kind think that and toward so into there. of fewer there well. shift that cheaper then, personal used ownership as that capacity to that of meant was I car then with was over used cars helpful new for

we not we've that in I to long run. expect persist the So, think, seen dynamics in would whole the clearly abnormal market

we you record look at showed per a If the unit, long, in numbers our wholesale third profit long by wholesale quarter. way

reason normal. more move delta QX to we expect there normal, we normal depreciation the into as And be expect seasonal to year there would in directionally, was depreciation would quarter. the from heading even higher. expectation because And to into than I so, that it going but do certain quarter, pronounced what of think, patterns, called segments be is in out we normally be this directional QX. fourth in terms third appreciation our that a higher in environment But And significantly vehicle you the they

higher. from to it a perspective, so, depreciation materially be relative we expect And

were only dynamics cars the appreciation. handle just with then, cars even period pricing. where also bought because write think, and rates. a the end incremental between it time-based different high appreciation run, most building to and In downs long-term that would wasn't I a start we some step was you as we been also, we've trough get in on cars then also appreciating car we And relative quarter, at that that at and property of at the time-based is to When late build relationship and our last years, are the I bought And we for because other are historically types wasn't margin so, the in different of cars because of from weren't and absolute is and site. the for period as think to there we've tight able buying we're would been environment. buying not just again, is QX, that But buy And way buy as but several there, margin the we we write depreciating just to that what performing clearly historically then you're have down related, wholesale on said model. That's cars think here were that because similar theory, the how that, -- dynamics sell a think, have the that that generally that during weren't customers that something were customers don't get of from segments and it's this cars that been, seen cars likely kind achievable. and we QX, just wholesale. we if quarter wholesale on show retail, early cars looking of depreciation, different. sorry, customers, cars we is be unit long that In the they up, late in there's QX, got we this QX we in as or our We normal are should have we've we function from

way more retail lot kind and of way the market exposure provides And operating. is we less wholesale the so, that the our stability, handle pricing a to

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Nagel with Our next Brian from Oppenheimer. comes question

Good for questions. afternoon. Good Thanks my evening. taking

even benefits And to stronger able Carvana? drive higher become that that continue quarter. customers? whole to mean, driver to big or want really you into while a better are I are just customers. question, the deeper effort the to time could large dive resisting you buy to effort to one So company there clearly cars the be in how particularly incremental over – – ask how more from I buy meaning a for for But as cars going from here your significant

Sure.

increased I operational cars of again that I the my So customers technology prepared unbelievable when building I by think absolutely experience, that cars think it. business – done enable units incredible customer really gave that to one I team to that this number job and remarkable from we do I us job supports customers in – bought out that about the think to stat the think an remarks. QX team at to I the a That's from unbelievable just talk capacity an to handle that. point, want QX, buying It's that, pretty has it, from the you pretty number. did of XX,XXX quarter. And

So that's really exciting.

I think, progress. really were and We've investing that because to and infrastructure in at service years But of ton were the really last been that business, been this we've the I to business because of largely a grow to all several fast. only building the do years catch growth, top side for the over these businesses are retail able least able theory couple of they retail of they in on it's of up to made a think independent.

of in connected they're is trade-in, earlier, independent. we volume cases both discussed through the the As but majority

each I goal to effectively here and other, trying race is quickly those possibly I what we're can And think winning each everyone's as is so as think business to grow we effectively, from businesses so our have do.

very And to small we other, forward as so as a can so about to we're but businesses them trying going both because excited to think other it's we're opportunities I going that. the – move business is ratio that's one as how of progressing when function to we're compared to of be both stating one these possibly and we're quickly relative a be

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of think tremendous there's opportunity. I So a amount

just in to degree even that's debatably opportunity buying business. younger because think some cars from I customers there's a more

time very as invest to retail. from businesses offering we And so in early I had much in as haven't think that benefit also And both. invest then volume. But in we're both we've to had

get get As at volume, smarter get smarter at more we get we bidding, merchandising. smarter pricing, we we and at

a So of I different at think better we lot things. get

So do will think us volume I better. make

you. it. Appreciate helpful. Thank Very

Thank you.

comes of from Bank Nat Our Schindler next question America. with

Yes. Hi, guys. Thanks for taking my questions.

i.e. per inclusive Are and retail other X% the down the sales you versus of XXXX gross don't couple the unit ones. guidance? which it's not I including the sequentially retail XX you're But per wasn't the difference I it know part more saying I profit more little of QX just that it was funding? a know -- going retail is XXXX? unit XXXX point, a Just the a other retail in can to this. specific XXXX like total XXXX. the move you've over I you be X%. XXXX in QX GPU down got revenue profit really – be all was gone clear just on much to mean belabor to the be But talking than and And sequentially gross

a crack that. I'll at so First, take

wholesale we seasonality. we most through an do in of depreciation number expect that per sort we've to is which to because environment wholesale the think thing biggest see and return market abnormal was levels, that sort a in previous years, what we the to to think I normalized seasonality accentuated expect seen of to more of is wholesale return QX, unit to relative normal GPU see

change by And sort with we think a in seasonality GPU I that So wholesale normal within scaling that of per example, and XXXX looking we of the to us changes sold gross by it that's best in had number up it thinking customers, by GPU. of see GPU retail think cars because think mean a be unit going is factors we the normal the In retail think in a is from by XXXX, we what seasonality I – of the profit with sequential just about I that, buying look for range of wholesale like. on normal to reflected retail, other to way wholesale that driven seasonality what seasonality number. we're sort expect sort component normal of at would is led have going think not

of And think those the some so I trends. are

some seasonal trends GPU there can happen pointed that think to. which financial Ernie is in I as well,

like high a I think speaking seasonality. level expect So think very see we normal we at to generally

retail helpful of XXXX units We sold. we probably looks that think on impacting seasonality thinking per is or And of XXXX. because dynamics than accentuated in expect historical when benchmark to what QX the see extends a just hopefully XXXX better sort wholesale gross wholesale, other were That's seasonality profit a about side the like, seasonality summary.

confused. I'm still actually

is what which definitions just other retail gross talking simple inclusive you're profit, about confused So revenue of total about you're the is units sold, not financing. about I'm here. retail When talking

fell retail case XXXX the in while the XXXX talking by QX in in You're of fell it sequentially And sequentially about that it XX%, -- grew. sale car. just XXXX which

because in there but but much So all place. here isn't -- the -- XQ just at goes it patterns to the you going over much like number are to I to similar down it a fell pattern of is XXXX -- are retail guess was $X,XXX. -- side? earlier the from XQ -- That That just saying look go seasonal number what But so are XXXX.

related -- line to commentary talking wholesale GPU, with then item. piece retail the the Yes. GPU And We're another we And well. bit separate some to with respect which gave and a component commentary commentary, gave of correct. we of that's of about little that other finance as then we're talking separate GPU, is

the retail to related is GPU. piece That component

correct. That's

Got that. Okay.

a know last I in just but the just us in I where us Or whole were is guidance not that it's know October you happened Okay. more there a but… you questions growth for us can baseline? Then you're us note, much actual give quarter the couple -- the to giving quickly. give over third totally quarter. to unit trends any just July quarterly not tell a anything just -- gave for In very

Yeah.

QX largely that. to think cars I think provided produce we more that hard want going sales is growth very be we've at to commentary We we're and the that function ability so stick with our of working to far. the a

Okay. a This a this of then buying might a one margins do just question. is lot flow of from how as long-term out more final of whole you consumers. And more kind question

value. lot about GPU So obviously, you've talked the a

are auctions. purchase -- If from But you single for much place. you market there? expenses price get They're sense. incremental you a consumers, IRCs. not how it's of totally near from much purchase than in car often a car It's efficient a a it right less cars it's lower a your from lot of makes a operating When lot auction,

you over if the but all buy So -- consumers if they're place. you from cars

and expense in there relative Is and -- auction? operating of negotiate at to buying also people a that to they extra then that You it lot -- the in takes talk.

Sure.

the think and and driveway bringing associated out pick customer's delivery/pickup our exactly source an of with of I IRCs. one is into basically it to network So labor is it you customers logistics transporting going cars biggest then inventory the is It's out. to laid and what our a buying up into costs from the then car expense

wholesale of retail gross number mean we expenses And what those our are number. cars of gross more from in to as is it's -- those is that's of profit that going All into that car from cars customers we well as when our are by get reflected and it in -- buying IRCs. more actually auctions say customer buying those the from the profitable bring the than profitable net expenses profit

which in that car cars and the reflected important our when expenses. point up we and like. customer that's also say other auction. think are most the are than the and center I reflected in the little from significant profitable is all the expenses transporting most most from in sourced So it are our IRCs are to GPU There expenses some call more are numbers cars But the the picking those significant

Alex today And comes from Sandler. Piper question Potter our with last

and And Thanks really obviously one days just retail been I'll time I strong dwell here. inventory that also guess to Average they've very was contributor GPU. a lately. sale much. ask your the to

let maybe part not? comment they through maybe guess, could mean, could are us more up quickly process much be through that up ability that on of ones talk vehicles if to you your as how you the Thanks. and show own soon if which on equation wondering, I sustainable that as other are website; is just consumers sides part know inventories. both just sticky? that versus snapping cars I of could is the of Just

Sure.

would I of sticky, think the I think of a using the language language instead of largely choice. I it's use

going so any that demand you think growing. of time with at is grow paired unlikely conversion level our in longer. much grew may as And to turn any but increase I some turn you given you're to your as of you're inventory level have to from inventory, demand that. get there, as inventory, given And increase your then will you're emerge bit a by going time little conversion,

kind customers. through more as that use have acquire that expense use a lever I think of as retail in as environment a that similar so, some to And can where we incremental would to we inventory we normalized helps think we much have we to like, inventory us GPU can of can marketing flows

today, that when the times. that really equilibrium lever to once have well an of fulsome of to we're got today, minimize of don't moving kind cars at many you've selection many in delivery no cars more long out selection seeing. selection largely which forward think as back the located It's fulsome to And I we're produce is to have cars a continue in catch then levels and trying But than that active lever. you we choice the so have build cars that's again takes there's we a need I that a country have up we can that's demand across think lever run, to real to just possibly not that we general because as

and at it's it's there, would decrease largely that many of But here be one turn so have and demand. choice customer in secular meaningful we times. and that a point, of I think kind there levers a And drive to the between

very good. Thanks. Okay,

you. Thank

session. turn This for like question-and-answer to any would I closing And the remarks. to over our call concludes management back

many quarter. hope this years. you, function you for to that, really company on the I we remarkable a the and appreciate a as it's mission it. you're it's Thank there for those as for that incredible everyone all pretty our every It's day things do GPU. we everyone joining to because for doing last remember us of proud EBITDA and that have please We how made mission. your the achievements Carvana, hit had the care quarter are, To as been call. have And achievements to out of us first you've Team all much this positive But many, of choose how $XXXX

because to back view So gloat still a hope get moment enjoy the thank and little hope we so you do. have I a we for I do. Thank a to much. bit, take of you that it all lot then you you but work to

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

disconnect. now may You