Carvana Co.

Good afternoon and welcome to the Carvana second quarter 2020 earnings call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mike Levin, Vice President of Investor Relations. Please go ahead.

Thank you, Andrea. Good afternoon, ladies and gentlemen, and thank you for joining us on Carvana's second quarter 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. 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 Carbona's most recent Form 10-K and Form 10-Q. The forward-looking statements and risks in this conference call are based on current expectations as of today, and Carbona assumes no obligation to update or revise them, whether as a result of new developments or otherwise. Unless otherwise noted on today's calls, all comparisons are on a year-over-year basis. Our commentary today will include non-GAAP financial measures. 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 investor relations website. And now, with that said, I'd like to turn the call over to Ernie Garcia. Ernie?

Thanks, Mike. And thanks, everyone, for joining our call. The first half of 2020 has been an unprecedented and trying time for so many as the world grapples with COVID-19. It has impacted all of our personal lives, impacted the way we interact, the way we live, and the way we work. As we've managed through this dynamic period, we've put people first. Our operations and people ops team have done an unbelievable job taking care of our team and of our customers. Thank you to them for everything you have done and everything you continue to do. In addition to the changes in the ways people interact, live, and work, the pandemic has also led to changes in the way people shop. It's created disruption that has forced people out of their habits. This has caused people to try new things and new experiences they are having are resulting in change. Suddenly, buying cars online is becoming normalized. This is a big deal. We came into 2020 the market leader with a bright future. We are the market leader because from the very beginning, our guiding light has been delivering the best customer experiences available anywhere. To do that, we have recruited the best people to take up our mission alongside us. We've built a culture of tireless energy and ambition, and we've invested in the technology and infrastructure that are necessary to deliver on the constantly changing preferences and expectations of our customers. And we've done it all with the genuine discipline of a long-term focus. These things are easy to say and hard to do. They are the things that matter in the long run. They are our enduring differentiator and the reason our future was bright before. And now we have added the tailwinds of rapidly changing customer behaviors. Our future is even brighter now. In the immediate term, we are working to alleviate the operational constraints that have emerged as a result of our choice to defensively position the business at the onset of the pandemic, as well as the complications of ramping up at record speeds at the same time COVID-19 continues to impact many of our markets. The same production team that delivered over 10X increase in production capacity over the last four years is up to the task. Now I'd like to turn to our results in the second quarter. We drew units by 25% in the quarter, including decreases in sales year over year in early April. and growth of approximately 40% later in the quarter. This growth was achieved despite managing through the most difficult period of the pandemic and facing severe inventory constraints. In the second quarter, we also saw a rapid rebound in GPU, which demonstrates the resilience in our model across each of our gross profit contributors, as well as the speed of our reaction at the onset of the pandemic. Managing through this unique environment has also led to efficiency on the expense side and demonstrated the long-term strength of our cost model. We continue to see exciting progress across our key metrics heading into the quarter. The most notable is that we hit our long-term milestone of buying 100% as many cars from our customers as we sold to them in July. This is an unbelievable achievement that has come much more quickly than we had anticipated. Congratulations and thank you to the Celta Carvana team. You're doing a truly amazing job. Looking forward, there's a lot to get excited about. As we always have, we're focused on building enduring value. We are positioning ourselves for the shifts we are seeing in customer preferences, investing in our offering of buying cars from our customers, focusing on simplifying the automotive value chain, building out significant capacity in our supply chain, investing in initiatives that make us even more efficient and scalable, and most importantly, continually improving our customer experiences through better technology, infrastructure, and process. The customer experiences we deliver in our execution are the forces that matter most over time, and they have our complete attention. That focus and our long-term lens are what brought us to this point. They put us on the path to selling 2 million plus units per year and to becoming the largest and most profitable automotive retailer. They've made us the fastest growing retailer in the country. They've driven incredible customer experiences over many years. They've generated a constant unwillingness to be satisfied with our own product that has pushed ceaseless improvement. And the accumulation of all that has made us the market leader. We are not content with being a market leader. We're on a mission to change the way people buy cars. Our ambition and excitement is driven by the opportunity we see in front of us. And today we are more excited and we are more ambitious than we have ever been before.