Carvana Co.

Good afternoon and welcome to the Carvana third quarter 2020 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your touchtone phone. 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, Investor Relations. Please go ahead.

Thank you, Kylie. Good afternoon, ladies and gentlemen, and thank you for joining us on Carvana's third 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 third 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 and may cause actual results to differ materially from those discussed here. A detailed discussion of the material factors that cause actual results to differ from forward-looking statements can be found in the risk factor section of Carvana'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 Carvana assumes no obligation to update or revise them, whether as a result of new developments or otherwise. Unless otherwise noted on today's call, 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.

Thank you, Mike, and thanks, everyone, for joining the call. The third quarter was an exceptional quarter for us financially and operationally. Let's start with the financial highlights. The biggest headline is it was our first EBITDA positive quarter as a company. We also crossed 4,000 GPU for the first time. These are incredible milestones and both carry significant meaning and implications for our long-term financial performance and our strategic flexibility. The numbers themselves are exciting. We think they are even more remarkable in putting them in context. In the last four years, we've improved gross profit margin by almost 12%. SG&A is a percent of revenue by over 12%, and EBITDA margin by about 25%. We've made all of that progress while simultaneously making the investments necessary to grow the business more than 10x. In addition, the third quarter also saw incredible operational achievements. The first and most notable of these was that we bought more cars from our customers than we sold them for the first time in our history. This was an amazing accomplishment that was only made possible by the quality of experiences we delivered to our customers the quality of brand we've created, the infrastructure we are building, and the Herculean effort put forth by our team. In the third quarter, we bought almost twice as many cars from our customers as we bought at our previous peak in Q1 of this year, and over three times as many cars we bought from our customers in the second quarter. That kind of sequential growth is pretty unbelievable, but we think it's even more impressive at our current scale. In order to achieve it, our operations team had to handle a one-quarter sequential increase in cars bought from customers of over 50,000 units. In addition, the ops team made quick progress toward alleviating our inventory constraints. During the quarter, production caught up to our retail sales, then grew further, enabling us to substantially increase our inventory by the end of the quarter. While there's impressive progress, we still ended the quarter with just half the inventory that was immediately available for our customers as we had prior to the pandemic. At our current demand levels, we prefer to be much higher than we were even then, and therefore still have a lot of work to do in this area. The team is doing an unbelievable job and we expect to continue to make rapid progress over the next several months to position us very well for another big growth year in 2021. Now I'd like to take a step back. While the results of the third quarter are exciting and significant, it's important to maintain our perspective and to focus on what is underneath the numbers. Our progress over the last seven and a half years from a fledgling startup in a single market that delivered one car to one of our customers once every several days to becoming the fastest growing automotive retailer in the US with 4,000 gross profit per unit and break even EBITDA has come from four powerful and persistent forces. One, our clear mission, vision, and values. We know where we're going and we know how we're gonna get there. Two, our unwavering focus on our customers. We know that what really matters is making our customers' lives a little better. We know their expectations are always rising and we are always working to keep up and to surpass those expectations. Our long-term focus. We aren't afraid to lay the foundations today that are necessary to build big things tomorrow, even when we don't see immediate results. And four, the strength of our team. Companies are collections of people. Our people choose to care. They believe in what we are doing and find meaning in it. They dream big. They aren't satisfied with what they've done. They don't think it's good enough, and they can't wait to make it better. These four forces are powerful. They're what really matter. They provide the relentless pressure that drives long-term progress. They're what brought us here. So what does this mean for our future? Customer preferences have accelerated their shift in our direction. Our financial performance and position are stronger than ever before. Our team is executing at the highest level in our history. We're delivering the best customer experiences available when buying or selling a car. We have a scalable offering that gets better as it gets bigger. We've demonstrated the power of our mission, our customer centricity, our long-term focus, and our incredible team. We couldn't ask to be in a better position. Our job is to keep marching, to never allow ourselves to be satisfied, to overcome the challenges that will continually arise along the way, to always get better. If we do that, we're going to hit our goals of selling 2 million plus cars per year and of becoming the largest and most profitable automotive retailer. And we're going to fulfill our mission of changing the way people buy cars.