Carvana Co.

Good afternoon and welcome to the Carvana fourth 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 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 fourth quarter and full year 2020 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. 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 factor 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. 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. Ernie?

Thanks, Mike, and thanks, everyone, for joining our call. 2020 was a defining year for Carvana and one that we will likely look back on as a significant milestone in our journey. When we launched the company eight years ago, we set out to be the first online seller of cars by building modern technology, a new optimized supply chain, and integrating vertically to serve modern customer preferences and deliver the best customer experiences available. When we went public four years ago, we spoke of our most mature market of Atlanta as a proof point that we could build a sizable business given its 1% market penetration, and we set a midterm goal for the company to reach $3,000 GPUs. And two years ago, at our Analyst Day, we outlined the audacious goal of becoming the largest and most profitable automotive retailer, of buying as many cars from our customers as we were selling, and of selling more than 2 million cars per year. Today, we are the leading online seller of cars by a wide margin. And for eight years, we've been the leader in providing the best customer experiences available when buying a car. Today, we have over 100 markets above 1% market penetration. For seven consecutive years, we've grown GPU by $400 or more, and in 2020, we exceeded our $3,000 GPU goal for a full year and hit $4,000 in our best quarter. Today, we are the second largest seller of used cars in the country, marking the final milestone on our path to becoming the largest. And we have levered EBITDA margin for seven consecutive years, demonstrating significant and consistent progress on our path to becoming the most profitable. In the second half of 2020, we bought more cars from our customers than we sold to them. And we are celebrating our third consecutive year of being the fastest growing automotive retailer in the country, lighting our path to selling more than 2 million cars per year. Over our life as a company, we have set goals and we have hit them. And we have many more goals in front of us. But before diving into more detail about where we are now and how we plan to continue hitting our goals in the years ahead, I want to talk for a moment about what got us here. Our engine of growth has been incredible people with high ambition, boundless energy and discipline who have chosen to care a little more than most, who learn and get a little better every day, who feel like they are part of something, and who have fun along the way. This has always been a close group that we are proud to be a part of, but 2020 drew us even closer and made us even prouder. We came into the year positioned for another year of hypergrowth before rapidly transitioning to a defensive posture when the pandemic hit and rapidly reverting back to growth posture as demand shifted in our direction. Our team made those adjustments, managed through three waves of COVID, and delivered another year of being the fastest growing automotive retailer in the country while simultaneously growing GPU and levering EBITDA margin. When we moved to a defensive posture, our team stuck together. We managed through the pandemic without a single layoff and without furloughs. And when we reduced hours for our operations teams, our team came together. We created the We're All In This Together Fund with contributions from hundreds and hundreds of people throughout the company that generated sufficient funds to ensure that the Carvana team members that were impacted by reduced hours were still able to maintain over 80% of their take-home pay over the entire effective period. To every member of our team, thank you. You have an unbelievable amount to be proud of. So where are we now and where do we go from here? In the short term, as a result of the accelerating adoption of our model and the strength of our customer experiences and our brand, we have far more demand than we are able to satisfy with our current supply chain. As evidence of this demand, in January, we grew sales by 80% year-over-year and did so with just half the immediately available inventory that we had a year ago. This demand, paired with the operational stresses of three successive waves of COVID, have led to constraints across our operational chain. But given that they are most pronounced and hardest resolved in our IRCs, we will focus our comments on our progress there. We opened four IRCs in 2020, plan to open two more by the end of 2021, and the team is working at max speed to ramp hiring and training to catch up to demand as quickly as possible. Since December, we have increased production by 40%. In the medium term, we are working even faster than before to prepare the business to handle the demand. In 2022, we plan to open eight additional IRCs, bringing our total IRCs between now and the end of 2022 to 10, and bringing our total facility capacity to 1.25 million per year at that time. We're also scaling our logistics network capacity and capabilities further and making additional investments in technology to make our customer experiences even better, make us more efficient, and enable us to scale more quickly. In the long term, the plan remains the same. We've built a platform that delivers the best customer experiences, the best unit economics, and is the most scalable. This is a powerful combination. We got here with execution, innovation, and ambition. Execution allows us to cover ground along our path. Innovation allows us to uncover additional opportunities. And ambition keeps us charging forward. And we are charging forward. The opportunities in front of us are broadening and are even bigger than they were in the past. Fully achieving our potential will demand that we continue to improve, that we move even faster. Our ambition is only growing, but we must also maintain focus to move fast. We'll continue to prioritize growth, and we must also stay disciplined to continue demonstrating operating leverage. We will do all of that while always keeping our customers at the center of every decision we make and while delivering to them the best customer experiences around. And we'll get a little bit better every day and have fun along the way. It'll be hard. All important things are our team's up for the challenge. March continues. March.