Carvana Co.

Good day and welcome to the Caravana 3rd Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing star then zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on a touchstone phone. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to send the conference over to Meg Kiyan. Investor Relations. Please go ahead.

Thank you, Vash. Good afternoon, ladies and gentlemen, and thank you for joining us on Carvana's third quarter 2023 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 to the IR website. Additionally, we posted two sets 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 that 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. 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 great quarter for Carvana that continued the clear momentum we've had since we rolled out our plan 18 months ago. Over that period of time, we have cut $1.2 billion in annualized SG&A expenses out of the business, which has dramatically improved our efficiency, while also reducing annualized inbound transport and reconditioning COGS expenses by about $250 million annualized, which has driven up our GPU. These efforts have combined to powerful effect. Over the last two quarters, we have generated $300 million of adjusted EBITDA, with about $200 million of that excluding non-recurring items. These are important numbers. They send a clear message that the plan our team laid out 18 months ago was the right one. They send a clear message that our team is executing at a very high level. And most importantly, they send a clear message about the long-term power of our business model. Since we went public in 2017, we have been clear about our goals to sell millions of cars and to become the largest and most profitable automotive retailer. Two years ago, there was a general belief in our ability to become the largest, but questions remained about our ability to be the most profitable. While those two questions won't be definitively answered until we actually cross both milestones, the last two quarters provide a lot of support for our belief that we will ultimately be the most profitable automotive retailer as well. In today's shareholder letter, we are providing clear evidence of this with our breakouts of our overhead and operational expenses over time. The takeaways from the data are the following. One, in step one, we successfully right-sized the operational components of the business and began making significant progress in reducing our operational expenses per unit. Two, our efficiency gains are continuing in step two with our unit economics rapidly becoming a significant competitive advantage. And three, our current fixed cost utilization is low, providing a very clear path to both significant scale and significant cost leverage when we turn to step three of our plan. Our plan is working, and we are going to see it through. While it is unquestionably tempting to turn our attention back to growth, we believe it is a better long-term decision to remain disciplined and continue harvesting the efficiency gains we see in front of us before shifting our organizational focus and moving on to step three. In the fourth quarter, we expect to continue making fundamental gains through various projects that comprise Step 2. We also expect volumes to reduce relative to Q3 due to normal seasonality and potential industry softening observed over the last four weeks. Despite this, we continue to operate in our target unit range for Step 2. The sum of these dynamics leads us to expect to produce another great quarter, but as in past Q4s, we expect lower industry-wide volume coupled with higher industry-wide depreciation rates to cause lower adjusted EBITDA than we have achieved in the past two quarters. Looking forward, we are excited. The difficulty of 2022 wasn't how we imagined our path in the beginning, but that doesn't mean it wasn't good for us. Through it, we have come together to do our best work. We have learned the power of focus. We have gained a new appreciation for discipline. We have learned an even greater sense of urgency. And now, as a result, we have competitively differentiated unit economics. 2022 has added to our arsenal. It has made us better. And while that is a change, there's a lot that remains exactly the same. We are still an ambitious group of people who care. We are still willing to roll up our sleeves and do the hard work to achieve our goals. We are still delivering new experiences to people buying and selling cars that they love. We still have a business model that is incredibly difficult to replicate, and that mechanically gets better as it gets bigger. We are still just a small player in the largest retail market in the world, and we are still on the path to selling millions of cars and becoming the largest and most profitable automotive retailer. The march continues. Mark.