Carvana Co.

Hello and welcome to the Carvana first quarter 2024 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, and to withdraw from the question queue, you may press star, then two. As a reminder, this conference is being recorded. I would now like to hand the call to Meg Keehan, Investor Relations. Please go ahead.

Thank you, MJ. Good afternoon, ladies and gentlemen, and thank you for joining us on Carvana's first quarter 2024 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 first quarter shareholder letter is also posted to the IR website. Additionally, we posted a set of supplemental financial tables for Q1, 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 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 Carvan'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 Carvan 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 our GAAP and non-GAAP financial 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. And with that said, I'd like to turn the call over to Ernie Garcia. Ernie?

Thanks, Meg, and thanks, everyone, for joining the call. Q1 was an incredible quarter for Carvana and one that is worthy of reflection. My plan is to first share some of the highlights from the quarter and then to discuss the long-term implications of our recent performance. First, the highlights from the quarter. In the quarter, we achieved adjusted EBITDA margin of 7.7%. By this measure, in Q1, we not only set new all-time company records, but we also became the most profitable public automotive retailer in the U.S. for the first time. We returned to growth, growing retail units 16% year over year, despite decreasing marketing dollars by 4% and having constrained inventory. We completed our first quarter with adjusted EBITDA exceeding capex and interest expense, achieving this milestone by a significant margin. We achieved GPU that exceeds our previous record from Q2 2023 after normalizing for last Q2's excess loan sale volume, achieving a GAAP gross profit margin of 19.3% above the high end of our long-term financial model. We significantly levered marketing spend, operations expenses, and overhead expenses, the last of which were held flat in absolute dollars despite 21% sequential growth. In combining our GPU and expense leverage, we also validated our long-term financial model that we put out six years ago and clearly lit the path to significant additional financial gains from here. These gains will be driven by both leverage on our fixed overhead costs and additional fundamental gains in both operational expenses and GPU. We see opportunity for large improvements in our adjusted EBITDA margin from here. We achieved all of this in a difficult automotive environment at a time when most in the industry are moving backward on both unit economics and volume. The long-term implications of this quarter are significant. We continue to deliver experiences that our customers love. The strength of our customer offering has always been apparent in our growth, which even with the last two year hiatus, has earned us the honor of being the fastest growing automotive retailer in US history. As we get bigger and more efficient, the experiences we deliver get even better and simpler. Constantly improving customer experiences has always been centrally important to us, and it will remain centrally important to us in the future. It is one of our most important feedback loops. We are positioned to grow significantly from here. The part of our business that is most difficult to scale is reconditioning because it requires significant physical space, construction, and zoning approvals. Across our current inspection and reconditioning center infrastructure, we have capacity for 1.3 million units per year, over three times our current volume. Beyond that, our ADESA locations, we have the ability to increase our production capacity to a total of approximately 3 million units annually. To unlock this opportunity, we are developing a playbook to bring our full suite of retail reconditioning and logistics technology and processes to Odessa locations. We recently completed our first conversion of an Odessa site in Buffalo, New York to a Carvana reconditioning center, and now this site is leveraging Carly, our proprietary reconditioning software, and our proprietary processes to recondition retail units. We believe we have a model that gets better as it gets bigger, and Odessa is a key part of that story. Reconditioning cars at more desolate locations over time reduces inbound transportation, which positively impacts cost of sales and retail GPU, and decreases outbound transportation, reducing SG&A per unit and decreasing delivery times for our customers, increasing conversion and decreasing marketing costs. This is also a good feedback loop. Competitively, we sit in a better position than we have at any point in our history. Through our own experiences and those of the various companies who have sought to do something similar to us, the last few years have resoundingly proven just how difficult it is to build a business this complex, to drive it to scale, to achieve strong unit economics, and to deliver high-quality customer experiences. Building a business like Carvana is very hard, and hard is the ultimate competitive mode. Our addressable market remains an enormous opportunity. 40 million used cars are bought and sold on average each year. There are tens of thousands of car dealers offering customers similar experiences to one another with similar business models. Carvana offers a differentiated experience, supported by a differentiated cost structure and driving a differentiated business model. That differentiated model just delivered approximately a billion dollars in annualized adjusted EBITDA, and we are still a long way from the full financial potential of our business model and its scale. With just 1% market share in this enormous fragmented market, we are extremely well positioned. Today is an exciting day for Carvana. The size of our opportunity and the strength of our positioning are clear. Now it's our job to make sure we make the most of it. Our team is ready. The march continues. Mark?