Carvana Co.

Good day and welcome to Caruana's first quarter 2025 earnings conference 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 Matt Kehan, Investor Relations. Please go ahead.

Thank you. Good afternoon, ladies and gentlemen, and thank you for joining us on Carvana's first quarter 2025 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 on 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 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 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 is 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. 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. In 2018, we held an analyst day where we walked through the long-term economics we believed our business model could deliver. That analysis resulted in us projecting a long-term EBITDA margin range of 8% to 13.5% at a time when our actual adjusted EBITDA margin was negative 9%. For the last four consecutive quarters, we have been in that range, and in Q1, in a seasonally weaker quarter, we were reporting 11.5%. This achievement is worth reflecting on, and it begs an important question. Why were we able to accurately forecast how our model would perform as a five-year-old, newly public company that was significantly subscale and 20% of revenue away from our margin target? The answer is that the automotive industry is simpler when you zoom out than it looks when you zoom in. It is a mature industry with mature unit economics. It is highly fragmented with many industry players using similar processes with similar goals and similar underlying economics. This reality provides a lot of stability and makes the key to understanding any given player about understanding where they are different from the rest of the industry. This is the method we used to determine our own long-term financial model in 2018. We went line by line using automotive retail history, simple mental models for the way our industry works, and a bottom-up analysis of the differences in costs and revenues of our business given our novel approach. Zooming out has been predictive over the last seven years, and we expect it to be predictive in the future as well. When we went public in 2017, we opened our S-1 with a statement of our mission, to change the way people buy cars. What we meant by this is that we wanted to build a business so differentiated in selection, experience, and value that it just became the way people buy cars. We wouldn't have said that then if we didn't believe it. We've always believed it. But today, it is much more apparent externally that our mission is achievable. What happens when we continue growing selection and benefiting from the other positive feedback in our business? What happens when we continue unlocking and sharing value with our customers, further separating our offering in speed, experience, and value? What happens when more people hear from their friends and family that buying a car from Carvana was fast, fun, and fair? What we think happens is that Carvana becomes the way people buy and sell cars. We are in an incredible position with an incredible business and an incredible team. In order to continue our rapid march toward fulfilling this mission, we are setting our next objective, to grow to 3 million annual retail sales with 13.5% adjusted EBITDA margins in the next 5 to 10 years. Given the position we're in and the fundamental gains we see in front of us, the path to that goal, which we currently view as both very exciting and very achievable, is that we continue marching straight to 13.5% EBITDA margin and rapidly grow to 3 million units while sharing significant additional value with our customers along the way. While we believe this is a likely path, we are too young a company that is too early in taking advantage of our opportunity, and five to ten years is too long of a time to not have flexibility available to us. Accordingly, it is important to communicate our priorities. Over the next five to ten years, we plan to prioritize growth over margin within reasonable margin ranges and plan to manage the speed of our growth to ensure we continue to deliver exceptional customer experiences and that we maintain high-quality, efficient operations. There are 40 million used cars sold every year in the U.S. There are an additional 16 million new cars sold every year. Adding this up and using last quarter's unit sales annualized, we are still just about 1% of this market. It's very early in the Carvana story, and we are firmly on the path to becoming the way people buy and sell cars. Mark?