Carvana Co.

Good day and welcome to the Carvana Fourth Quarter 2025 Earnings Conference Call. All participants will be in a 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 a touch-tone 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 Meg Keehan with Investor Relations. Please go ahead.

Thank you, Nick. Good afternoon, ladies and gentlemen, and thank you for joining us on Carvana's fourth quarter and full year 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 fourth quarter shareholder letter is also posted on the IR website. Additionally, we posted a set of supplemental financial tables for Q4, 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 meanings 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 differ materially from forward-looking statements can be found in the Risk Factors 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. 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. 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. 2025 is another incredible year for Carvana. There are many useful ways to describe the progress that we've made, but one approach I return to each year is starting with the graphs at the beginning of our shareholder letter. I find that useful because they provide a simple, visual view of the big picture. and the big picture story is clear and meaningful. The first observation from the graphs is that both volume and financial performance are moving up and to the right rapidly. This is only possible if you offer customers something that is sufficiently different and desirable that it caused them to break habit, and if the business model itself is sufficiently different and efficient that it enables qualitatively different results. When we went public, we wrote that our mission was to change the way people buy and sell cars, and the graphs show that we have built a customer value proposition and a business model with the power to do it. Having a great customer offering is the single most important thing. We have it, and we are making it better every year. Looking at the year in our current position, there are three key takeaways in our minds. One, we are getting better and more differentiated as we get bigger. In the last 12 months, we increased customer selection by 20,000 cars. 20,000. We are delivering cars to our customers a full day faster. We have put more cars closer to our customers, leading to $60 average savings on shipping fees for our customers. We have reduced the interest rates our customers pay on their loans by about 1% relative to benchmark on average. We have made the transaction simple and straightforward enough that many of our customers can confidently make it all the way to the vehicle handoff without ever speaking to a person at Carvana. And customers are telling us they love it with NPS at multi-year highs. That's a lot of progress to be made in a year where we also improve our EBITDA margin by 100 basis points. Lots of good things have to be true to make all that possible, and those things are hard to replicate. Two, we're making rapid progress toward our goals. With every step, our path to our current goal is 3 million retail units a year, and 13.5% adjusted EBITDA margin becomes clear. And this year was a big step. We estimate that fixed cost leverage alone will be worth about two points of adjusted EBITDA margin over time. We're making rapid progress in fundamental gains, that is lowering variable costs and increasing the efficiency of variable monetization, which gives us more fuel to hit our financial goals and to keep providing additional value to our customers over time. On units, we grew by 43% in 2025, meaning that the compounding annual growth rates necessary to hit our 2030 to 2035 retail unit goal are now 38% and 18% respectively. With the quality of our customer offering and the positive feedback in our business, we believe there is plenty of fuel to get us to our 3 million unit goal and beyond. But we have a lot of work to do and to keep scaling our operational machine to handle all that volume. And that brings us to point number three. We have the infrastructure to scale and we just need to execute. The most operationally intensive part of our business is vehicle reconditioning. Continuing to scale reconditioning quickly, cost efficiently, and at high quality has been, currently is, and for the foreseeable future will be a central focus. We have a better foundation to scale reconditioning effectively than we have ever had in the past. We already own the real estate for 3 million units per year. We have already made the investments in the facilities to produce 1.5 million cars per year. Our systems that manage the entire process flow through our reconditioning centers are more capable and robust than they have ever been. And we have more locations that are capable of reconditioning cars, 34 as of today, than we have ever had, meaning we can scale hiring and production faster because of access to more people and more geographies. But it's still hard work, and we still have significant room to continue to push more of the complexity of managing cars through these locations into systems with the goals of continually improving consistency across locations and of making scaling easier. The team is up to the challenge. The Carvana future is bright. The experiences we deliver to our customers are exceptional and getting better all the time. The scale of our opportunity is enormous, and the financial opportunity is clear to see. And we have a team that has proven that we can tackle the difficult technology and operational challenges that are in front of us and turn them into modes that are behind us.