Earnings Call: Q1 2021

May 5, 2021

Good afternoon, and welcome to the Carvana First Quarter 2021 Earnings Conference Call. All participants will be in listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Mike Levin, Vice President, Investor Relations. Please go ahead. Thank you, Gary. Good afternoon, ladies and gentlemen, and thank you for joining us on Carvana's Q1 2021 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 1st 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 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 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 Kevan's most recent Form 10 ks and Form 10 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 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 the call. The Q1 was another great quarter across the board. In our shareholder letters, we always lay out our financial priorities of rapidly scaling the business, of growing GPU and of demonstrating operating leverage. In the Q1, we made tremendous progress across each of these priorities. We grew units and revenue by 76% and 104% respectively. We grew GPU by over $1,000 year over year and almost $300 quarter over quarter. And we levered EBITDA margin by over 10% year over year and 2.5% quarter over quarter. Even more impressively, these results were achieved despite meaningful operational constraints across the business and the significant investments we've been making to alleviate them. In the Q1, our average weekly production was up 26% versus the 4th quarter. As a result of the relatively low inventory levels we are carrying throughout the quarter, unit volumes closely tracked production up 28% sequentially. Importantly, the investments we have made in ramping up our ops capacity in general and our inspection center capacity in particular are starting to pay off. As a result of ongoing focus, weekly production levels have been up closer to 50% above the 4th quarter more recently, which positions us well to begin growing inventory And increasing selection for our customers again for the first time since the pandemic struck over a year ago. Getting this point is the result of a lot of careful planning and hard work across our real estate Great job and thank you to those teams. These efforts and the ongoing execution of our plan have positioned us well for a great 2021 2022 And the foundation is continuing to be laid to enable us to continue scaling rapidly in the years beyond. 8 years ago, we had a dream to change the way people buy cars and we've made a lot of progress. When we look back at what got us here, it is just a list of simple ideas that are easy to say and very hard to actually put into action. It all started by imagining a new way to buy a car that was better for our customers in every important way. The excitement of that dream enabled us to attract incredible people who made our dream their own. From there, it has just been ambition, hard work, perseverance and constant learning. And with a critical mass of enthusiastic customer focused ambitious people, we've built a self reinforcing culture. Those simple ideas have taken us a long way. In 2013, our 1st year, we had $4,000,000 of revenue. Today, we're over 1,000 times larger. Looking forward, we're just as excited as we were then. We are delivering to customers the best experiences available in buying or selling a car. The quality of the unit economics that emerged from the investments we have made over time are showing up in our results. The scalability of our model is apparent and our business gets better as it gets bigger. And we're still dreaming. The ambition that underlies our dreams burns as brightly today as it did at the beginning. And with every step we take, we can see further down the field. While we're extremely proud of what we've built and the team that got us here, we're nowhere near where we ultimately want to be in either scale or scope. We're still at the beginning. To get from where we are to where we want to be, we'll maintain our customer focus. We'll keep surrounding ourselves with exceptional people. We'll remain ambitious. We'll stay disciplined in prioritizing our efforts. We'll keep working a little harder than those around us and we'll have fun along the way. In short, we'll traverse the path The same way we have traversed the path behind us. We know what to do. We just have to keep doing it. Mark? Thank you, Ernie, and thank you all for joining us today. Q1 was a strong quarter for Carvana across all key financial metrics and our financial results demonstrate significant progress toward our long term goals. Retail units sold in Q1 totaled 92,457, an increase of 76%. Total revenue was $2,245,000,000 an increase of 104%. Revenue growth outpaced retail unit growth Due to higher retail average selling prices and wholesale and other revenue, we expect revenue growth to outpace retail unit growth again in Q2 And then we expect revenue growth to be similar to retail unit growth in the back half of the year. Total GPU was $3,656 in Q1, an increase of $10.16 year over year and $2.77 sequentially. Since Q1 2020 was impacted by the onset of COVID-nineteen in March, I will focus my commentary on sequential changes. Retail GPU declined slightly to $12.11 from $12.65 in Q4, Reflecting a continuation of approximately $200 per unit of transitory costs, primarily driven by rapidly ramping our reconditioning capacity in the midst of COVID-nineteen. We do not expect the majority of these transitory costs to impact Q2. Wholesale GPU increased to $2.27 from 100 dollars in Q4, primarily driven by strong industry wide wholesale prices in the latter part of Q1. Other GPU increased to $2,218 from $2,006 in Q4, primarily driven by completing 2 public securitizations for the first in Q1, paired with an increase in ancillary product attachment rates that offset a one time benefit in Q4. EBITDA margin was negative 1.3 percent in Q1, a 2.6 percentage point improvement from negative 3.9% in Q4, driven by both GPU gains and SG and A leverage. We ended the quarter with more than $2,000,000,000 in total liquidity resources, giving us significant flexibility to execute our plan. We had another strong quarter of buying cars from customers in Q1, Buying approximately as many cars from customers as we sold to them and achieving a customer source ratio over 60%. Our success over the last two years has made the strength of our offering of buying cars from customers clear, and we no longer To provide detailed statistics on buying cars from customers each quarter. So far in Q2, we are seeing outstanding performance. And in April, we set a new company record for cars bought from customers, both on an absolute basis and relative to retail units sold. We are as excited as ever about the opportunities ahead. We continue to focus on scaling our production capacity to meet demand. In Q1, we opened our 12th IRC near Birmingham, Alabama, bringing our total annual production capacity to 680,000 units at full utilization. We remain on track to open 1 additional IRC in Q2 and 8 in 2022, bringing our total capacity at full utilization to over 1,250,000 units by the end of 2022. So far in Q1, we've opened 22 new markets, bringing our total to 288 and increasing our population coverage to more than 77% of the U. S. Population. In May, we also launched our first five markets in the Pacific Northwest, Adding the last major region to our nationwide footprint. After Q2, we expect our path to 95% population coverage to primarily consist of opening smaller fill in markets. In our Q4 2020 shareholder letter, We outlined our expectations for the year 2021, including accelerated retail unit sold growth, revenue growth in line with retail unit growth, Total TPU in the mid-three thousand and a small EBITDA margin loss, while investing for growth and continuing our progress on demonstrating leverage. We remain on track to meet or exceed these expectations and we continue to be excited about 2021 as a significant step toward our long term goals. Thanks for your attention. We will now take questions. We will now begin the question and answer session. Our first question comes from Sharon Zackfia with William Blair. Please go ahead. Hi, good afternoon. I did not expect to be first. I guess congratulations on a great Q1. And I'm trying to kind of think about Your improvements that you've been making in productivity and how we should think about that For the rest of the year. And I think Ernie, you mentioned that soon you'll have available inventory ahead of the year ago period. I guess Wondering when will you be back to kind of pre pandemic levels? What's your line of sight on that? And then I know you mentioned the $200 in transitory cost GPU, obviously the year over year contraction was a little bit more than that on the car itself. What else was pressuring that? Are you finding It's more competitive to get inventory. You're having to pay a little bit more than would be ideal, just any thoughts there would be great. Sure. So let's start with production. I think as you know basically since the Q2 of last year we've been Pretty constrained in production given the pullback that we made then and then all the demand that we've seen and just trying to catch up. So I think In the Q1, we kept pace. Basically, our sales grew sequentially at effectively the same rate as our production grew. And so I think that that kind of suggests that those constraints were still in place. But then post the end of the Q1, we've made a lot of progress and we've continued to see our production growing. So we now expect to be able to grow inventory. Basically what we're saying there is we've kind of gotten to a place where we expect production to be a little bit more than sales We don't want to kind of specify exactly the rates which we expect inventory to grow, but that's a meeple mile marker to kind of now be in a place we expect to grow inventory and we're pretty excited about that. Obviously growing inventory helps with conversion across the site and so that's an important milestone that we've hit, But we're not going to quantify it from there. We'll keep working hard and trying to grow that as quickly as we can as we grow into the production capacity, we expect to be around 1,250,000 by the end of 2022. And then Mark, do you want to hit number 2? Sure. Yes. Then I'll hit the question on retail GPU. So Q1 retail GPU was largely in line with our expectations when taking into account the transitory costs that we talked about in Q4. I think when you look on a year over year basis, in addition to those transitory costs, last year we talked some about The impact of some of the early phases of iteration on buying cars from customers that positively impacted GPU Last Q1, so I think there's some base effect from those early phases of iteration that's impacting the year over year comparison. I think When we look at where we're headed from here, we did call out that we expect the majority of those transitory costs Impacted Q4 and Q1 this year to be gone by Q2. And so that's a tailwind to retail GPU As we move toward 2Q, other things being equal, obviously, overall, we feel really good about our progress there, had a solid quarter in light of those transitory costs And expect to step up in Q2. Our next question is from Zach Fadem with Wells Fargo. Please go ahead. Hey, guys. Thanks for taking the question. Now that you've entered the Pacific Northwest and now have reconditioning centers all over the country, Can you talk about the opportunity to start listing your inventory regionally versus nationwide? And to what extent this could unlock a higher Level of GPU or operating efficiencies across the business. Sure. So obviously, we're excited about launching the Pacific Northwest. That was kind of the last region our footprint that we weren't yet in. So I think Opening that up is exciting because it basically means from here to roughly our 95% population coverage goal in the long run, we basically have market fill in. So that's very exciting. Also as we grow demand in general in the existing markets and in new markets that just puts us in a position where we can Economically carry a larger and larger inventory. And so that's great news for conversion across the country. As inventory gets larger and larger, You certainly have some duplication of inventory that is optimal, where you want to take some of that duplicative inventory and put it in different places around the country that are closer to customers to Minimize delivery times, which is also an input into conversion. So there is some of what you're talking about that Automatically happens with scale where shipping distances should drop and conversion rates should go up. We have all kinds of tests all the time where we're getting a good handle on How inventory size impacts conversion, how delivery times impact conversion and kind of what the right thing is to do internally, but I don't think that we're going to give more Concrete guidance on the precise expectations that we have around those different numbers. Got it. And then on production, you've got one more IRC This year, but could you talk about the glide path for adding more production lines in your existing facilities? And how should we think about the full unlock of the 680,000 in capacity as we move through the year? Sure. So I think a way to look at that is to look at our past. We provided in our shareholder letter in Q4 2020, you can kind of see Our facility production capacity in each of our previous years and then you can get a sense of how long it took for us to unlock that facility capacity with actual Production by just looking at kind of sales rates in the future periods. So that will give you a sense of how quickly we can unlock that. Something we've been working on a lot internally is being able to unlock that production capacity more quickly. We've spoken before about there are many different operational parts of the business And all those different parts of the business have different lag times associated with how quickly you can alleviate constraints if you find yourself constrained. And definitely production is the area with the longest lead times. It's the hardest to kind of grow capacity very quickly there. We've seen that over last year. So we definitely put a lot of focus on catching up and on making ourselves even more flexible. And so you can see the results of that progress In kind of our sales growth over the last several quarters and in the fact that we're now expecting to grow inventory. So that's been a huge focal point and it's something that we think we are continuing to get better at. Our next question is from Nick Jones with Citi. Please go ahead. I guess, what are the puts and takes in investing into production capacity if maybe the chip shortage last longer than expected and I mean can you be in a situation where you have too much capacity. I guess how fluid is that And then the second question I have is, some of your legacy competitors or brick and mortar competitors are hanging out pretty large targets now. Ernie, how do you feel the competition has changed really, if at all, due to COVID or people noticing what Sure. So I think first, the used market is Fairly different than the new market. It's not totally independent. It's impacted in many ways. But the used market, all those cars are already on the road today. There's around 270,000,000 cars in the road and basically used transactions just customers trading with one another. So it's not Fundamentally impacted by underlying production levels in the way that the new market is. The new market is impacting The used market to a degree today because the kind of decrease in available supply and new that kind of flows over in excess demand to late model used that kind Flows down throughout the other used kind of year levels as well. So there are some impacts there, but wouldn't expect them to be Super pronounced. I don't think that's like a first order driver of what's going to happen to the used market over the next 6 months or a year. Even more importantly than that, I think your production capacity is an investment in kind of our long term future. When we open these facilities and we unlock that capacity by hiring and training the people in those inspection centers, that's By hiring and training, the people in those inspection centers, that then means that we have a capacity to kind of build those cars over and over again that powers our growth 2,000,000 cars and beyond and to becoming the largest most profitable automotive retailer. So those are big investments in our future That are kind of being made with a much longer lens than the current chip shortages that we're seeing today. And then as it relates to competitors, I mean, I think There was probably no reasonable expectation of our path from kind of where we started to where we wanted to be, that there wouldn't be competition along the way. I think we've been fortunate We have a fair amount of success and with success there's always competition. So we expected competition. I think we should continue to Competition, we should probably expect competition to continue to show up as we continue to have more success in the future. That said, I do think if you kind of step back and evaluate the competitive environment, this market, the used car market does have a lot of really nice properties. First of all, it's a 40,000,000 unit market. And so the largest player has on the order of a 2% market share. We're now the 2nd largest player in just 8 years, but it's highly, highly fragmented. And so even some of these big goals that are being put out by others in the industry, They still are very, very small compared to the market itself. And then by some measures, the market may be considered fairly competitive in the sense that there's Tens of thousands of players in it, but those tens of thousands of players are providing customers with a very similar experience to one another. And when you start to look at kind of differentiated experiences, there's very, very few players that really have the capacity to make the investments In time, energy and money that are necessary to build an e commerce platform and we're way, way ahead there. So we're really excited about Our position, we think that the market that we operate in has really nice competitive dynamics, all of constant. And then we also think that the most important thing that we can do is stay focused on our customers and ourselves. It gets really easy for 2 competitors to look at each other and kind of chase each other in circles. And we instead want to make sure that we're focusing on our customers, that we're building out the solutions that they really need and then that we're focusing on ourselves. The last year has taught us that When you see a lot of demand that you're trying to grow really rapidly, that comes accompanied with a bunch of operational challenges that aren't trivial to solve. And so we need to stay really focused on ourselves and our execution. And we think if we do that, we're going to achieve our goals. The next question is from Chris Bottiglieri with Exane BNP Paribas. Please go ahead. Hey guys, thanks for taking the question. Just wanted to focus a little bit on retail GPU. Some of the movements in used car pricing, I thought Tailwind in Q1 versus a headwind in Q4. Is that the case? Do you not see that? And then B, If used car pricing was more favorable this quarter, were there any other headwinds that we should be thinking about as we model retail GPU that you incurred this quarter? Sure. So I think there are always many dynamics that are going into retail GPU. I think this quarter, We certainly started to see appreciation, rapid appreciation in the wholesale market. That's appearing to some degree in the retail market that really came on more toward the end of the quarter. So I think I'm not sure that was a particularly large effect on our Q1 number. So I think the main effects on Q1 were the ones I called out, namely these transitory costs on the order of $200 Roughly the same as what we experienced in Q4. That was probably the biggest unusual impact on Retail GPU in Q1. And as I mentioned, we expect the majority of those transitory costs to have disappeared by Q2. And so, we think the removal of those transfer impacts will be a tailwind of the things equal as we move toward Q2. Got you. Okay. Thank you. Thanks. The next question is from Rajat Gupta with JPMorgan. Please go ahead. Hi, good afternoon, good evening. Thanks for taking my questions. Just had a question on, you know, just Follow-up to one of the previous questions, as you open up more IRC as you know, and to production capacity is increasing and like thus the inventory selection increases, How does like the advertising leverage start to look once that happens? Do we start to see a meaningful pickup in the leverage How should we think about that as I get back to you on stuff? And I have a quick follow-up. Sure. So I think there's probably a lot of ways to think about that. So certainly as we grow inventory, all We would expect conversion rates to go up as we kind of decrease delivery time. We would expect conversion rates to go up. The relationship from Conversion rates to customer acquisition cost is very clear. As conversion rates go up, you would expect to see leverage in customer acquisition cost. So I think that those relationships would be as expected. I also think if you take a look at kind of the cohort data that we provided Over the last several Q4s, you can kind of take a look at what our customer acquisition cost looks like in some of our older cohorts. I think in our oldest cohort Last Q4, it was approaching on the order of $500 give or take, versus the company level of around $1100 I think in Q1. So I think we've kind of demonstrated what we can do with customer acquisition costs in those older markets. Obviously in those older markets We expect it to continue to go down over time as we grow inventory and decrease delivery times and further build the brand. So hopefully that gives you a sense of where we think that can go. And then between here and there, I think it's just a function of how many markets we open, what we decide to do with our marketing budget, how quickly we can grow our inventory, how quickly we can decrease our delivery times, how well we And in general, we still feel like we're very early in brand building. We measure that in lots of different ways, But virtually any measure of customer awareness is still at low levels relative to where we want to be. And so we're not being shy about continuing to invest And we'll do that as long as we think that that's a smart thing to do. Got it. That's helpful. And just on the finance GPU, I know it wasn't broken out separately in this quarter, but like just based on like My math, it points to somewhere around like $600,000 $1700 or so. Firstly, is that close or accurate? And then just looking at Versus the targets of the Analyst Day like 2.5 years back, obviously rates are much lower. But what other factors I've driven this uptake. Is this kind of like a sustainable level that you would expect in the near term or maybe even higher? Just curious as to how to think about that and like what a more normalized finance GPO number should look like going forward? Thanks. Sure. So first of all, we didn't try that breakout. So we don't intend to provide it here. I think just you at least understand our rationale there. Going back in time to our Analyst Day that you referenced, at that time, we were selling on the order of a core as many cars as we're selling today. Our GPU is on the order of half, Maybe even less than what it is today and I think our EBITDA margin is probably 10 or 15 points worse. And so at that time, we are trying to provide pretty detailed walks for Our investors, they could understand how those buildups would occur over time. I think as we've matured and as we've seen a lot of progress in Many of those different line items and I think the market in general has a much better understanding of how those things progress. We're just kind of simplifying Reporting and kind of aligning more closely with industry standard. And so we don't intend to kind of break it out at that level of detail going forward. That said, I think it's not hard to infer the general areas that it's in, as you pointed to and that general area is very exciting and it's very strong compared to what we initially outlined at that Analyst Day in 2018. So I think there's a couple of reasons for that. Some of them are fundamental and sustainable. I think We've really done a pretty good job with that business and we made a lot of fundamental progress in terms of the way that we're able to assess credit risk and price credit risk and The way that we're able to monetize our finance platform, so I think there's a lot of things that we've done there that we're proud of and we think that there's probably some additional fundamental value that we can unlock. I think we're also in something of a unique environment. Early in the pandemic, we tightened credit pretty dramatically. We've held credit Eighter than probably would be the norm of all else constant. We've generally over kind of the last several quarters been in a very low and straight environment. So that's helpful. So there's a couple of things that aren't necessarily persistent across time, but we still think that there's progress to be made there. And then in the rest of other, we think that there's progress to be made In our other existing items and we think that there's progress to be made by adding additional items as well over time. So we think that that's One of several success stories relative to our long term model that we put out in 2018 and we think that gives us a lot of flexibility going forward. The next question is from Colin Sebastian with Baird. Please go ahead. Thanks. Good afternoon. I have a couple of questions. I guess first off, I was hoping you could update us on the attach rates of other products and services and how much room there might be to grow those. And then secondly, there have been some questions around Google's testing of auto listing ads and curious if that's something that you might find attractive to participate or if you think that might change the competitive landscape at all? Thanks. Sure. So I apologize. I think I'm going to give you kind of boring answers to those questions. So we don't plan to kind of break out our tax rates for our other products and services. We definitely do believe that there is room to continue to improve there. We've made a lot of improvement over the last several years, but we think there's clearly room to go from here. And so We'll work to do that. As far as Google testing their different ad products, we obviously use Google As one of our many customer acquisition channels, we use them in search marketing and then we use them in several other ways as well. So I think we'll do that as a marketing channel. We'll evaluate it like we evaluate all of our other marketing channels. And to the extent it gives High quality return and then we would expect to utilize that as well. The next question is from Michael Montani with Evercore ISI. Please go ahead. Thank you for taking the question. So first one I had was just around when you're able to self source a unit, is there a sense that you can provide of the kind of tailwind that that gives To GPU versus when you have to go to auction. And I guess I was thinking potentially 10% benefit over $1,000 but just wondering if you could give any clarity there and then a follow-up. Sure. So go ahead, Mark. Yes, sure. Yes, I can take that one. So I think it varies quarter to quarter, but a reasonable way to think about the benefit of Sourcing a car from customers is to look at it in the context of our wholesale GPU. So basically what wholesale GPU captures is the difference between Our acquisition cost of a car from a customer and the wholesale market trading price of that car. And so that's a good way to think about the cost benefit of customer sourcing. And so that just gives you a sense and to give you a sense of that, It varies quarter to quarter. This quarter, we were around $800 or so on wholesale GPU. And so I think that's It does vary quarter to quarter, but that's a reasonable way to just sort of keep track of the relative cost benefit of customer sourcing. Okay. That makes sense. And then just a follow-up question I had was any incremental color you can share this year and then next with the 8 IRCs on how to think about the CapEx outlook. What's kind of a normal number? And then specifically, how does this year and next year look? Yes, sure. So a rough way to think about the Capital investment related to one of these 67,000 unit IRCs is on the order of $1,000,000 per IRC, maybe a little bit more than that, but on that order of magnitude. And then, of course, the way we think about that There's lots of very efficient ways and a great market for financing those IRC investments, so that they're not actually net outlays to the business, But they're financed outlays. And so that's to give you a rough order of magnitude of how much they cost. And I think We feel really good about the desirability of those assets from a financing perspective. The next question is from Nat Schindler with Bank of America. Please go ahead. Yes. Great. Thank you, guys. And I think the GPU Could you walk through maybe What you saw probably more on a weekly or daily basis prior to stimulus checks going out and then after them going out and How much impact that had on the quarter? Secondly, on a related note, with the tax filing date pushed out So May 15, does that have any impact on the seasonality that is usually more Q1 weighted as people get their tax returns? Finally, well, let's just stop there. I can add more. Sure. So nice multipart question there. Let's try to break it down. So I think let me try to combine basically the first two concepts. I think both tax Refunds and stimulus basically take the form of government depositing relatively large checks in the bank accounts of many, many people at once. And so I think that didn't look materially different than it looked in years past. Generally what happens is people start to get notifications through email Wherever else that has money hit their account, you'll see kind of the evening before, we'll see a lot of traffic activity happen on the site and then the next day you'll start to see demand show up. I think that was undoubtedly material this year. As it relates to us, I think a key statistic to keep in mind We did grow sales sequentially 28%. We also grew production sequentially 26%. We undoubtedly saw Therefore reducing conversion rates for everyone afterwards. And so I think if we had to try to imagine kind of what would have happened to our sales absent stimulus, I think first of all, that's very hard to do. But just directionally, we clearly would have been less kind of on the days and weeks immediately after stimulus and our expectations would have been more in the weeks kind of a couple of weeks after the stimulus drop. So I don't know how big the impact But I think it was smaller for us this year than it would have been in previous years because in previous years we're carrying enough inventory heading into that kind of an event to be able to handle that big onslaught of demand and then still have sufficient inventory for our customers afterwards. So I do think it was a little bit different. And then the tax Returns being pushed out a little bit. I do think that had an impact, but I think that impact is largely behind us. The vast majority of that impact is behind us. So I don't think That's too meaningful for the future. So you don't expect the normal Q1 tax refund, Call it seasonality is going to be drawn out into Q2. It was pretty much still all taken up in Q1 despite being pushed out a week a month. So the tax filing date was pushed A month from what I believe is April 15th to May 15th, but the date at which most customers get money in their accounts has historically been sometime in February. If you go back maybe 10 years it was even kind of late January, but it's been slowly kind of moving out and more recently has been the end of February That this year might have been a week later than normal and then probably had kind of a normal spread from there in terms of when you see the demand impact. But that didn't move as much as just the filing date itself moved and the filing date itself is far less powerful than the day that the tax refunds are kind of released to the The next question is from Naved Khan with Truist Securities. Please go ahead. Yes. Thanks a lot. Maybe on a related note, so since the noise from the stimulus And the tax seems to be behind us. Maybe can you maybe give us some sense of how the April trends are looking like For you and how should we think about the shape of the quarter? And then I have a follow-up. Sure. So we want to stay away I think from giving too much detailed kind of intra period color, but We provided an outlook in the shareholder letter and I think that captures our expectations. Demand has been Very strong for really the last year for our offering and we've continually been carrying a lower inventory than we wish that we were carrying. We're excited now to kind of be at a place where we believe that we'll be able to start growing inventory, which we think is helpful all is constant. So I would say things continue to look great from our perspective. There's nothing notable to call out that would go in any other And kind of those expectations are what we have in our outlook. Okay. Thanks. And then maybe So you guys mentioned maybe opportunity for more ancillary products. Is there a near term potential for to introduce a Any product in the platform or is that still laser there? Yes. So I think across the entire business there's Many, many different things that we can focus on. Obviously, we have a very complicated business from vehicle acquisition, transporting it to the inspection centers, running You're merchandising it for customers, pricing for customers, building the finance business, running our warranty product. There's so much that we can work on. So We have across the business, we have on the order of 70 different product teams that are working on all these various roadmaps at different points in time. And we do our best to prioritize all those different projects as intelligently as we can. Generally speaking, we won't kind of You'll comment on what that underlying prioritization looks like, but there's no doubt that there's opportunity in the future to add additional products and that that could be potentially exciting. The next question is from Ron Josey with JMP Securities. Please go ahead. Great, thanks. I wanted to ask Two questions, please. I think just a follow-up on an earlier question on the expansion in the Pacific Northwest. Can you just help Bernie talk about the distribution and the time to deliver and how you can Your supply chain into those 5 new markets in that overall region, which is new. And then the second question is just on brand awareness and With 95% population coverage now in sight and I think still pretty low brand awareness as we've talked about, dollars 100,000,000 in marketing spend in the quarter It's pretty interesting. Just wanted to get your sense on how we should think about marketing spend going forward? How you all are Putting those dollars to work around brand awareness, educational spend and performance. Thank you. Sure. So Pacific Northwest is obviously something that we've been looking at for a long time, but it's a relatively isolated population center Way up in the Northwest and so it took us a long time to get to a place where we thought it was sensible to kind of add that to our logistics network. Over the last month or 2, we've added that and we also added the Salt Lake City area in Utah, which kind of gives us a midpoint that allows us to connect up there. We can also connect through California. So we thought it was Obviously, our long term aspirations are to get to approximately 95% population coverage and to be a national brand. And so that was something that we needed to do at some point. We've been holding off as we've been so constrained in inventory. But given our expectation, we're going to grow inventory and our visibility into head over the next couple of years as well as Our knowledge of our historical lag times and ramping up volumes in new markets, we thought now was a good time. So we went ahead and pull the trigger on And we're excited to kind of fill out the rest of our regional footprint. On brand awareness, I do think that we remain very low in brand awareness. Our dollar spend is starting to approach pretty sizable numbers that are Meaningful compared to the marketing budgets of lots of companies, but we have to also keep in mind that kind of our accumulated dollar spend is still very low compared to a lot of More mature companies that have been around for a long time. And so we do think that it's still early. We're spending a lot in brand. We definitely spend a lot in Education, I think for a customer to buy car from Carvana, they have to first know that you exist, they have to next understand what you do and kind of how Different from buying a car in a traditional way. And so we have a lot of different value props that we have to educate them about. And then they have to trust that you're real and your return policy is real and that they We're very excited about the position that we're in with customer acquisition costs, given the knowledge that we've accumulated over time by just looking at how we've levered Our older cohorts, so we're confident that we know how to lever customer acquisition pretty significantly, We also believe that we're very early in brand building and so as long as we find different channels that we think are hitting a different audience and educating them in a different way. Like I said before, we're not going to be shy about spending that money and building our brands. We think that's a good investment in the long term. The next question is from Alex Potter with Piper Sandler, please go ahead. Great. Thanks a lot. I had a question about certified pre owned. I was just wondering if you have a strategy Trying to break in there or is that a segment that you consider more or less off limits? Anything you'd be willing to share on that front would be interesting. Sure. So I think there's maybe a couple of ways to approach that problem. So first of all, every car that we sell is Certified, it's Carvana certified and our certification process was patterned off of some of the luxury manufacturers certification processes. And so The cars that we deliver to customers are of that kind of that quality. The specific brand certified pre owned is generally reserved For the combination of kind of franchise dealers and oftentimes kind of the branded OEM warranty that gets So I think that We do believe that we're breaking into that market by building a brand of delivering very high quality cars and by building logistics network and Infrastructure of recognition centers that are able to certify cars to that same quality. So that's our goal. But the particular brand is generally protected by or for franchise dealers. Okay, understood. And then last question, customer source ratio, still really strong. I can appreciate that you won't be disclosing that going forward. I guess Maybe just qualitatively, you're still running well ahead of what you thought you could do several years ago, which has been great. I'm sure it's a tailwind for GPU. Are you starting to get Convinced now that you can actually keep running indefinitely at these higher customer sourcing rates? Thanks. Sure. So at a very high level, the market for selling cars is around 40,000,000 possible units. Generally speaking, Customers getting a car is also getting rid of another car. And so the market for us buying cars is kind of theoretically at least very similar in size. And if you look at Q1 sales of 92,000 and number of cars bought from customers in a similar ballpark, You're basically looking at something like 1% of the market. So I think that we're very, very small compared to both of those markets. I do think they are connected in certain ways through brand, particularly our brand and the speed in which we can build our brand and generate Across all customers that we both buy and sell cars, but they're also fairly disconnected in the sense that only a subset of those transactions happen When a customer is simultaneously buying a car and trading another car, a lot of them are kind of separated in time where a customer will buy a car and then maybe sell a car later, sell a car and then buy a car later. So I think they can grow independently. We've undoubtedly seen a tremendous, tremendous amount of progress in that business over the last couple of years and we're extremely excited about it. And I think now basically the retail business and the business of buying cars from customers are going to race each other To the unseeable finish line somewhere out in the great blue yonder. The next question is from Seth Basham with Wedbush Securities. Please Thanks a lot and good afternoon. My question is back on the topic of finance GPU. It Sure. So we I think for other GPU in general, we have definitely hit kind of Highest level ever. As described earlier, I do think that there are fundamental gains that we can continue to make in every line item of other GPU and There are other opportunities for different products that we can add over time. So I think that that's exciting. I also do think that it's hard to size The kind of beneficial impacts that exist in this environment where one, we're doing something that we have control over but is Likely leading to slightly higher other GPU which is running with tighter credit. And then 2, we benefited from very low interest rates. So Those are likely to unwind. I think the balance of those things is hard to precisely predict, but we're clearly in great shape versus The long term model that we outlined a couple of years ago and I think it's too early and we're in too unique of an environment to update that model. So we think in general That's probably roughly the right way to continue to think about it. And obviously, we've done very well against that model over the last several quarters. Got it. All right. Helpful. And then my follow-up question is just around reconditioning. Have you been using third party reconditioning for things other than specialized services? And do you plan to do that in the future? Sure. So I think in the past we talked about we have run various tests To try to see what are the various ways that we can ramp up our production capacity across the business that has included utilizing some third party recon. We are continuing to utilize some 3rd party recon today. It remains a significant minority of the cars we produce overall and that's Our expectation for the future as well, but it is something that we are utilizing and continuing to test today. The next question comes from John Colentuoni with Jefferies. Please go ahead. Hi. Thanks for taking my question. Can you talk About the tight inventory environment in the wholesale market and some of the measures Carvana has implemented to unlock new channels for inventory acquisition And if you're expecting those measures to have any notable impacts on the near term vehicle GPU outside of what's going on with wholesale prices? Thanks. So I can take that one. So I mean, I think Our number one channel for sourcing inventory has now become sourcing cars directly from customers, which has several advantages That we've talked about historically, I think we're certainly going to continue to focus on that. That's a business that we want to build and continue to grow over the long term. And so I think that's our number one area of focus and would be the sort of the first answer to that question. I think in terms of the wholesale market dynamics, We're still certainly buying cars out in the wholesale market. I think we're buying We're making money on those cars when we retail them. I think we feel very comfortable in the current environment. And from a sourcing perspective, Our main area of focus is going to be continue to grow the business of buying cars from customers. Great. Thanks so much. Thank you. And our final question comes from Edward Yruma with KeyBanc. Please go ahead. Hey, thanks for squeezing me in. Just two quick ones for me. I guess first on interest rates, have you seen any significant movement in the interest rates you're offering to consumers? Has And then a broader question, one of your competitors, I guess, as they've scaled has had kind of customer service and close difficulties, Obviously, your numbers have been phenomenal, but how would you score kind of your customer service levels, particularly as you continue to ramp your business? Thanks. Sure. So I think on interest rates they've come down obviously since pre pandemic pretty dramatically And then they've kind of bounced around a little bit from there that there's been some upward movement over the last quarter or so, but nothing material. And so I don't think that there's The story there is that they're low. I don't think that recent movements are super material. In terms of customer service levels, Our focus from day 1 has been to build the business from the ground up that delivers great customer experiences and to build all the things that are required To really enable those great experiences to be differentiated in a fundamental way and that's always been our focus. And I think when we look at Kind of all of our scores for what customer experience looks like, there's a lot of different things that drive that. I think 1st and foremost is the way that we've designed the business and the way that we've designed the customer experience. And then I think from there you've got your technology and your processes and the quality of those and kind of how good an experience those are capable Of delivering, I think very importantly, the next layer is your cultural layer. How much do all the people that talk to your customers The fix your customers' car, the deliver the car to the customers, how much do they care about the customers and care about What we're doing together and empathize with the exciting moments that customers having when they are getting a car, which is the 2nd largest purchase they make in their life. And I think that we would like to think that we've done a pretty good job building a culture there that really cares about delivering great customer experiences. And I think the last layer is do you have sufficient capacity across your operations groups to deliver to customers great experiences. And I think over time, we've been constrained many, many times in our 8 year life. Obviously, throughout the pandemic, you've heard of various constraints. If we go back to 2019, We have logistics and market ops constraints. Prior to that, we had constraints in the call center and in different places. So we've had constraints Now when they go down, they've traditionally gone down by relatively small amounts and they remain at levels that are far above industry standard. And then importantly, when we continue to kind of staff up and get our feet underneath us and alleviate those constraints, we see them go right Where they were, which means that we're in a great place in the kind of foundational elements that matter the most, which is business design, technology processes and culture. And so We're really happy about the way that we've been able to manage customer experience, which is our primary goal through all of this growth that has driven us To be a 1000 times larger company today than we were in the 1st year that we launched in 2013, but undoubtedly there are impacts From very high levels of growth and those impacts are in the direction that you would expect. But I think we've done a good job managing them historically. Thank you. This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks. Thanks everyone for joining the call. And to the entire Carvana team, thank you. Great quarter, great job to all the operations teams. This has been a long slog. You've done an incredible job coming in every day and delivering great customer experiences, and we really appreciate it. I hope that you The sincerity of that appreciation doesn't just sound like something that we say every call. To the inspection team in particular, This has been an absolute battle. Great job to all of you. I know that you've taken the last couple of calls and pin those up on your locker for inspiration. Clearly, it did inspire. You guys have done a great job. We really appreciate it. Please keep going. We still got a lot of ground to cover, but thanks to all. Have a good one. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.