Carvana (CVNA) 5 Aug 202020 Q2 Earnings call transcript

Company Profile

Participants

Michael Levin	VP, IR
Ernest Garcia	Founder, President, CEO & Chairman
Mark Jenkins	CFO
Colin Sebastian	Robert W. Baird & Co.
Brian Nagel	Oppenheimer
Sharon Zackfia	William Blair & Company
Rajat Gupta	JPMorgan Chase & Co.
Michael Montani	Evercore ISI
Armintas Sinkevicius	Morgan Stanley
Ronald Josey	JMP Securities
Nicholas Jones	Citigroup Inc.
Seth Basham	Wedbush Securities
Daniel Powell	Goldman Sachs Group
Alexander Potter	Piper Sandler & Co.
Bradley Erickson	Needham & Company

Call transcript

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Operator

Good afternoon, and welcome to the Carvana Second Quarter 2020 Earnings Call. [Operator Instructions]. Please note, this event is being recorded. I would now like to turn the conference over to Mike Levin, Vice President of Investor Relations. Please go ahead.

Michael Levin

Andrea. you, Thank and on ladies thank for you Good second gentlemen, quarter us Carvana's earnings joining afternoon, and conference call. this section corporate Please the that call simultaneously be note webcast Investor Relations at of website company's the investors.carvana.com. will on

also The on website. the posted second letter IR shareholder quarter is

and Joining me Officer; today Chief Financial Garcia, Chief are on Jenkins, Ernie Officer. the Executive call Mark

Risk limited financial results meaning assumes are found Before comparisons results forward-looking update to, including, or contains forward-looking of and discussion from that otherwise. the we actual that following laws, and expectations opportunities start, I market obligation securities forward-looking Carvana A basis. within on developments The those Carvana's Factors would cause involve of noted today's on today, be Form XX-K call Carvana's to otherwise cause statements risks and as differ on discussion of uncertainties Form can to new the them, in future conference all discussed that may most like but based a call, or and this whether the federal section recent detailed from that statements a year-over-year XX-Q. of to of not to actual remind current risks Unless material in and factors no are the differ you as result revise the materially results here. statements

turn GAAP over in Relations for with be Garcia. and can call a Our commentary And our our of today, metrics between issued be like said, non-GAAP on I'd Investor today letter Ernie copy non-GAAP Reconciliations found include reported measures. to that now shareholder the results will our to Ernie? financial can website. found which

Ernest Garcia

for joining and thanks, Mike, Thanks, call. our everyone,

lives, as work. way XXXX of personal with world grapples all the many the way and It the first and the way we The live so we of interact, has has been our impacted impacted we time COVID-XX. unprecedented for trying an half

managed we've people through first. As we've period, put this dynamic

team people our to unbelievable have Thank you've to operations our you do. done of and continue ops of everything everything care Our customers. an you and for and team done job taking them

new In to has the the shop. disruption in in came caused XXXX And interact, We experiences way resulting the led future. It's a the bright they're is cars a are deal. that changes people also to change. is people Suddenly, habits, in ways to new that live and becoming into changes normalized. pandemic market with created out try people having work, forced addition the has online of buying their This things. has a big leader people

easy to customers. enduring a with added We And rapidly that, the in do are leader tailwinds delivering we've are that to reason to our of guiding we invested the customer and things and run. up focus. done in say the are was genuine the that expectations market we've differentiator all And future experiences bright the discipline of been an the on our to has These are are customer built the of our deliver us. changing have and before. energy alongside and ambition, long a culture hard long-term They mission our They we've very do. preferences necessary things technology the We best available the it matter now behaviors. of tireless best take recruited light changing beginning, anywhere. infrastructure the from because constantly and people To and

that of defensively as we at the result are In of at up Our the alleviate up continues the the our years over delivered business COVID-XX increase position many our the time XXx X at to the capacity last well immediate production impact is to operational team over pandemic, that term, same even brighter ramping the production working task. in now. constraints onset the of same record speeds to a to have of emerged is future markets. as complications choice as The the

our which pandemic. GPU, units including in model unique pandemic of decreases results efficiency of by inventory strength managing In growth the contributors, quarter. demonstrated most the quarter, quarter. we turn I'd has the constraints. Now profit each the also achieved the April year-over-year at model. expense was severe across quarter, and the this grew period of XX% in our We later our second XX% to the environment our in facing early the well rebound growth in difficult approximately a This second through also reaction in as in rapid as gross like side Managing saw of of the demonstrates speed to through to and sales resilience on our long-term cost of onset in the the led despite and

buying quickly is of We milestone continue as hit the much July. team, anticipated. from key in at The that customers them we than has to notable as see cars heading long-term sales achievement unbelievable an to exciting across Congratulations Carvana This quarter. sold you're a doing our and had into our more amazing most progress we thank that metrics many XXX% job. truly we is come you the our to

excited a lot about. to there's forward, Moving get

we're have, always building focused value. we enduring on As

preferences, many significant on automotive fastest-growing are forces path they They've year investing put That and scalable, profitable They even million-plus chain, The the selling automotive most we retailer. us our continually the that us better matter of most brought out our us on are what that ourselves retailer leader. all have the becoming from our years. made time largest through attention. the and our the efficient deliver and in and experiences with cars the make the experiences and the lens process. unwillingness building initiatives X customer to in more buying chain, most on capacity positioning us investing this and in seeing customer our in the infrastructure shifts units execution experiences our incredible to generated complete are constant focusing for are a focus offering and customers, satisfied long-term in has over importantly, and our improving simplifying us our supply customer technology, customer we value to made point. ceaseless pushed has per product to be market that that country. They've They've own accumulation over driven improvement, of We

content way with are the market a not on mission: change We being buy leader. We're a people cars. To

by And have more front excited ever driven than ambition ambitious we opportunity and we are we before. Mark? we is Our of are today, more been excitement see the in us. and

Mark Jenkins

reduce Growth an at and priority. customers reduce increase us constraints, company by vehicles the inventory inventory joining a was size. to vehicles per in with our our was website. in in Total of our units inventory later history. QX of offering, faster is XX%. higher-margin XX% focus decrease quickly, the available on to gross acquisition to in top volume, to made lower sales, was started to growth noticeable any combined primarily Retail an and rebound increase for for lower Carvana. GPU continued Thank constraints the units than growing $XX vehicle Early mix model. quarter year-over-year risk demonstrates the to limiting our of making brought the believe was in our point quarter, Retail sale higher on to average $X.X than ability pause $XXX improve our sell XX%. to sequentially. strong led Due inventory days sequential COVID. significant commentary we you, sales QX The wholesale prices Ernie, revenue, a despite in in turn in inventory us and to our a detailed April a decision will of sold profit our driven from of thank due an driven you Total decrease of and average for retail the to XX,XXX extremely revenue for selling units, But the by This totaled today. by lack lower approximately of purchasing GPU pausing in to Record meaningfully in our billion, dynamic purchasing current all QX, increase demand $X,XXX, new, growth by This positive we coming led more cars nature on $XXX and unit the we was the prices has and production lowering website the capacity $X,XXX in pandemic, changes. earlier of due long-term retail sequentially. to quarter current the higher environment, quarter.

the we as low in to their point the with V-shaped new retail rebound May a Within GPU, quarter, a seeing June added margins site. pattern sharp in reaching and were of vehicles observed

was This adjustment negative by by QX. $XXX tightening GPU, wholesale strong an QX. profit of conditions was the was X.X% The in impact units and $XXX, was QX, pricing further in climb profit our increase GPU Other of from negative earlier market to margin excluding in an by sequential primarily XX.X% due an was GPU driven $XXX end gross retail our QX. latter pandemic. or quarter, in by sequentially. increase industry-wide team. expect execution finance with increase units $XXX wholesale $XXX, improved of sequentially. valuation GPU sold to in for since wholesale in combined Wholesale part wholesale primarily the of driven of credit the was of for EBITDA record strong, gain in $X,XXX, sold improvement $X,XXX a QX the the Gross We driven

This match paused to spread demand our total, opposed operating closely have more historically In corporate retail the in had. demand X.X% we $XX hiring QX, margin. we compared expenses hours additional SG&A groups led XXXX expenses our of adjusted to QX as current a SG&A for percent with of COVID-XX, future revenue in as units Following EBITDA as bearing in than million we and and sequentially. reducing improvement a spend significant a by X,XXX more while approximately to in to QX improvement sold

in capacity. to further QX. online expect margin offering, in for expand steps production To taking our actively We our are EBITDA meet accelerating we improvement demand

ninth near nearly XXX,XXX our units capacity end, utilization. opened at we quarter our production Following Ohio, bringing IRC Columbus, to full annual

pipeline track we those. XXX,XXX more X full units to have beyond additional open facilities at a IRCs adding addition, by and are future of of utilization, than additional In on we year-end, capacity

were outstanding over fully quarter exchanged fully quarter, shares basis, XXX.X There bringing equity the we million our billion total QX on $X.X million in to approximately average two a at end. a weighted in expect on completed exchanged liquidity basis and shares XXX.X During QX. we resources offerings,

As our your we goals. are way our look long-term to attention. toward meet demand on scaling Thank on focusing we forward, operations you our for

take We will now questions.

Operator

our Baird. Colin come And question Instructions]. from first Sebastian of [Operator will

Colin Sebastian

process any hope full existing changes not are you're within IRCs, I since can there efficiency improvements question is near to wondering quarter. unit. wonder that costs. other at And My improve we'll to spending and still or term? the bit yet make well. a you levels constraints, And everyone advertising the we if you're related inventory And Great. if then into I see is healthy utilization I'm more throughput on secondly, advertising third Despite per the as move fair there

Ernest Garcia

Sure.

the that reduced started hours. ramped And throughput in and think So about to efficiencies we do on to we quite would in, a say as the actually cars when we're produce then finding We we talked coming we up front, we came few to volume those of I front saw tried now. get I again. pandemic,

the where in expect that tension time runs there. efficiencies that entirely just us for that help we number find our weren't past, find through out an And a improvements. roll an different exercise us clearly like efficiencies we've that, hard you I the there. additional been new find continued also felt I undoubtedly you then that process from think inspection also centers inventory-constrained maybe efficiencies We've has we at of but recently looking technology forced system to go think there's innovations, including to we're any to

just to think impacting, probably find I across the Belt, all in always as case been side that's the the Right is even to and coronavirus what's through others. faster. missing have a finding we've in where been dramatically sending efficiencies We're our back this we contact to So especially anyone inspection holding that time, have which and been us comes in But a waves, these board, efficiencies prepared we're conservative managing giving careful in we've able pretty we tracing could lot anyone think in centers. off. stressed process now, have remarks, we're people recently, I and paid time Sun And of home exposed our put said being there. who on who first, them and very and choosing been different with

And so we're missing conservative there.

right I we think to and way that's think the miss.

get we helpful. certain now be we that we those to now going that's then open down, to so hiring that can. but people as add have hire also we The X very the starts quickly And as facility units that capacity. capacity, roughly as X units have working innovating as XXX,XXX the end to capacity, those we will And working capacity. have of we as facilities up But we're to as a as quickly have staff of nearly calm think have staff to by We'll We're facility to That said, access on again, XXX,XXX more be so can. unique this year. of the to to we're open also we possibly an additional up, hiring environment well. front. And the

private We capacity that And about. managed the company, years time up -- things XXx we've last challenge. and is that by the situations inventory the and approximately So similar in it's I the through company, in of a with not. But there 'XX that as as constraint. a lot dealt definitely this public or our grew X reproduction got excited we're is is we've 'XX. reconditioning supply got think that X.X This to a we've team first

And to world all absolutely the we minute it. going think grow but so take the it's through, in have that confidence through a get we'll we to

bring I I think is On interesting the tension as advertising there front, up well. point, there an think and you

comes inventory, to conversion will lower, the is lower. site, they're any customer and rates in of constrained seeing odds your for them the for the clearly given car that are that that means We looking therefore, and be

less very very would that to especially little advertising sales. as less of demand much so it similar have lead much. chance And advertise you a when good excess And even makes a bit we sense do, to as as still significantly levels there's

kind trying that we're balance long-term of value to think I the against brands. of building

in an facing well. is have a it's cetera, much like Whereas experience. one people We they to customer a they not comes term. cars customers, it starts back there. is there you our the experience excess clear long from the think because reducing a we cleared, that's hold you the sell optimizing And get more that's perfect experience, et and be buying of doesn't business a reason site costly. the longer that it We're their demand, see constraints to not if it's If their impact car experience on equation on on way clearly to to if back we marketing simple as great side. car and optimizing customer the that that In bad not not want, but a FTC we're for there would more and that's pulled the a title And so that's do longer you're if to takes dramatically pulled And in we business expense I should line. to optimize. marketing less the what have

pull benefits elected there. and back we leverage grow get definitely over see so of that a we this conversion. expect we will to into bit have increase And continue as demand increased to to time And inventory the

Operator

question next of comes from Our Oppenheimer. Nagel Brian

Brian Nagel

that First the question right way to limitations to has trends -- weeks lot have to I is within sales or rebounding back what in Is I extent business model last the held now. the about business several estimate we the the want so? talk been mean, as a here there ask, as a actually

Ernest Garcia

I to can because too to ways arrive there stay answers. are just at directly probably lots to you that. the different quantify we think fairly different estimate think, think I of cause to from away ways I And So estimating, trying want of

inventory would I say under shareholder X what would graph So our efficiency. the we I point is shows Objective to that letter in put that

You demand that's we given before. higher beating are day. at shape any the effectively any of the given just right graph And access levels of can of are sense much odds a that of of than ever gives is kind sold underlying now. that not think That kind the at we've much, to that is car seen able clearly that

think June, wanted very many of X/X the end customers available had were and the is I end is that between as useful to pandemic. at to that we buy of X/X probably that stat another near had probably the cars for quarter, somewhere cars we as the prior

at the another what think as currently we is between But with the in I site times matters we balance of end process that and from quarter, a of are sheet lot we had number purchase can are the said, X/X financial cars look to cars the not at perspective, -- customer what that inventory. can of a customer. was the X/X. And the I on the

that So have. of were selection reduction able in that's dramatic amount the to a customers

excess probably and we're working to And so there's to like we feel demand there, of very a try lot it. unlock hard sitting in

Brian Nagel

That's helpful. second my Then follow-up very unrelated. -- my

SG&A, Page of in Just table on X, components to by regard letter and shows have the you the your month. with that SG&A

going margin. the of gave the stick see expect cutting was is clearly -- was in SGA hitting. in G&A as April much limited you $X,XXX was actually But we of You forward? ex that a about about the moved that how here? the think can from -- costs to month guidance should COVID You better mentioned how to we going That decline How that much see and crisis down reflects SG&A to $X,XXX. then advertising

Ernest Garcia

Sure.

that's really So I valuable there's actually think something there. reveal

terminology is use what's not cost, in imagined sustainable. probably is that think when the And cutting so a workforce reduction I we

we kind there that a differently. probably think future. was in running should bit you that so that little experiment that about I data of And wouldn't expect our the And think

to We're But we're size several at looking development basis to the basically SG&A over adding there, you're have that we then corporate. and that on as at so believe as So growth our our a understand trying lot teams. what of on normally, we're right? past. we in you're growing invest going last We when growing a keep at adding our and our the continue We're speed a to means, and can team the look functions, continue development same teams, growing there's we're -- unit fixed years, it from analytics is quarter-to-quarter we been teams. opportunity. the to have Normally, quickly to we per in to lot our there analytics

And we those so we investments, those are are teams. accelerating and growing

you when seeing look so operations as in well And in growth in at growth past, you're that the SG&A. in fixed our

any thing obviously, you're seeing We And is speaking, as SG&A and our a SG&A, at other flows carrying time right? life. of in the then what element been headcount variable demand of with be we see, the have drives costs, company's need through stance there in growth. associated we our more of point that's third we're for entirety we've preparing to And kind because been costs time to the selling than variable for growth is, cars, actual our The that we're that what service generally to over we well. anticipate

know position really into happen. the had the know a into make I think that to going like you how pandemic you we want to what's choices think about to ourselves. I some do that is don't going this thing only going pandemic, And we

you lens long-term least in didn't. decide a we was what the errors spot bad deal with to miss for back, things have make But us you kind ourselves that conservatively. put then we of of the if error they to if would at came better to decided so make it. wouldn't with kind want to we And And and

paused And we we so did what corporate hiring. is

that you're means at that flowing May And longer going June, see growth March to normally what to to fixed April from or through growth when SG&A would analytics in you're operations our in SG&A. seeing development the no so looking in or you

we handle to demand seeing match and increased that the And actually the to have as We we that system. the were flowing also through we then up, to were operational ramped capacity hours the reduced hours. the those sales capacity,

see something we're see to look carrying same lot a like costs, more variable started necessarily you sales. you that didn't So overhead that the for and future

like looked budgeted precisely the model. it saw I so in think moment, like good. it variable a we I I think not think very that And story long-term that variable looks more lot something strongly probably costs, costs. there our but And And is

to we anything, go going if back future. people to make forward, expecting a lot. upon going now expect the we that past. We're there, be believe can customer Now we that going improved and than expect to growth We're out to we to we're to carrying even stance. got believe that in investments for faster be going we've experience the growing be we continue in growth the were best because experience Because a

last will, into So future, investments opportunity, continue and in several But don't make saw continue for as have to add the to last to that? we anything lever what I to X I look incredible years. be exactly this the we to significant grow do you to think think continue going Mark, to have the over it's months. very to you expect we'll to

Mark Jenkins

it pretty think covers I well. No, it

obviously we that feeling in that is to a late light that about. we're cars called out laid while at we the model out it's to think, in buying also really point many and good where long-term very that building metric we really development excited XXX% July pretty achieved But customers which and this I from milestone long-term quickly. the as selling leverage unbelievable a substantial it valuable as our more year-over-year, almost think significant it's in we're business, in we're and I show we've business, something in customers, year-over-year SG&A now we're in a than which earlier. of, the leverage showed I about we're that But think 'XX,

Operator

Zackfia Our next Blair. with Sharon comes from William question

Sharon Zackfia

versus hoping or which issue issue if the inventory of demand a outsized guess into speed I the two. is cars was or dive if at I bit the the pre-pandemic that the additional to via inventory get not to combination meet really there's outsourcing. a it's how at at it you more, into were it maybe this turning whether And is would do what think the a you think get clear Or you demand throughput could to able talking where you long quantify any you're would or you're I'm could now situation this -- pull just about? not point, take and actually levers point you

Ernest Garcia

Sure.

first me, is. just let So all, the of where constraint isolate

So ability make the to a take car it retail-ready is it our we that constraint up in on purchase for the and and and certify get it customer a website.

focused cars to, get in the cars. estimate for is not purchasing, constraint on website. of to word access So all got them kind cars general, up how on buying those there. to would the basically some constraint customers. point and of seen speed we've produce we're a the today, it's gains I our that would cars good same ready producing definitely lots We've ability from I say fast cars is especially The with of in that

if a So in you're or same that And cars on doing producing flat, order X,XXX cars then XX,XXX amount. is probably selling you're you're that take. kind of that means week, inventory give the if of a quarter,

capacity of XXX,XXX growth time, been sales of over If seen of back growth look units has retail have today. facility we production our that's capacity, we you by accompanied the at forward where see if capacity. that look kind you So we've all in facility in

going And so add we're the the additional by year, capacity on to the week. per units a then end of of order that's XXX,XXX, So for X,XXX XX,XXX roughly week. an

facilities. which train a a how have kind quickly lot facility we get capacity, the those speed hire function we inside of we can So that can of at as and of of into

do quickly prepared goalpost as because as And can, a obviously we're to unique we're don't in but we time so yet coronavirus. we're think specific I going environment or lines to provide with that work to

Sharon Zackfia

that Can any consumer manifesting I follow-up? for are Are ramifications Is delivery any inventory? there customer ask sees a a times? they extended seeing of other than So the for this satisfaction? example, lack way in

Ernest Garcia

say and, would calls lesser call as are in and the Those then of advocates as ability in customers mile and past, extent, have in I some constraints So constraints the we nearly that the today delivery more also in not inside answer we've business seen last outside to they're different logistics advocates' when and in, production in the network. the constraint. points pronounced a to flavor

we're time. and so really quickly. there, those are are period a more But driving of those to not So are well. that constraints about than, more as those the are easier that or say, alleviating alleviate month much those we're our decision-making and over think And concerned out type much I something of

Operator

from Our next question comes JPMorgan. Rajat of Gupta

Rajat Gupta

I just quarter growth wanted clear. unit to to number, number, Just a The clarify revenue -- right? was one XX% be that clarification. end a of not number,

Ernest Garcia

Correct.

Rajat Gupta

there's a into in you be looked you but curious the would said number just -- to what sustained it how could put then quantify if able And July like? July. you And -- quarter, it was

Ernest Garcia

So we that. haven't quantified

working in the in that We very month. elevate push we strength we what July. said, to demand think saw actually alleviate constraints I the continue continued we to see early said, to we're those. inventory as hard, into And

demand significantly higher is And sales of it to now, able in the that that the clear pretty And system. feels we to at sell. the immediate we're there. that term, the like amount got seeing directly cars number flow least, our is right ability think we're of drive I through it's this than room going think to produce So cars we've

grow rapidly. think we're that we to we continue out, will get pretty If on that figured production right So demand can focused now.

Rajat Gupta

GPU noted you in finance on to it a I be it on despite number to the strong you retail looks as of despite should quarter on And this the GPU. like But in side, And than actually quarter mean, like XQ retail the third that, in sustain that able looks third some -- the is the And you GPU, finance by it significantly at by strong amount it. a it monetized here But driven increase earlier third release into the would well. GPU you lower quarter the least Got what only. that mentioned second quarter. the And was quarter originated. pretty and uncertainty increase you had you number. likely be driven level sequentially

as to you're the there. GPU how seeing remainder think And what we curious year? should just through of So the the about finance

Ernest Garcia

Sure.

everything very of with we the the And -- saw the strength in that ways we of So as take our markets light an biggest diversity number dramatically rocked that speaks GPU, pandemic into well sort pleased receivables. think I exciting think our through going program we event and away think we then you'll that things. obviously on. capital And we resiliency of really is the program. This different and is were going QX to that our the demonstrated impacted unbelievable the had monetize the the of in rebound hope the was and QX in to very finance

were QX. there think QX from growth to drivers I probably X the of

tightening receivable The I we valuable. the think, we any When that more with first speed and implemented is, all credit acted the which constant, else generally tighten credit, given QX. is in you

was Capital our think, markets well. the was did one And environment. the of of drivers so helpful the of the the increase loans. And just then in that was and so value general I improve, that macro as second,

I business. the on we going -- line would Going kind in what's improvement how would of think you I on finance of the can think at think constant item, forward look core be

and credit assessing great attracting getting constantly at underwriting credit and and think customers. at customers we're I better structuring

So us there's with you there. constant capital kind think the should then I I in overlay And capital direction think of the you markets. move. I to of impact expect that think whatever that improvement And markets kind

direction, continue were they back the But if late likely improve, levels us. they outlined march to to a in positive we would move long-term in that in a the to the XXXX and from that be would wrong to If expect be then to that negative. we there model for So that at XXXX. we continue

Rajat Gupta

it. Got

just if Sorry, follow-up, I one may.

impact are you Have enter of in with yet? as I because to your Just the this out seen space particularly to longer years, expect for all. plans were on like near and advertising your respect lot the landscape. the competitive do only your term? the major I looks mean expense, be like, what thoughts into on that the see a any the last Or anything of leveraging accelerated curious clearly, Just there, has that player pandemic to But there. you term, business will brick-and-mortar retailers you aggressively. few online for to mean, it

Ernest Garcia

of course. Sure,

at transactions mean, many the where, and same I the beating drum there's is markets So this, it's market. depending has a very at, fairly I undifferentiated, And looking and fragmented order with a has start constantly dealers. would are on tremendously, I that players and a XX here, been you're all think what apologize on of this that I on do had other unlike it's but of XX,XXX is always tremendously historically for the macro a those least numbers million And use there's from side, offerings This market. unique market competitive retail with view.

we get continue impact the materially given for that any case. would I think anyone to shares it's the of market. we've structure in and I a our determined market would can't that time that do a be think think the is think as the much it time when across competitor or very concentrated, be I more a that that's of think to be And history I given just would would expectation, hard some Until -- of line expected else. our moving market competition. that item result, think inside major that I driver looked of

of move more we've it and lot and more what as expensive time requires is and of an do think a e-commerce made lot of it that Now not investment players. is is of and historically I by can lots build, kind to And lots infrastructure investment, that effort a online, of significant people business generally be tinkering and a technology. and and seen lot

And so over market more be time. tend to there does concentration

more think I be faster order first customers sorts you have of of things economies selection I more where and more these it real sorts maybe models think back that delivery have brand, back also into time. you business drive it effect. as scale, are concentration. Those of you where feeds get feeds the for a there would also you your -- into bigger, of price,

going the look we're as impact. concentration I think we would first to happens, And second order the And so I very at extent more happy. think think the that to I be And then things be seen competition a on that evidence follower and additional so could be we've not But expect impact would no potentially like far. dollars. marketing leader, we to contrary a order the of

Operator

Our Montani Evercore. of next question comes Michael from

Michael Montani

you and Is more on as Or the basically think, pricing that follow-up. into a improvement, to hire to see you quarter-over-quarter to I side, tied back retail mentioned throughput? is have expected there. goes GPU then increased I dynamics individuals you wanted just increase all And that production there capacity to I with that about the that acquisition? ask had

Mark Jenkins

Sure.

some GPU. definitely are exciting in there retail So trends

earlier, basically sold that, think paused when mentioned been customers probably, it, We in purchasing XX% the than that that on more from customers. we as we I XXX% just basically many to line I bought cars July, to a as XX% then. in was could straight think I April upward we And it's since -- call exciting is as most customers. for

that's GPU, retail fewer think more drives GPU, point positive, incremental acquire any are XXXX. actually early that than auction. typically at cars from you since I than cars We're you profitable wholesale acquire at that now acquiring that auction a that drives from cars customers currently because obviously

So I strong to a generally pretty think that points retail in dynamic GPU.

to from a actively relative a sale just that, cars, just average in to expect that QX in do tailwind. that's QX, be we come purchasing technical it that day expect with now technically, in purchasing will when -- And average a led general, to to stopped in but customers, down we're addition dynamic of in we increase also In basically cars, come particularly we And QX. high sales which days QX. to down

Michael Montani

Then Okay. EBITDA improvement you anticipation had mentioned margin the was that meaningful quarter-over-quarter.

you advertising then direction. other a headcount it wondering dive bit just there's the into could little the the side further there there, could going sounds SG&A opportunity, but perhaps side because be So like if

there wondering, I'm opportunity SG&A? is SG&A the see there, So opportunities you just really of there Or in do the benefits is other as where item if well? line

Mark Jenkins

Yes. Sure.

year So expect -- the do SG&A think year-over-year so way in think meaningful of we we the remainder the about leverage. I

some efficiencies we've efficiency. of picked we that COVID period, process focused I scalability made in as the from have that teams some comes think of and up gains during that the our on the technology

I think also we do that plan to invest.

into in investing So we meaningful our we so is and then technology in have leverage toward while improvement lens growth expect started and while XXXX, for expect meaningful investing half back year-over-year saw also versus also the pipeline, what -- our SG&A in EBITDA in year-over-year XXXX, to which QX. look meaningful we sequentially leverage margin in

Operator

Armintas Morgan question next Our of Sinkevicius Stanley. from comes

Armintas Sinkevicius

on outcomes the wanted a inventory there's I know touch I And said you different variety Ernie, briefly. here. that of to

it's X.Xx June. third chart I the like inventory for the for I'm if with units probably to there something to XX% right you're have that quarter. shaking that's online growth of through XX,XXX that at we were where the of you look rest assume look if So if But the going then at It's looks I XX,XXX, month But units regards about XX,XXX at now. like the about that that out. you it the looking efficiency, have quarter, on, carries

mean range. at XX,XXX to were I low to if XX,XXX assume X.Xx, I guess, that So the to XX,XXX

so the constraint we to inventory of third quarter? your how should impact about And be thinking the

Ernest Garcia

just would to go what I we said think back I previously.

sales that I driving think is volume clearly right now. we're clearly constrained, and

quarter selling infer was per week what and of kind how ramping can up. were the You we that over last

of rate And kind that back started and as just producing so we're to roughly inventory tick has up. bottomed at

cars. I think our I be it's by going so And anything, just to think, than driven, ability to produce more

the that think uncertainty right given now. you And coronavirus we're prepared so I that's everything driver. not predict I think think for the we really with And and else, to precisely

Armintas Sinkevicius

XXX are a about year market opened environment would to an How just you quarter. I Or any expansion? expansion, uncertain on next trending? sort this how And last then you bit is we're resume coronavirus market still of look thinking up markets Okay. depending But here. know year? markets in you of the

Mark Jenkins

Sure.

up are -- to pacing So on scaling inventory. containment looking yes, coronavirus. And with will definitely approach going on things forward, I our how market a a think openings, the depend to extent, our certain of

to limited travel, I open think in were able existing even we from delivery markets our basically network. fairly really QX hiring, those and markets logistics were with because last-mile XXX limited incremental supported investment, limited quickly

was own really nationwide depend largely offering in with for was great to our think And additional bring will markets in COVID I it dynamics valuable. to looking on so markets our that But the those as the forward, be period, COVID thing to it as well customers a inventory. able I think

Operator

Ron question Securities. comes next from Our JMP of Josey

Ronald Josey

please. two, got I've

point, in as network we cars and seeing you should we clear, we're ever And that? improve and the XXX%. the margins just cars. you trade and inventory delivery before. can about more a partners, than in talked in which said potential a understood maybe improving the think perspective. We're more to Ernie, EBITDA retail then, older GPU. is some seeing dealer fees operations, you auction, really, any of launched fewer that I view you But So how just product from about drivers And on up quarter improving from ask wanted now the different Mark, talk way inventory you're about growth from even at ramp and CarvanaACCESS, the talked since I acquiring XXXX, of

these And margins? consumer changes asking better so is can stronger, is benefits with a how And of call you to of sort significantly talk it, now if are you overall investments greater wondering the contributing -- how profitability. these can needed do the experience how of sheet balance, about you that that to benefits balance maybe way the

Ernest Garcia

Sure.

with Let CarvanaACCESS. me start

from put me CarvanaACCESS the of let cars context maybe So customers. buying in

many sold Mark cars exciting, said, generates and we lot really customers bought inventory us. we as a in as So of July. really, That's from as for that

some our cars and Now standards going some are of fit to are retail those not.

across purchasing and and pretty directly, really buying buying. that's sell because For geographies, a we those we source are got can chain, got of we quality automotive broad a producing network the that's that's system customer very we're of the out inventory customer and from that fit for little car of incredible higher side the we the friction the cut collapse the retail And retail where it vice side transaction. on value that inventory, because of that of more is There's customers can then and standards, we've really, significant such And that existed cars side preparing have retail customer. on lot entire next buying and a And then we're it on the we've bid a from versa. feeds now our larger brands it Because back aggressively a retail across margins that exciting. that and right proprietary business. the in delivering historical a cars with that being to has

the exciting. But that customers that So really inventory you of on in fork there's that's kind fit from this really, buy the website. doesn't

great so that's they standards. -- and our just they're And cars, don't fit -- retail

to very them us as And in inventory way for that's in dealers CarvanaACCESS, cars retail of so it's take feeds business. partners those efficiencies and also ways same that to get And a wholesale and to or at them the buy the a that cars those back efficiency deliver other the efficient. way

development long-term another goals toward exciting our and wholesale margin. going think step what's in on that's there. and that's We retail both So another

Mark Jenkins

Sure. on improvements. EBITDA the margin And then

I called we comparing out on per unit retail a earlier, leverage sold basis year-over-year. meaningful expect So SG&A in

we and in dynamics We also GPU some are talked the retail expecting there. a of about step-up

of of a testing that be sold improvement basis SG&A a sorry, by website, per see leverage I on basis. or unit particularly items Again, I -- the growth will And per in then as or called those think on that wouldn't we EBITDA unit on in a the EBITDA large driven smaller retail focused retail leverage sold doing GPU, on mainly retail. of to any merchandising that margin the being terms Some we're out. contributor

Operator

question next Nick of comes Our Citi. Jones from

Nicholas Jones

questions. Just two

wave online is with consumer And do versus of guess, kind maybe finding of little that you Are kind to behavior? of now do something time? similar different patient instead are they're to you're more going kind just pre-COVID? dealerships little actions like kind in being or you a not for winter position bit to where think if a to -- a took And have in reasons taking the April? deurbanization a for in being more Do you any aggressive, public safety there or were COVID-XX, for able they their more that Are seeing second you that, opting question happen? not take this back over on behavior. growth. you can I Or kind people you shift liquidity to experience? be transit? we then of second cars you back First, positioned cars the Is maybe you cars see efficiently and dealing need more have of lead really than of acquire more consumer some

Ernest Garcia

Sure.

So on the mean, second wait wave there. see point, I and think have we'll to I I think

and how hardened we the what We've processes know need to of because out a just with of dealt that. I to, roll all position what kind we've certain and we is we time and we is billion various state situations. And handle of well last entered than got you through very what think think different in enter liquidity. we we've would pointed know over to closings, to exactly these manage openings I been $X

positioned lot we But for would I significantly there. other details obviously, the this. be So matter would think better a situation like

think more really we give be I positioned can And don't so that you we'd than just well.

transportation, people is know. like from probably. The going think ride are probably. asking drive there's The do because I other public people to much? XXX on answer that want I probably I going is less I because side, as And there's to to necessarily they those people inside home? feel answer to want don't they going would to are more of more as going of What about is that What behavior impacts some don't work say really things? Are there's well. be we share to the are consumer don't question. drive questions that On think much so now

to share appealed massive customer where I like to most biggest what behavior different had there grown have try this if different And offer different in I e-commerce way think X over company people that's that things years, growing they of the was across in traditional able they pronounced disruption and the the that from we they they different a this offering position a change put the by is and dedicated we've offering because been accelerated those When adoption some things, think try that has try, that's things. to customers. last market a customers in board.

behavior forces with we're in we to immediate so markets, us, is then preference there's think forces. long-term that undoubtedly we're preferences I waves observe stay dealing always to have. bring different that that to these behaviors customer we're shift different in change because on everything term, And and do. to customers the most the focused build enduring a that support we to most enduring these But as these the And And trying those think I seeing. that we're different term powerful trying

And so that's what's in our today. focus

Operator

of Our next question comes from Seth Basham Wedbush Securities.

Seth Basham

pricing. around is first question My

inventory what pricing least move Given around at Do the the you thought the up tight constraints? with pricing? market given your or market have to dynamics, retail is these ability above

Ernest Garcia

Sure.

pricing think I So interesting a right is now. area very

wholesale across dramatic Just board, there's the retail swings entire industry. been prices the in and across

very an seen with, we're environment prices has a is unlike we've time of, to significant environment we've kind an discounts view continue that that long-term the least and are now going I retail in position for customers brought. in Our long our think where always that been at up. maintain do

And so that's fairly unique.

thoughtful them about the in past. to terms we're customers to take of to deliver it. in trying and that value But that continue account trying to into we've significant we're So the delivered customer-facing stance, our be to

Seth Basham

your Fair it secondly, enough. the as market? revisiting ABS are And options, financing your relates what about to thoughts

Ernest Garcia

thoughts I finance the environment, always had receivables. the a crisis view same our they've mean most of as I that the ABS to we efficient prior in markets, are was the always the the think good I monetization think been. provide

there's more markets less access we to access faster. can as And show so do ABS highest likely times, would And kind the ready in and ABS and the tend of close we expensive. hit in finance But good not the if GPU be markets be disrupted times. good

channels, we quite think had, that a pandemic. And Ally were it's they markets seek will for needed it partner good we more be the still like purchases Ally, times, unbelievable that. when as efficient was important an I access when saw to I considerations. different to them, so and access partner while a the And timing of there through we what supported and great ABS couldn't those by good not it's be we'll going very try position doing us, both to have and balance I they've think forward. us that as between was for for we'll that partner appreciative right, is reliable. in find that that we just with But to we them going both And think the was also been

Seth Basham

quarter with those down Got balance sheet. of I this on financing. and it. last may, you change eventual valuation second you interest if the on One the question, quarter, securitizations Last report? wrote Did

Mark Jenkins

Yes. that second an other adjustment those the expense. had quarter, by about show We will increased in the valuation $X and that in of up million income

Seth Basham

well? make you did you as payouts that And the any bonus last changed to quarter potential changes

Mark Jenkins

to believe we made material don't I changes those. any

Operator

Sachs. of Goldman Our from Daniel comes next question Powell

Daniel Powell

Two, if I may.

just second of then just units made around sense about And a relative quarter at On I to relative the sort a pre-COVID. get similar if the us of available X/X inventory question how being is of versus could trending, advertising, sale demand in the asked comment first, of sort to tell way. to kind sort specifically is quarter-to-date maybe for question just a X/X you'd to wanted earlier the different you of

production consider of and that see, might seeing As to you just sort recovering of given back now? you're market you'd being, your like you aggressive to your how or at secular not all the in getting a look capacity, level right tailwinds

Ernest Garcia

Sure.

-- we've has demand, I far. production of consumed gains So so think our seen as we've kind immediately it order, in first additional

good to up good It on so site, And recently, of it. in kind hope get But we think grow and front seen we that the gets story you've a tiny continue flattish. it our a be, been has additional starting also think, put when a of pretty that Maybe to I to able be grabbed tick inventory and it's point. by I could inventory somebody. instantly

first do sales, think at be And go So are to to grows can. grow. going of our can production, a second the which we're production, is sales even production If as than try it. sales. we'll faster quickly inventory of to not out we're speed then if I then to the instantly that as we function inventory consuming all able grow grow going But

we're I get much to that So of demand that that of site. at hoping can we output hoping can as so is really much as we possibly of get input as focused and think the equation. inventory we than then as kind that And more possibly the then think equation on we I site the the production

opportunities be could yes, would side, I potentially take think, there some advertising interesting say, I the On many that could forms.

for quickly. marketing really spoke put we matter about, I the and team's sure customer our we've get kind I heard. trying on very about make proud We a X that of built website, a get lot of this an and that this and been know, delivery at experience. commercial we a that to working quickly of another started commercial pretty that Pioneers the touchless see out think onset of I don't I And incredible out it to to to of the that we're ability of a launched called weeks, speaks moved go moment. easy And kind that that within makes think great trend of to and Online, weeks. the the of X is our think our we're for More with a that that selection already infrastructure pandemic, recently, pandemic-specific we've talked message we've kind fact years,

the an from there's like per think perspective, down also up. at on spend rates kind messaging gone distribution impression definitely to website, top cost meaning conversion I so a of perspective. funnel, have And gone recently. advertising we've perspective From that And a of more have that or opportunities likely marketing seen the

stay environment exciting in such that don't a But developments. and unique out And future so the to I those we that forever. are know I that that to we're to extrapolate smart are expect think

I effectively cost the XX,XXX and dealers, the million where bigger, they support our we've think mental all XX cars, that shared. shared that used has they they past, models kind price are their there's longer-term some profit economics. goals that of are there's The of way in have that way structures a and spend the cars, their marketing it perspective to from effectively same

market of so positive. lot we've this And there the seen just is they'll should persist. always of if in have, been make not whether ballast or far, short-term swings anything, skeptical and I But that that think a swings us so

Operator

comes Piper of Sandler. Alex Potter question next from Our

Alexander Potter

wanted touch hiring. I on to

be your I this, IRC it's of in, which you unique the Obviously, have staffing is all constraint. you I'd people, And of talk a interesting. kind should mentioned capacity, you're to be to You unemployment. think, Presumably, put easy up hearing the interested facilities. those if be find to bodies how in is extent ramping a in this it. hiring potential given But put it environment to is

Ernest Garcia

think So people a are unemployed. are of that there lot I

obviously, are all there are different right now. wondering right be and be environment go then the into think payouts on work in if to you ease I things they I also that when think, there going now an which And parts dynamics it's can to different country. waves unique to unemployment with might of at offset a the want of hire able coronavirus with people

and The than -- that different should to face. But we a different persist. it's we and just those it's don't about what environment think go environment The it's a different. you that I think feeling people want job I so way environment. way an reach and expect to is out people out from And is are their they find it's And thinking different. candidates

needs messaging be to your so And different.

And time. so is a just I I doing think think And unbelievable different job. the it's team an

we've a progress of already. ton think made I

we the because give it think unique exactly time. just environment. to a to all makes it's a be it's mean forecast of that little excuses a to But a would progress quickly normally make unique we'll set harder don't as really that It's I So anticipate It it able you do not. I than be of how making.

and We promises as months the are really a little over X.X very in been us be in optimistic, and on making we we we've are last I progress to now, time. moment this. it's been this But progress have focused making right making think for hard precise

Alexander Potter

Sure.

maybe the the of would Okay. related of specific And you maybe have up? those areas, of percentage guess are a then could IRCs because Of the showing Something I quantify a that normally number to people that. a standpoint showing question. being in you you currently is up have, possible of it workforce Fair from outbreaks those impacted maybe COVID or enough. that as who what number like percentage have a

Ernest Garcia

I'll in COVID are just city. going impacted that give have we by be there's outbreak looking if more likely we first something I probably cities, order, general when that to you in for. some than you're a it's operations say, little But a would just

impacted. been the Belt And recently, Midwest. Sun recently maybe so the has Most

as have We the in inspection centers Midwest well.

in happens we think be are given impacted market. impacted can when I any -- that So we

with next as they Carvana the is, think done get people our locations. come that a we check and things my slow when no their facility do do we really news and out. down. ops in teams have job into disrupt I do at and markets that does these ops any coronavirus. people And in our teams to But temperature, and to great good the said things a And or had then all prepared transmission have tracing -- contact figure contract that. We've remarks, I think I really, bit

with a but a and to want than operations there, happening would more there's outbreak I a of don't ton say if significant market give dealing we're probably I coronavirus that, you there's So it. have where we

Operator

will & Our Needham final question Company. come of Erickson from Brad

Bradley Erickson

the there? back you have lately, then Or What's imagine, are of when you your coming about demand I some of follow-up. I the the on sales think what's constraints? levels the getting to site some because just on site your traffic turned of being just would sense inventory First, Are those the And think customers lost? away, sense persistently? do those a that's

Ernest Garcia

-- other something bit probably certainly customers science, a they bit both. answer, I is tracking little think going online car the to of pretty but for will the I keep come And else are they're imperfect if they are mean that go somewhere customers good. an both. they think site of means if little When I places a speculative and odds don't, else, pretty just somewhere see with shopping, looking the don't they the they think be is for, checking likely they And probably and to of I this that us. back they're that also because car and come the probably good. a looking find checking but odds

I you something give know can than I more don't that So satisfying that.

I the think it's probably can best do. we

Bradley Erickson

works. related No, then Yes. just the that standards. to And underwriting

the those underwriting Or with early around it say pandemic. relaxed through now more there safe the pre-pandemic fully ratcheting still levels? about on to say, up are standards. pace the Just talked they of Is somewhat to relax? elevated you You color back change on to, any

Ernest Garcia

Sure.

to continuing than think kind in, as we to pretty tight. it we at was quantify the but don't suppose, through pandemic. definitely that, It heading not I is had April. early Tightness maintain want maybe peak. tight remains it significantly are we tighter I the into April credit of and as But So

I now think demand the X, we have to feel next like lot right to months. know economy I XX that's think X, well. site, and the X, a go -- the the on don't exactly where We going of is err over excess right already make we as

And so there. little we're be bit careful to a going

even So for another more over that valve is demand. time release I think potential

Operator

session. Ernie question-and-answer Garcia our concludes to any for This I over closing turn the like would remarks. back to conference

Ernest Garcia

call specific out A everyone, entire job. the We keep really understand. you're Carvana To it. for incredible ramping. Thank team, you're appreciate great work, team. lots fire, doing an of inside absolutely an call. they'll joining on the that It's couple the joke STC to Thanks, you,

to and you the know So you're teams, that you're I lot doing heard room of that I an probably out. We a job. to then stress center hope And discussions this unbelievable inspection tiered know there's somewhere. call a listening you

of making a this working because hard. You're position choices and we're of in made. incredibly you're ton progress, And we

doing, not it you please could we Thanks, everyone. up. So for be everything more keep appreciative. and thank We you're

Operator

now The attending presentation, concluded. for may you now and you Thank disconnect. today's conference has

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