CARVANA CO. Q1 FY2025 earnings call

Key Points

• Ernie Garcia noted that Carvana has been in the long-term EBITDA margin range of 8% to 13.5% for the last four consecutive quarters, achieving 11.5% in Q1.
• Mark Jenkins highlighted Q1 results as outstanding, with record retail units sold, revenue, adjusted EBITDA, GAAP operating income, and GAAP operating margin.
• Growth drivers include a continuously improving customer offering, increasing awareness/trust, and increasing inventory selection.
• Non-GAAP GPU metrics were impacted by changes in reconditioning, transport costs, depreciation rates, and spreads. SG&A expense was leveraged due to retail unit growth, reducing SG&A per unit.

In Q1 2025, retail units sold totaled 133,898, a 46% increase, and revenue was $4.232 billion, a 38% increase. Non-GAAP retail GPU was $3,308 (increase of $97), non-GAAP wholesale GPU was $964 (decrease of $189), and non-GAAP Other GPU was $2,868 (increase of $430). Non-GAAP SG&A expense was $468 million, a 20% increase. Adjusted EBITDA was $488 million, a $253 million increase, with an adjusted EBITDA margin of 11.5%. Retail units sold contributed significantly to revenue growth, and operational efficiencies impacted GPU and SG&A expenses.

Management expects sequential growth in retail units sold and adjusted EBITDA in Q2. The goal is to grow to 3 million annual retail sales with 13.5% adjusted EBITDA margins in 5 to 10 years, prioritizing growth over margin within reasonable margin ranges while maintaining customer experiences and efficient operations.

Risks

• Macro factors such as tariffs could impact car prices, though Carvana's business model is positioned to benefit from value offers.
• Competitive industry dynamics, as the automotive industry is mature and fragmented, pose risks to maintaining market share and margins.
• Execution risks in scaling operations to meet growth targets while preserving customer experiences.

Q: Ron Josey asked about the impact of tariffs on Carvana and pricing and GPUs.

A: Ernie Garcia stated tariffs could directionally benefit used cars, and Carvana focuses on expenses, revenues, and customer experience. On pricing, there are significant fundamental gains with opportunities to share value with customers.

Q: Brian Nagel inquired about retail GPU trajectory and incremental investments.

A: Ernie Garcia said Carvana is working on fundamental gains in GPU components, with infrastructure from ADESA acquisition providing a base for growth.

Q: Rajat Gupta asked about Carvana's positioning in a recession and lending partners.

A: Ernie Garcia noted Carvana is more profitable now, with a stronger securitization program and more buyer support, better positioned to navigate downturns.

Q: Christopher Bottiglieri asked about new vehicle opportunity and ramp.

A: Ernie Garcia said the dealership acquisition is early, and scaling production requires increasing weekly production and expanding facilities.