CARVANA CO. Q3 FY2025 earnings call

• Carvana remains the most profitable and fastest-growing automotive retailer, with strong growth in retail units sold, revenue, and adjusted EBITDA.
• Key growth drivers include a continuously improving customer offering, increasing understanding/awareness/trust, and increasing inventory selection.
• Operational highlights: added reconditioning capacity to 15 ADESA locations, developed digital auction capability ADESA Clear, tested same-day delivery in Phoenix with 40% of customers getting same or next-day delivery, and made progress in vertical integration and automation to improve customer experience.
• Leveraged SG&A expenses with 44% growth in retail units sold leading to a reduction in SG&A expense per retail unit sold.

In the third quarter, Carvana saw strong performance. Retail units sold totaled 155,941, a 44% increase, and revenue reached $5.647 billion, a 55% increase. Non-GAAP retail GPU decreased by $77, primarily due to higher retail depreciation rates. Non-GAAP wholesale GPU decreased by $168, driven by higher wholesale depreciation rates and retail units sold growth outpacing ADESA marketplace growth. Non-GAAP other GPU increased by $63, mainly from improvements in cost of funds and higher finance and VSC attach rates, partially offset by higher loan sales relative to originations. SG&A expense showed leverage with retail units sold growth, with non-GAAP SG&A expense per retail unit sold decreasing by $319, driven by operational efficiency initiatives and overhead expense leverage.

• Expect sequential changes in retail GPU, wholesale GPU, and other GPU in Q4 similar to last year, with other GPU primarily reflecting sharing fundamental gains with customers through lower interest rates.
• In October, expanded loan sale partnerships, upsized and extended Ally agreement for up to $6 billion of loan purchases through October 2027, and entered into new loan purchase agreements with other partners for up to $4 billion each.
• Expect advertising expense in Q4 to be similar to or slightly higher than Q3.
• Continue to see opportunities for SG&A expense leverage as the business scales.

No specific detailed risks discussed in the Q&A beyond general forward-looking statement disclaimers regarding actual results differing from forward-looking statements, which can be found in the Risk Factors section of Carvana's most recent Form 10-K and Forms 10-Q.

Q: Talk about the health of the portfolio and timing of new third-party agreements A: Mark Jenkins stated loan originations in 2024 and 2025 are performing well, with stability in other GPU and validation from loan sale partners. The new agreements formalize existing loan sales with partners in a more structured way.

Q: OpEx per unit ticked up sequentially, discuss future opportunities to drive down operations cost per unit A: Mark Jenkins said advertising expense is part of long-term growth plan, overhead expenses have nice leverage year-over-year, and operations expense has seen strong year-over-year gains with some quarter-to-quarter bumps but expected to drive down further with fundamental gains in operating efficiency Q: Retail GPU guidance, what's behind year-over-year flattish retail GPU guidance A: Mark Jenkins mentioned Q4 seasonality with higher depreciation rates, Q2 had strong depreciation due to auto tariff announcements, Q3 was softer, and Q4 sequential change is in a similar range to last year driven by seasonality Q: AI and its impact on consumer offering A: Ernest Garcia discussed examples like chatbots interacting with finance, scheduling, and search services, ambient agents automatically identifying bugs, and overall technology-forward approach to automate processes and improve customer experience Q: EV tax credits and impact on used car demand A: Ernest Garcia said expiration of credits shifted customer selection but was a shift, not a change in aggregate demand, and the system is well positioned to adapt Q: Competition from new entrants like Amazon and biggest gating factor in near-term growth curve A: Ernest Garcia focused on delivering best customer experience and being 2-2.5x more profitable than average automotive retailers, with gating factor being the sum of effort across the complex business to move and organize people Q: Sourcing environment and evolution as retailing scales A: Ernest Garcia discussed being structurally advantaged in buying cars for retail and wholesale, with 27 sites now handling both types efficiently through partnerships with ADESA Q: Same-day delivery in Phoenix and GPU/EBITDA per unit A: Mark Jenkins said same-day delivery is a technology and process investment, with incremental staffing and more about focus on accuracy and speed in complex transactions rather than large cost investment Q: K-shaped economy and demand trends between income cohorts A: Ernest Garcia stated no interesting validating data points to support notable deceleration from lower income cohorts specifically, with data generally more consistent than that story Q: Advertising expense and outlook A: Mark Jenkins said advertising expense is part of continuing to invest in building awareness, understanding, and trust of the customer offering, expected to be similar to or slightly higher in Q4