CARVANA CO. Q4 FY2025 earnings call

Key managerial messages include: 2025 was an exceptional year with growth in retail units sold, adjusted EBITDA margin improvement, and customer experience enhancements like multiyear highs in NPS. In Q4, retail units sold were 163,522, a new record, and revenue grew 58%. The company is making progress toward 3 million retail units a year and 13.5% adjusted EBITDA margin, with focus on reconditioning center scaling, having the infrastructure to scale, and continuing to improve customer offering.

In 2025, full - year retail units sold grew 43% to 596,641. Adjusted EBITDA margin was 11% for the full year and 9.1% in Q4. Non - GAAP retail GPU decreased by $255, primarily driven by higher non - vehicle costs, lower shipping distances leading to lower shipping fees for customers and higher retail depreciation rates. Non - GAAP wholesale GPU decreased by $148 mainly due to faster growth in retail units sold than wholesale marketplace units. Non - GAAP other GPU increased by $49, driven by improvements in cost of funds and higher finance and VSC attach rates, partially offset by lower interest rates given back to customers.

Management expects significant growth in both retail units sold and adjusted EBITDA in full year 2026, including a sequential increase in both retail units sold and adjusted EBITDA in Q1 2026. The company plans to maintain key objectives from 2025 while placing additional weight on driving significant profitable growth at scale.

Reconditioning centers face challenges such as higher costs due to new sites, newer managers, and need for more automated processes. There are also title issues with different titling registrations across 48 states, although the company has made progress in title registration but still has a complex problem due to moving cars across state lines.

Q: I guess I wanted to kind of double - click on the reconditioning dynamics. So if you could maybe talk about kind of the challenges you're facing as you're growing at this rapid pace, which is certainly hard to keep up with. And I think in the shareholder letter, you mentioned something like if you got all of the locations to the top quartile, you'd get a $220 benefit per car. What is a reasonable time line to kind of move that bell curve to the right? And do you see the opportunity for GPU to be flatter up for the full year?

A: So first, I would say, I think that team has done an incredible job for a long time, and we've been obviously working hard to scale that part of the business. I think as we've said before, as a general matter, I think for any operational business, oftentimes the most difficult parts are the parts where you're moving the most people and things and for us, that's reconditioning centers. And so that tends to be the most difficult area to scale. I think in addition to growing at 43%, supporting unit growth of 43% and also growing our inventory last year, that team also has been hard at work opening these additional integration sites which is great because it lays the foundation for additional growth in the future. And then I think in Q4, I think there's no question that our expenses were a little higher than we would have liked there. And I think that is partially the result of these additional sites kind of having a single line instead of multiple lines and there being some extra costs that flow through there as a result. I think it's also partially a result of as we kind of spread out, we had some newer managers. And I think a trend that we've seen is locations that have managers that have been around for longer tend to perform a bit better. And so I think those are addressable issues. I think you've -- many of you have been to many tours inside of our inspection centers and seen all the work we've done in Carli to make that process as automated as possible. I think we've got some opportunities to also make the management of those processes more automated. And I think that those capabilities are kind of focused more on lifting the floor of performance instead of raising the ceiling. I think a lot of what we've done so far has been about raising the ceiling. So I think we've got opportunities. I think we've got a very clear plan. I think this is one of those things where I think sometimes if you take a little step backwards, it kind of fires you up, and my strong guess is we'll be in a better spot in 3 to 6 months than we would have been otherwise. I think that team is fired up and ready to go and even no one's excited about taking a little backward step there. So we're focused on it. I do not think it will have long - term implications. I think we'll react to it very positively as we have to many other similar things in the past, and I think we'll get right back at it.

Q: I guess as a follow - up, I know you have your AI brand, I think, as well in the shareholder letter, and it seems to me you would be maybe the most uniquely poised to benefit from what's happening in an AI. Can you talk about what the early kind of nascent uses are that you're implementing AI to do? And then if you're seeing anything in the competitive set or if it's just business as usual there?

A: Sure. Well, I think if we start with things that are visible to investors, I think we put some stats in there. We have 30% of our retail customers now go through the entire process without talking to a person until they get the car. We have 60% of our customers that are selling cars to us who go through the process without talking to anyone until they drop off their car. That's only possible because of the systems that we've built and those systems being intuitive and automated and straightforward. And I think a major set of tools that contributes to that is Sebastian and other tools that emerge from that AI brain. So I think that that's a very clear place where we're getting more scalable, where we're reducing costs. And I think very importantly, where we're improving customer experience. Those customers who go through the experience in that way have a higher NPS than customers that call us. And I think that, that also speaks to the power of those systems. So I think that's an area where it's very apparent, I think, even from the outside looking in. And we've been focused on that for several years, and I think you'll continue to get better all the time. I think -- if you look at other parts of the business, including just the speed at which we're developing new products, that continues to get better all the time. I think there's been a couple of material step changes up in the quality of these different tools. And we're seeing internally those step changes start to flow through the business, and we're getting things done faster. I think that is still relatively early. I think the last -- I mean the last year has been a massive step - up in the quality of these tools. And I think the last 3 to 6 months has been another very large step - up in the quality of these tools. But we do believe that we're fundamentally extremely well positioned to benefit from these things because we have a big deterministic system that's vertically integrated that has access to all the information and that brain has every system feeding it so we can give customers very simple answers to any questions they've got in really any software interface that we choose to put on top of it. So we think that's very powerful. And then I think importantly, to try to discuss a relative negative as something that I think is a long - term positive. I think even that -- a discussion today is what does AI mean for different companies in the long term? And I think we're sitting here talking about the realities of our business, including financing and logistics and reconditioning and these difficult operational things. I think that those are other areas of the business that are very important to deliver a great customer experience and those are areas that are not subject to AI disruption in the immediate term. So we think that we're positioned to benefit in a major way. We think that competitively, we're incredibly well positioned compared to the rest of our industry. And we think that our business itself is also positioned to be an AI winner and not something that is disrupted by AI. So our view is that sum of all that is very positive, and we remain excited.