Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Carvana Co (CVNA, Financial) achieved positive net income for the second consecutive quarter, setting new company records for adjusted EBITDA, adjusted EBITDA margin, and GAAP operating income.
- Retail units sold increased by 33% year-over-year, demonstrating strong demand and effective operational execution.
- Revenue increased by 15% year-over-year, despite industry-wide declines in vehicle selling prices.
- Non-GAAP total GPU reached $7,344, a new company record, driven by fundamental gains in several areas.
- Carvana Co (CVNA) has significant physical capacity and real estate to handle much higher volumes, indicating strong potential for future growth.
Negative Points
- Revenue growth lagged behind the increase in retail units sold due to declines in vehicle selling prices.
- Non-GAAP wholesale GPU decreased by $124 year-over-year, indicating some challenges in the wholesale segment.
- Non-GAAP other GPU decreased by $239 year-over-year, partly due to changes in loan origination and credit tightening.
- The company is still operating below its target inventory levels, which could limit sales growth in the near term.
- There are concerns about the impact of seasonality on future quarters, which could affect profitability and sales volumes.
Q & A Highlights
Q: Can you discuss the trends you're seeing for the 100K plus income consumer versus those who are below? And thoughts around credit tightening from here?
A: From a demographics perspective, affordability was impacted heavily over the last couple of years. Car prices are now only about 3% higher than pre-pandemic relative to CPI, but payments are still about 10% higher due to higher rates. This impacts lower-income consumers more. Regarding credit tightening, performance has been in line with expectations since tightening began in Q4 2023, so no further significant moves are anticipated at this time. - Ernest Garcia, CEO
Q: Carvana grew retail units 33% with mostly flat SG&A. Can you break down the SG&A components and their impact?
A: SG&A is broken into overhead, marketing, and operations expense. Overhead has been held flat for the last five or six quarters. Marketing expense has decreased significantly, reflecting gains across the system. Operations expense has also seen substantial improvements, with current numbers several hundred dollars less than pre-pandemic levels, despite industry-wide cost increases. - Ernest Garcia, CEO
Q: Can you talk about where the upper bound of retail GPU might be and the impact of standalone reconditioning?
A: We believe there are significant fundamental gains to be had in every GPU line item, including retail GPU. The market now supports about $1,000 more in retail GPU compared to pre-pandemic levels due to increased dealer costs. We also see gains in reconditioning processes and plan to pass some of these gains back to customers to drive growth. - Ernest Garcia, CEO
Q: How are you balancing efficiency gains with new revenue opportunities as Carvana grows?
A: Focus is crucial. We have many ideas but prioritize tackling the right number of things in the right order. We aim to balance efficiency gains, growth, and new opportunities intelligently. - Ernest Garcia, CEO
Q: Can you detail what you mean by passing additional gains on to the consumer?
A: Fundamental gains mean getting more efficient in any function. We anticipate passing a significant portion of these gains back to customers in the form of lower prices, higher bids on their cars, or improved customer experiences. - Ernest Garcia, CEO
Q: How significant are the higher spreads between wholesale and retail market prices in your retail GPU?
A: The market supports about $1,000 more in retail GPU due to increased dealer costs. We buy cars from various channels and locations to optimize costs and believe there are further gains to be had in this area. - Ernest Garcia, CEO
Q: Given your current growth trajectory, are there any gating factors that could limit sequential unit growth?
A: We scale up various operating groups simultaneously as we grow, including buying cars, reconditioning, customer service, and delivery. We have demonstrated the ability to scale efficiently and will continue to do so. - Ernest Garcia, CEO
Q: Can you provide more details on the seasonality impact on GPU and unit sales?
A: Seasonality is most prominent in the fourth quarter and early first quarter, typically resulting in softer demand and higher depreciation rates. This is an industry-wide trend. - Mark Jenkins, CFO
Q: How do you see the long-term target for EBITDA margins given recent efficiency gains and market dynamics?
A: The fundamentals of the market remain similar, and we expect to be at the high end of our long-term EBITDA margin model. The last two years have shown significant execution speed and additional opportunities, but our long-term view remains consistent. - Ernest Garcia, CEO
Q: How do you plan to leverage the ADESA acquisition for reconditioning and growth?
A: We are integrating Carvana reconditioning processes into ADESA locations, starting with Buffalo, Portland, and Kansas City. This integration provides flexibility and efficiency in production growth, and we plan to expand this approach over time. - Mark Jenkins, CFO
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
