Carvana Co. Price & Performance (CVNA)

The forward looking statements and risks in this conference call are based on current expectations as and Carvana assumes no obligation to update or revise them whether as a result of new developments or otherwise. Our commentary today will include non GAAP financial metrics. Unless otherwise specified, all references to GPU and SG and A will be to the non GAAP metric and all references to EBITDA will be to adjusted EBITDA. Reconciliations between GAAP and non GAAP metrics for our reported results can be found in our shareholder letter issued today a copy of which can be found on our IR website. And with that said, I'd like to turn the call over to Ernie Garcia. [indiscernible] Thanks, Meg, and thanks everyone for joining the call. '24 will always be a defining year in the Carvana story.

In 2024, we became the most profitable public automotive retailer in U. S. History as measured by adjusted EBITDA margin, while simultaneously being the fastest growing There are many quarterly and annual numbers that support and punctuate this point, but the simple reduction is the most important. The most profitable ever and fastest growing is very powerful. We also did this with 1% nationwide market share. This is a very unique long term growth opportunity. And we are built for scale Our inspection centers that were in operation before we began integrating our Adesa mega sites had capacity capacity for over 1,000,000 retail units, about three times our current volume. Fully integrating all Adecco megasites will give us And this isn't conceptual. In 2024, we integrated six of the 56 Odessa sites, We expect to open approximately another 10 megacites this year, two of which we have already announced. This reduces the execution risk of achieving significantly more scale and that extra scale will come with the positive feedback inherent in our model. Our business model took us $10,000,000,000 tens of millions of hours of effort and over ten years to build. It is hard and the difficulty of building it is very clear through the simple exercise of looking at the outcomes and difficulties of the many companies around the world including ourselves, that have attempted to build something similar over the last ten to fifteen years.

In addition, our market enjoys unique competitive dynamics We compete in a highly fragmented market Our largest direct competitor has about 2% market share, The largest 100 direct competitors combined have about 10% market share. We are a team of builders that have stuck together through thick and thin and accumulated the lessons that have been learned at every step of our journey. We imagined the business, we designed the customer experience, we built the technology and operational apparatus that was necessary to deliver it, In just eight years, we had scaled that complex system quickly enough to be tied the third fastest company to make the Fortune 500 in history We faced hardship together and most recently we did all the hard detailed work that is necessary to prove that the machine that we imagined is the most efficient machine in our industry for buying and selling cars. The team that did all of this is still here we are still hungry. And importantly, we deliver an experience our customers love. It is faster, simpler more confidence inspiring, offers greater selection and better value that is available elsewhere in the market and we aren't even close to done. There are fundamental gains left to be harvested will go get them.

There are many opportunities to make our machine more efficient and add new foundational capabilities to serve our customers and partners better. We will build them. There is room to make our customer experiences simpler, more efficient, more delightful for our customers. We'll make that happen too. We're at an exciting moment in our history. We are firmly on the path to buying and selling millions of cars, become the largest and most profitable automotive retailer and to fulfilling our mission of changing the way people buy and sell sell cars. There's nowhere we'd rather be. The March continues. [indiscernible] Thank you, Ernie, and thank you all for joining us today. 2024 was a monumental year for Carvana and solidified the long term earnings power of our vertically integrated business model, We entered the year focused on driving fundamental gains and enhancing Throughout the year, we maintained that mindset and achieved additional fundamental gains, which resulted in significant improvements in yield economics and meaningful This enabled us to once again leverage the three fundamental drivers of growth that we have benefited from in the past and expect to continue to benefit from in the future. One, continuously improving our customer offering, two, increasing awareness, understanding and trust of our brand and three, increasing inventory selection and other benefits of scale.

Positive feedback created by these drivers resulted in a 33% year over year growth rate in FY 2024 retail units sold significantly outpacing the industry while simultaneously driving material operating leverage and industry leading margins. We set new company records in numerous financial metrics including adjusted EBITDA of $1,380,000,000 dollars adjusted EBITDA margin of 10.1% GAAP operating income of $990,000,000 GAAP operating margin of 7.2% net income of $4.00 $4,000,000 and net income margin of 3.1%.

Moving to our fourth quarter results.

Where unless otherwise noted, all comparisons will be on a year over year basis. The fourth quarter was again an exceptional quarter for Carvana that was driven by our team's ability to achieve further fundamental gains and operating efficiencies while also pursuing significant year over year growth. Fourth consecutive quarter, we are in positive net income. And we set new fourth quarter records for retail units sold adjusted EBITDA, adjusted EBITDA margin, GAAP operating income, GAAP operating Carvana, net income and net income margin. The strong demand we experienced in the first three quarters of the year continued into the fourth quarter. Retail units sold totaled 114,379 in Q4, an increase of 50%, a significant acceleration from Q3 leading to the second highest quarterly retail unit sales in our history despite Q4 being a seasonally lower demand period. Revenue was $3,547,000,000 an increase of 46%. Like the full year, our growth in the fourth quarter was driven by our three long term growth drivers. Each driver will improve creating more positive feedback in the model. Our strong profitability results in Q4 were again driven by sustained and fundamental improvements across all GPU components and operations expenses as well as levering our overhead expenses. [indiscernible] Non GAAP retail GPU was $33.31 an increase of three sixty one Year over year changes were driven primarily by lower retail depreciation rates, reductions in reconditioning and inbound transport costs and lower average days of sale, partially offset by lower spreads between wholesale and retail market prices.

Non GAAP wholesale GPU was $8.57 a decrease of twenty four Year over year changes were primarily driven by faster growth in retail units, than wholesale vehicle and wholesale marketplace units, partially offset by lower vehicle depreciation rates. Non GAAP other GPU was 27.28 an increase in eight of 8.49 The increase in other GPU was primarily driven by higher spreads between origination interest rates and benchmark benchmark rates, lower credit spreads on securitization transactions, changes in loan sale channel mix and selling a greater volume of loans relative to origination [indiscernible] Non GAAP SG and A expense was $432,000,000 an increase of 15%. Q4 was another strong quarter for demonstrating the power of our model to lever SG and A Our 50% growth in retail units sold led to a $11.65 dollars reduction in non GAAP SG and A expenses per retail unit sold, Carvana operations portion of SG and A expense totaled $16.96 dollars per retail unit sold a decrease of $328 driven by our operational efficiency initiatives The overhead portion of SG and A expense totaled $159,000,000 in Q4, an increase of $9,000,000 primarily driven by non recurring items. We continue to see opportunities for driven by both continued efficiency in operational expenses as well as leverage in the fixed components of our cost structure.

Adjusted EBITDA was $359,000,000 in Q4, an increase of $299,000,000 Adjusted EBITDA margin was 10.1% in Q4 a 7.6 percentage point increase. Our adjusted EBITDA margin of 10.1% was industry leading and is well within our long term financial model EBITDA margin range of 8% to 13.5%. We continue to see meaningful opportunities for fundamental gains to continue driving toward the higher end of that range over time. Our adjusted EBITDA is very high quality compared to many rapidly growing companies due to our relatively low non cash expenses. GAAP operating income was $260,000,000 in Q4, leading to GAAP operating margin of 7.3%, leading the public auto retail industry. As previously noted, we currently carry many expenses that support retail unit sales capacity of over 1,000,000 units and expect our GAAP operating income to grow faster than adjusted EBITDA over time. As discussed in prior quarters, we believe that pairing our strong financial results with the measured actions we have taken position us well to continue delevering our balance sheet over time. As a company that we believe has the opportunity to be a many year compounder, we believe in having a strong balance sheet with substantial liquidity and a strong credit rating.

In the fourth quarter, we took additional steps to further bolster our balance sheet. Retiring $120,000,000 of our 2028 senior secured notes and raising $924,000,000 of equity through our ATM program. At the end of 2024, we had more than $1,700,000,000 of cash, and $3,600,000,000 of committed liquidity resources a $2,000,000,000 increase year over year. In addition, our ratio of net debt to adjusted EBITDA ratio of adjusted EBITDA to interest expense was more than two times demonstrating significant progress toward our deleveraging goals.

We remain committed to further deleveraging through growth in adjusted EBITDA and plan to drive toward investment grade quality credit ratios over time. Our results in 2024 position us well for a strong 2025. Assuming the environment remains stable, looking forward, we expect significant growth in both retail units sold and adjusted EBITDA full year 2025 including a sequential increase in both retail units sold and adjusted EBITDA in Q1 twenty twenty five. [indiscernible] In conclusion, 2024 was an extremely exciting year for Carvana. We achieved two very significant milestones of becoming the fastest growing and most profitable automotive retailer. The strength of our financial results and the strength of our customer offering position us well to continue to take market share as we progress in our long term phase of driving profitable growth. Thank you for your attention. We will now take questions.

We will now begin the question and answer session. You're using a speakerphone, First question comes from Ron Josey with Citi. Please go ahead.

Thanks for taking the question. Ernie, Mark, I had a question on inventory and the overall experience. And so inventory, I think the letter talked about production throughput improvements and want to understand as inventory grows, is how do you philosophically manage balancing inventory as a lever to drive demand versus Greater River all depreciation. And then having recently gone through the purchase and trade process at Carvana Carvana, with inventory growing, I just want to hear your thoughts on just how search and merchandising is improving overall, how you might use AI to maybe include natural language search and things along those lines as the user experience improves? Thank you.

Sure. So first, I I think we talked about a bit in the letter. I think we're we're big believers that selection is one of the simplest clearest and most obvious to our customer benefits that we provide. And so we're big believers that offering them that selection is very powerful. We think that our business model is uniquely positioned to do that not just because all the cars can be delivered to customers, so they can see everything nationwide, but also because it changes the cars that we can buy because we're optimizing a very large pool instead of many small pools. And the math of that is meaningful. It means that we can kind of cover more demand space per unit than many other automotive retailers would be able to. So we think that's really valuable. I think there's many ways for us to think about what the right inventory size is. I think you framed up the trade offs. I think very clearly as we have more inventory, we have greater conversion. And then when you have more inventory, if conversion goes up by less than the increase in your inventory, then you have greater expected depreciation and you can kind of convert that extra depreciation into a customer acquisition cost.

And compare it to other ways to acquire customers. With the knowledge that not only is it a way to acquire customers, but it's also a way to acquire customers that makes them making it kind of all as constant, a more efficient customer acquisition channel. So I think our general view is we want to keep leaning into inventory. I think the team has done an absolutely incredible job. '24 was a year where our expectations for the units we would sell continually went up. And that meant that the plan that the inspection center team and all the operating teams were needing to level up to was constantly increasing. They did a great job doing that. They did a great job doing that very efficiently. And we're at a spot now where we're very happy with the inventory that we're producing, but we absolutely have big eyes and think that more cars is better. And and we're heading into very in very short order tax season, where we expect sales to go up again. So I think we'll continue [indiscernible] you posed the AI question as number two. I think there's so much to say there that we'll try to stay a little bit high level.

I think we'll start with this. I think first and foremost, we're enormous believers in the power of this technology. I think our view is it is unlikely that we will see another technology in our lifetimes that's this powerful. It's for those of you that are using it all the time, I'm sure you feel similarly, it's just absolutely unbelievable and the quality of technology exists today is so far in front of what virtually any company is actually already implementing. And so there's a long roadmap in front of us to catch up to the horizon where that technology is and the speed at which it's improving is pretty unbelievable. I think there's clear visibility, it's going to keep improving. And I think the number of applications are hard to imagine today, but there are undoubtedly many. So we think that's extremely exciting. I think the foundation of Carvana was a belief that by reimagining customer experience using modern technology, we could give customers an experience they loved. And I think a new technology revolution is an opportunity to continue to do that. So I think we're very excited by that. I think our business has a number of unique advantages that put us in a position to leverage these technologies in a more fulsome way than many of our competitors are likely to be able to.

One that's very obvious is scale. We've now sold over 4,000,000 cars or excuse me, bought and sold over 4,000,000 cars. That's a lot of transact that we're able to learn from and we have very deep data on every one of those transactions because of the fact that we're vertically integrated and capturing all those clicks throughout the entire process. Our business is built around making customer experiences simple and that means that the whole process is deterministic. There's not negotiation in between and that makes all the calculations easier and something that can be done ahead of time. As long as your data is well organized, which makes the power of any of these AI agents greater or AI applications greater.

We're vertically integrated, which means that the entirety of the transaction that to a customer feels like one When a customer buys a car, they feel like they're doing one thing.

When we think about it from a business perspective, oftentimes there's a number of horizontal businesses stacked on top of each other that are providing that single experience but that creates friction to fully implementing the most optimal technological solutions that are available We're vertically integrated. We think it means that we can give customers a simpler experience and we think that's accentuated by these stronger technologies. And then I think importantly, we have a tech centric team that pays attention to this and is really invested and believes And so you can see kind of our first and currently most developed application is Sebastian, which is our chatbot online. I think that represents the brain that we're building. And it's us skin on top of that brain. But there's opportunity for us to put that throughout the entirety of the customer experience. And I think we plan to be very aggressive there. So that's something we're certainly excited about. Thank you, Ernie. Thank you.

The next question comes from Sharon Zackfia with William Blair. Please go ahead.

Hi, good afternoon. Congratulations on a good 2020 That is Sharon, is that the first time you've done that? Yes, I know. I know. And it was a full year That means a lot, Sharon.

Thank you.

Would you do us a favor and let stock market know?

I won't ask you to define significant growth in 2025, so I'll let you pass on that. I do have a question on kind of a GPU. I Obviously, very impressive numbers in 2024 at 7,200.

From here, kind of what are the pushes and pulls on GPU or should we really expect kind of leverage on that Carvana operations part of SG and A to really be the driver of margin from here?

So I think our general view is that there are still meaningful fundamental gains to be had throughout the transaction. And I think to define that again, that's kind of generally speaking, we're talking about kind of variable functions there. So those are variable costs, to be the operations expense or it would be different GPU line items. I think every one of those line items we've got plans that we're pretty excited about that we think will drive additional fundamental Now I think when you get those fundamental gains, you have to decide what to do.

And I think if you look at where our financial model is today, it's obviously in a very good spot. 10.1% EBITDA margin for the year is extremely exciting. And then I think even if you just take that and apply reasonable leverage expectations over the next several years to just overhead expense. I think the path to the high end of our long term financial model, which was 8% to 13.5% EBITDA margin I think becomes very straightforward. And so I think we feel like we can see that very clearly. We're obviously paying attention to as we get these gains, what's best for the long term? Is it best to share those with our customers and benefit in conversions? Is it best for us to use those dollars and invest in additional foundational capabilities that make our experience even better for our customers and further differentiate us and further vertically integrate us. Or we're the best to have it show up in the bottom line. And I think that we're going to continue to march down the path of trying to unlock those gains. Then we'll try to make intelligent decisions as we go about where those gains go.

But we do expect the majority of those from here to be passed on to customers. And we'll [indiscernible] as that changes, but certainly something that we're excited about. I think you called out our operations expense back down to 1,700 in the fourth quarter where we're building capacity for tax season.

I think we're extremely excited about that number. We called out in the shareholder letter We're around $1,400 to provide all the kind of core functions of getting a car to a customer, managing the return policy, finance, verifications, delivery. The machine really is getting very efficient and then 300 delta give or take is our expected warranty expense. But I think we're excited where the machine is and we think we can make it more efficient from here and we just got to keep to work.

Thanks for that. And then I noted in your shareholder letter that delivery times were down more than 20% last year. Is there any way to kind of quantify what a faster delivery time means to you in conversion?

I think we'll stay away from quantifying that, but we do think it matters to conversion and we think it's material. I think that that's another example of a team that's done a great job And I think excitingly a team that has a lot of room left. I we've talked a bit about rolling out our same day delivery capabilities that remain in its very early stages. That's an incredibly complex capability to scale. We've rolled it out to a number of markets. But so far, we haven't staffed for maximizing the number of customers that can get that benefit. We've more leaned in to having that be more of an efficiency benefit where we can fill in any underutilized slots.

I think there's certainly the opportunity for us to lean into that further There's a number of kind of technology enhanced that we can lean into to make same day delivery available to a larger portion of the credit spectrum. And then we're working hard to make sure that we can always add more cars to kind of be available there. And then really that's kind of all framed in same day, but the same is true of kind of next day, two day, three day deliveries. And all of those kind of faster deliveries were just kind of shifting volume into those quicker deliveries and we've got I think long term plans to keep shifting into those faster deliveries That includes efficiency and logistics and then it also includes kind of all these integrations with with these Adesa mega sites that get cars closer to customers and reduce miles. So I think that's also a long road map, but I think it's a road map that we believe will enable us to continue to materially reduce delivery time over time.

Okay. Thank you. Thank you. The next question comes from Chris Bottuliere with BNP Paribas.

Please go ahead.

One overarching question and one kind of clarification.

But the overarching just hoping to give us a sense for like what the go forward strategy is on loan sales It looks like the fixed loan to full sales stepped up to $700,000,000 this quarter. And then non ABS kind of fell off this quarter. So I want to get a sense for like how do you think forward? Do you prefer to do fixed loan sales? Do you prefer ABS? Like does that world look like? And other any liquidity challenges today like in the market itself that maybe temporarily pauses that? And then the follow-up was just the $9,000,000 looks like there was a one time item in other SG and A. It looks like you didn't adjust it out. To add it back to EBITDA. Just hoping you could elaborate on that.

Yes, sure. I can take both of those. So So I think we've had a very strong year for the finance platform delivered very robust other GPU throughout the years especially the latter three quarters of the year. I think we feel great about that. From a loan monetization perspective, we expect to continue to use a diversified funding strategy. I think that's been our strategy since very early on at Carvana was to use multiple channels for loan sales, a combination of whole loan sales and securitization market transactions. And to maintain sort of those diversified funding sources. I think that's our expectation going forward. I think we feel really great about the way that the finance platform is performing today. I think we're seeing very very strong results and strong demand for our loans. And so I think, yes, I think business as usual is the name of the game there Feel great about the way things are going and expect to keep executing the same strategy. I think on your question about SG and A expense, and the non recurring items, The I guess a couple of things to call out there. One, we did do this thank you bonus in Q4 twenty twenty four was a truly special year for Carvana.

Carvana we want to say thank you to employees across the company. And so we did thank you bonus in Q4 In total, it was just shy of $9,000,000 across the company as a whole. Now that did not all go to overhead expense, only a fraction of that went to overhead expense, but it did get spread out across cost of sales operations expense as well as overhead expense. But the overhead expense portion was one of the small non recurring items. There are a few others as well that added up to that $9,000,000 but that just gives you a sense. And then in terms of backing it out of adjusted EBITDA, we have not historically backed out sort of small miscellaneous non recurring items out of adjusted EBITDA.

The next question comes from Daniela Hager with Morgan Stanley. Please go ahead.

Thank you. Mark, you mentioned your goal in achieving a strong credit rating. How are conversations going with the credit rating agencies to help improve from current levels what do you feel is important to demonstrate in terms of leverage consistency of free cash flow or something else?

Sure.

Yes.

So I mean, I think our view is the most important thing that we can deliver from a credit perspective is very strong metrics. And I think we did that overwhelmingly so in 2024. And then obviously expect significant growth in retail units sold in significant growth in adjusted EBITDA looking to 2025 as well. I think some of the metrics that we're focused on are net debt to adjusted EBITDA is all the way down to 2.8x. I think that's a strong ratio. We think there's lots of room to improve on that. Over time. But I think that's a meaning reflects a meaning improvement from where we were one or two years ago. Similarly, our interest coverage now above two times.

We think there's lots of room to improve on that as well. And that is our intent. And so I think the most important thing we can do is deliver on metrics And I think the ratings will take care of themselves over time.

Thank you. And then you've also mentioned capacity for 1,000,000 units. Shareholder letter said real estate capacity for 3,000,000 units.

What are the biggest gating factors near term limiting potential growth in units? Is it rooftops, physical labor, logistics Great. Combination.

I think it's the entire operational chain. But I think what we've called out in the past is being the kind of most operationally intensive part of that chain is reconditioning. And historically, that included acquiring real estate, doing the CapEx, to get that real estate ready, hiring, training and then executing. And I think given where we are today and given the real estate footprint that we have, we can scale to about three times our current scale with just hiring, training and executing. And then I think we can get to about eight times our current capacity with with the opening of these mega sites CapEx hiring and executing, hiring, training and executing, And so I think it's a simpler path than it was in the past. I think there are obviously other parts of the business that are very complex as well. Logistics, last mile delivery, customer care, [indiscernible] Progress in. I think we've built the system to be scalable think we've demonstrated that we can scale it. And so we feel like our job is to just keep executing and the rest will take care of itself.

Thank you.

Thank you.

Next question comes from Michael Montani with Evercore ISI. Please go ahead.

Yes, hi. Thanks for taking the question. Just wanted to ask first off, when you look at the number of markets that you all are in, I think it was pretty steady at three sixteen. Just wanted to think about the potential cadence to expand across the country effectively for the remaining markets. That kind of a multiyear journey or could you do that in the next year or two?

And then I had a follow-up. Sure. So I would say at this point, we're in the contiguous 48 states. We're delivering to the vast majority of the country. And I think that the most important things that we can do from here are continue to improve our delivery speed and continue to grow our inventory and kind of grow giving more people more options And then I think from there, it's just continuing to see all the business. I think most of our growth story from here will be about taking market share in all these markets. [indiscernible] our cohorts that we had in all of our different markets. I think in Q4, we got back just shy, I think a couple of thousand units shy of our of our peak unit volume in 'twenty two. And I think we're back to a place where those cohorts clearly light the path to significantly more scale and are back on the path to growing very quickly. They're generally speaking showing all the same patterns that they showed back then and kind of at similar places where they were back then in terms of market share. So I think at this point, it's more about just continually improving the offering.

Giving customers more selection, executing really well and taking market share. And we think that that the path to a much, much larger business.

Got it. And then just to follow-up on the earlier question related to GPU.

Just wondering if you could describe a little bit the operating environment now Do you feel that there's any constraints in terms of the availability of inventory out there What do you see competitively? Would you say fairly rational? How are you guys thinking about that for the remainder of this year? And then basically is there any benefit I guess to kind of pushing incremental units right now versus trying to maximize So I mean, we try to take a long term view on these sorts of questions. And I think generally speaking, the most important fundamental things about this market have been true for a long There's been about two seventy million cars in the car park in The U. S. For a long time. There's been about 40,000,000 transactions per year. For a long time that can fluctuate 10% or 15%, but there's been about that many. Generally speaking, the supply is all there, right? Customers are effectively just trading cars with one another or other owners of those cars or getting those cars to a customer. And we kind of exist inside of that machine. So we don't think that there's kind of a fundamental impact that we have on inventory.

We think it's about getting market share of kind of customer demand and then that leads to market share of supply very mechanically. I think that we also believe that the market has pretty stable profits. I think if you look at various public automotive retailers out there today, Generally speaking, their EBITDA Carvana, for example, are still a touch above where they were in 2019, but they're getting very similar that they're in a similar spots where they were in 2019 in our best guess is that they'll probably hang out about that level. I think there are deep structural reasons why that's about the profitability of these businesses and we think that that's great news because it just provides more of a proof point that these are the economics of the business. And then I think you didn't ask this question, but I think we oftentimes get a similar question about financing. How we'll be able to scale financing. And I think the same thing is true of financing. We exist in a mature market. The various finance providers are out there providing loans to customers through different channels. If you have the customer demand market share, then there is demand to make loans.

And we are not creating new demand. We are simply kind of displacing those who were previously providing those loans to loan buyers. So I think to us this is it's the advantage of being in a very large, very mature market. You have very clear visibility what the unit economics are. You know fundamentals of the business and then your job becomes just make sure that you're delivering [indiscernible] and that you execute well. And I think that that remains the name of the game for us and that's the path that we're on. The next question comes from Rajat Gupta with JPMorgan.

Great. Thanks for taking the question.

Question. I just had one first one on the fourth quarter retail GU. It was in line with the guidance or commentary you provided.

I was curious if you could elaborate a bit more on the [indiscernible] how much was it driven by just the pickup in the commercial retail marketplace? And just how much influence that might have had on that number Or was it just the core business that had the typical seasonal the non marketplace business that had the typical seasonal drop off? And had a quick follow-up on the guide. [indiscernible] Sure. Yes, I'll hit that one.

You hit it the I think our retail GPU in Q4 came in exactly in line with our expectations and our outlook. I think the sequential move from Q3 to Q4 in Retail GPU is nearly exactly what we saw on average in the pre COVID years. Obviously, it can bounce around from year to year, but just kind of look at an average across multiple years, it's right in line with those historical averages. So I think that and that indeed informed our our outlook to a degree. So I think we saw what for us has been typical seasonality in Q4. On a year over year basis, I think we had some good wins in particular We did see reconditioning and inbound transport costs come down on a year over year basis as a result of those operational efficiency initiatives that we've been so focused on.

But nothing tied to the commercial market the number from 3Q to 4Q or was it not material enough I The way I think about it is we have seen sort of a normal seasonal pattern in retail GPU over a period of many years and we saw exactly that pattern year as well. Got it. Got it. And then just maybe in the guide, just on like the equity offering. I mean, the $900,000,000 that you raised in the fourth quarter, It seems like you've hinted in the letter at a potential like refi Anything you could elaborate on that, the timing of that, is this the right time to do it? I mean obviously running your balance sheet with a lot of cash right now. Just curious what are we needed to use as you think? Would be best for that cash?

Sure. Yes. So let me hit that from a couple of different One of the things we called out in the letter is that our credit ratios are improving rapidly for multiple reasons. One is we're very quickly growing adjusted EBITDA. But second is we ex meaningful step down in GAAP net interest expense in 2025 relative to 2024. And so that just mechanically improves some of your credit ratios even without EBITDA growth. We expect significant EBITDA growth. So that was one thing we called out in the letter. Think the other thing we called out in the letter, we don't have any near term expectations of refinancing. Of our secured notes. However, secured notes are now trading at about a seven yield meaningfully below the coupon on the notes.

And I think that just provides a way to think about longer term opportunities to reduce interest expense even below what we currently expect from in terms of like our expectation for 2025, then all that says is, hey, we've got a really straightforward path to, in our opinion, to materially better credit ratios across the board versus where we are today. And we think that's just, I think a nice feature of the business. Why is that important to us? Us? I think where we sit today industry leading margins, industry leading growth, 1% market share, 3x built capacity to grow into, We just feel like we're in a position that is really unique and we're very, very excited about. And so we want to be completely focused on that growth opportunity. We think it's a historically unique growth opportunity. We don't want to be spending a lot of time talking about the balance sheet and that's why we're focused on just driving very strong credit metrics so that we're just focused on the growth opportunity and our customer offering as opposed to the balance sheet.

Got it. Got it. Makes sense. Thanks for taking the questions and good luck. Luck.

Thanks. The next question comes from Seth Basham with Wedbush Securities. Thanks. Good afternoon and know you don't want to talk much about the balance sheet, but just following it up on the last question. With the step up in the use of the ATM program this quarter, and the shelf registration that you made today, is there increased appetite to issue more [indiscernible] our view on the ATM registrations is we just think it's good corporate housekeeping to have an active ATM program. We generally view that opportunistically. In terms of specific goals or targets, we don't have any specific near term goals or targets. I think if you take a longer term view, we would like to drive the business to investment grade credit ratios. That's our goal. One of the reasons for that goal is like I was saying before, we just see an enormous opportunity in front of us and we want to have a very strong balance sheet that is paired with that significant long term opportunity. That will take time. But I think that is our goal.

Got it. Thank you. And my follow-up question is on Retail GP.

Just thinking about the seasonality of that metric. And we consider the fourth quarter to the first quarter, there's usually a material improvement through tax refund season. Is that the right way to think about it this year? Or are there any other dynamics such as higher inventory that you're carrying to think about here? [indiscernible] way we sort of think about the seasonality in retail GPU and our history on retail GPU, I think we typically think of Q4 and Q1 being the lowest quarters of the year. And Q2 and Q3. Being the higher quarters of the year, that's exactly, correlated with industry depreciation trends where typically depreciation rates are highest late in the year and lowest in the middle of the year. Which corresponds to that seasonal pattern that I just described.

So So that obviously can vary from quarter to quarter, but that's the broad sort of seasonal pattern that we have in mind on retail GPU.

The next question comes from Mike Baker with D. A. Davidson. Please go ahead.

Okay, great. Thanks.

Maybe a strange question, but I wanted to ask about tariffs, understanding you don't import anything. But to the extent that tariffs likely drive up new car pricing, can you remind us or how do you think about how that impacts used car pricing? And then how does that impact your pricing and your margins, etcetera? Just a lot going on. With new car costs, etcetera. And I'm just curious how you think that impacts your business [indiscernible] I think the most important answer to that question is we certainly don't know. What's going to happen with tariffs and wouldn't want to take a strong stand there. I think the smartest thing to do is probably wait and let's see. There's likely to be a lot of iterations of all this before we really figure out where this all ends up. But I think if the premise is new car prices go up, what does that do to used car prices? I think generally speaking indirectly that would probably lead to damp it depends so much on the mechanics of so many things that are not specified there. So I think as a general matter, we're running the business with the kind of idea of operating like it's any other year.

And we think that's the smartest thing to do because there's a lot of uncertainty around exactly [indiscernible] Fair enough. All right. If I could ask one more, I won't call it a follow-up because it's unrelated. But just thinking about you've talked about a couple of different ways, but do you reinvest to drive more units? Do you Do you let it go to the bottom line to generate higher EBITDA margins? I'm You haven't changed your long term margin outlook at all, still in that what is it 8% to 13.5%? I think you said something about targeting the higher end now, but guess what do you need to see to take that number that Carvana outlook higher?

Sure. Well, I think you'll first, just for clarity, we definitely are targeting the high end. And I think as discussed earlier, I think if you take the performance of even this full year, we were improving throughout the year and just apply kind of reasonable leverage assumptions, you can get to the high end. And so I think the path there is very clear. I think what's important to keep in mind is I think the thing that we will be optimizing over time is basically the sum of the dollars that the business generates and the size of the business we can build and the long term value that we think comes from that. And that obviously includes conversion element as well.

And so that's something where I think the optimal amount of fundamental gains that should be shared with customers and should be showing up in our income statement is a function of your belief around some of those things. And I think given our measures of the different inputs into that equation and our best guesses today where that will end up. We think aiming for the high end of our long term model is a very reasonable thing to do and we think that that suggests that many of the fundamental gains that we'll make from here will be shared with our customers in various ways, which I think some will be obvious and some will be more creative, and we'll seek to do that in the ways that are most efficient. But I think that's generally how we're thinking about it today. And in general, as long as we just keep making the business better, we have a lot of great options and we'll see where that takes us.

Makes perfect sense. Thank you.

Thank you. [indiscernible] question comes from Jeff Flick with Stephens. Please go ahead.

Thanks for taking my question. Congrats on a great quarter guys.

Thank you.

So I was wondering if you could maybe just opine a little bit on the acceleration in unit growth going from 34 in Q3 to '50 and on a two year basis from six to 31. On our fireside chat we had earlier in Q3, we talked about inventory kind of being the gating factor of growing units. I was wondering if retail marketplace had any effect on the acceleration? Where do you see the acceleration coming from?

You still think inventory is the gating factor because I did notice you you guys didn't wholesale quite as much Were you kind of reaching from that pool a little bit to get marginal units So anything you could add there? Sure.

There's a lot there. So I think we spoke earlier, about the success that we've had in building inventory of of all the hard work by the various members of the various teams. And I think that that clearly of all Wisconsin is undoubtedly helping. You made a reference at the end of the question to wholesale units I think the kind of move that we saw in wholesale units was pretty similar to historical moves in absolute units that we've seen from Q3 to Q4.

I think that's also related a bit to depreciation. Generally speaking, on units that we plan to wholesale. You were pricing those with an that we're going to take them to market very shortly after buying them and sell them at market. And so when there's higher depreciation, that impacts customer offers. And so it's generally a time of year where there are fewer wholesale units. And I think that the kind of moves that we saw there were very much in line with previous years. I think when you think about partner retail, I think the first order way that we are thinking about that is it's a replacement source of inventory that we think is highly scalable and we think has the opportunity for us to leverage our unique assets in a couple forms, but I think one that is very concrete is just these mega sites and our inspection centers to partner more efficiently with natural sellers of cars and to gain additional fundamental gains by basically making sure the cars are moved less often and faster and at lower cost. I think most of those fundamental gains that we believe are achievable in those partnerships are not yet achieved.

And so I think today, it's best to think about that as a substitute vehicle acquisition source, but not one that necessarily changes the customer offering all that much. I think what we believe has driven our growth has been most importantly the fact that customers love our offering and then I think importantly, the fact that there is positive feedback in our model. So as we grow inventory, there is higher conversion, which allows us to grow more inventory. You're seeing some of the other positive feedback show up and things like faster delivery times. And I think our goal is just to kind of keep leaning into that and keep growing. And we think the limiting factor is our ability to execute effectively and make sure that we are delivering very high quality and ideally ever improving customer experiences. And I think that's what we'll continue to monitor and make sure that we're we're balancing carefully. [indiscernible] one more go ahead. Sorry, one more thing I'd just throw in there, quick shout out to the wholesale team. They did grow units 43% year over year gross non GAAP up 50% year over year. That was an all time fourth quarter record on units.

So I think it was a great quarter for those guys. What was your next question? Mark, on the if you take other gross profit and strip out gain on sale, which pretty much leaves you with BSCs and some GAAP That on a per unit basis was $9.01 in Q4, which was sequential downtick from $9.39 and year over year 9.73 Just any color as to what's driving the decline there?

I don't know if there's anything particular that I would call out. I do think that can fluctuate around quarter to quarter. I think overall, I think we see opportunities in those the ancillary product component of other GPU. I think we have teams that are constantly focused on thinking about the customer experience related to those products, thinking about getting the right product offerings that are going to be the most desirable to customers in front of those customers, think they're always doing testing to to try to make things as simple as possible. So I think that the number that can bounce around from quarter to quarter for sure, but that's one of the areas in the business where we see continued opportunity for fundamental gains.

Great. Well, thanks for taking my question and good luck this year. Thank you.

The next question comes from John Colantoni Jeffrey Please go ahead.

Great. Thanks so much for taking my question. So you ramped the marketplace retail marketplace unit sequentially in the fourth quarter. Talk a little bit about any learnings from that expansion if you see an opportunity to make the offer a more meaningful portion of units sold over time?

Sure. Well, I would point again to we think that the fundamental role that we play is to get car from the previous owner or user to the next owner as efficiently as we possibly Carvana we think that having the joint distribution channels of retail and wholesale and having the ability to convert a car from its previous state to retail ready at the same location where you can wholesale it is a fundamental capability that enables partnerships and reduction of time and cost that we think is meaningful. And so to us, that's the fundamental gain. Those cars are part of that two seventy million Carvana park that rotate around and turn into car sales. And so if we can build a system that is more efficient for those cars, we believe that we can disproportionately get those cars and deliver them to our customers and deliver them experience along the way. And we believe it's part of just deepening kind of our foundational capabilities and our vertical integration. So I think that's the most important thing that we're working on. And I think that you're seeing us lay foundations for that. Generally speaking, something of enduring value takes time to build.

And so it requires the joint capabilities of reconditioning and wholesale at these different locations. Something that we're working on now quite a bit is working with our teammates at Adesa to build a very high quality digital auction tool that's going very well and also feeds into that system. And then we've got a couple of partnership where we're working on getting those cars and leveraging those tools and trying to make sure that it works out great for both us and for our partners. And we think that there's no reason why that can't scale meaningfully from here. I think the the portion of the market that could be served in a similar way is very large. But like anything, it will take work. And so I think we've got plans and we've got work to do and we're going to keep doing it, but I think it's another one of the exciting vectors in our story that we're going to keep pursuing.

Appreciate it.

Thank you. The next question comes from Marvin Fong with BTIG.

Please go ahead.

Great. Thank you for taking my questions.

And during this session. Congratulations on the results. A question, I think last quarter you had sort of indicated you expected the retail average selling price to come in at $21,000 I think you guys came in about $1,000 above that. And I was just curious what in the quarter kind of might have developed that caused the ASP to come in above expectations Was the pricing environment stronger than you expected? Or was the drag from retail marketplace units lower than you expected? Just some insight there would be great. And then on the OpEx spend per unit, the $16.96 this quarter, what will How would you advise us to kind of think about your ability to leverage this going forward? [indiscernible] or a percentage decline every year? What would be the best way you would advise us to kind of think about your ability to drive that number? Thanks.

Sure.

I I would say on the first one, I think there's is always a bit of room in those secondary numbers that we're trying to do our best to estimate those. But I wouldn't read too much into $1,000 delta on that particular number. On OpEx, I think this again is a number that we're incredibly proud of. I think when you when you think through the work that is being done and the offer that is being made to our customers and the variable expenses that we are incurring in order to deliver that experience to customers, it's something that's really exciting. But we also definitely think that there's room for improvement in There are many elements of our operational chain that we've discussed on this on this call. Obviously, logistics is a big part of that. Customer care is a big part of that. Verifications, title work, last mile delivery, handling the return policy when that occurs, Every element of that chain of completing a transaction with a customer is an area where we think there is room for improvement and where we have projects that we've mapped out, where we believe there's room for improvement. And now we need to go execute against that.

I think you can see that we've made a tremendous amount of progress over the last several years. As those numbers get smaller, the dollar progress it gets tougher. But we improved another $150 year over year or excuse me, dollars $3.30 year over year. Which is very meaningful there. And I think we still think that there's definitely room to continue improving.

Got it. Thanks so much, Ernie.

Appreciate it. Thank you.

That's all the time we have for questions today. I would now like to turn the conference back over to Ernie Garcia for any closing remarks.

Well, thanks everyone for joining the call. Carvana team, awesome job. I I cannot say this enough. I think the last year is a year that absolutely nobody saw coming. It's a year that maybe just us inside this company saw coming, but I think to execute the level that we did is something that we should be forever proud of. Please keep working as hard as we have. Then please stay proud of the effort, not just the outcome. I think we have a ton of stuff that is left to do and our path is extremely bright We are just getting started. So let's keep it going. Thanks everyone.