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    CVNA
    Earnings call· Mar 2025(Q1 FY25)

    CARVANA Q1 FY25 earnings call CVNA

    May 7, 2025 Source

    Executive summary

    Carvana Q1 FY25 — Record Performance and Ambitious Long-Term Growth Targets

    Carvana delivered record Q1 results across key financial metrics, achieving its long-term adjusted EBITDA margin target ahead of schedule. The company outlined an ambitious new objective to reach 3 million annual retail sales with 13.5% adjusted EBITDA margins within 5 to 10 years, prioritizing growth over margin within reasonable ranges. Management expressed confidence in its operational capacity and ability to leverage fundamental gains to drive future demand and market share.

    Highlights

    5

    • Retail units sold totaled 133,898 in Q1, an increase of 46% year-over-year, setting a new company record.

    • Revenue reached $4.232 billion in Q1, up 38% year-over-year, also a new company record.

    • Adjusted EBITDA was $488 million in Q1, an increase of $253 million year-over-year, marking a new company record.

    • Adjusted EBITDA margin was 11.5% in Q1, a 3.8 percentage point increase year-over-year, placing it within the long-term target range of 8% to 13.5%.

    • Non-GAAP SG&A expense per retail unit sold saw a $750 reduction, driven by operational efficiency.

    Concerns

    2

    • Tariff impact on car prices

    • Recession or macro downturn

    Guidance & targets

    5
    CategoryTargetConfidence
    Annual Retail Sales and Adjusted EBITDA Margin
    3 million annual retail sales with 13.5% adjusted EBITDA margins
    high materiality
    High
    Q2 Retail Units Sold
    Sequential increase, leading to all-time company records
    high materiality
    High
    Q2 Adjusted EBITDA
    Sequential increase, leading to all-time company records
    high materiality
    High
    FY25 Retail Units Sold
    Significant growth
    high materiality
    High
    FY25 Adjusted EBITDA
    Significant growth
    high materiality
    High

    Operational metrics

    20
    Retail units sold
    133,89846% increase YoY
    Q1 FY25

    New company record.

    Revenue
    $4.232 billion38% increase YoY
    Q1 FY25

    New company record.

    Non-GAAP retail GPU
    $3,308increased by $97 YoY
    Q1 FY25

    Reflects fundamental improvements.

    Non-GAAP wholesale GPU
    $964decrease of $189 YoY
    Q1 FY25

    Impacted by retail unit growth dynamics.

    Non-GAAP other GPU
    $2,868increase of $430 YoY
    Q1 FY25

    Exceptional finance GPU.

    Non-GAAP SG&A expense
    $468 million20% increase YoY
    Q1 FY25

    Demonstrates leverage against higher retail unit growth.

    Non-GAAP SG&A expense per retail unit sold
    $750 reduction
    Q1 FY25

    Driven by operational efficiency initiatives.

    Carvana operations SG&A expense per retail unit sold
    $1,658decrease of $192
    Q1 FY25

    Reflects operational efficiency initiatives.

    Overhead SG&A expense
    $160 millionincrease of $9 million YoY
    Q1 FY25

    Fixed component of cost structure.

    Overhead SG&A expense per retail unit sold
    $449 reduction
    Q1 FY25

    Demonstrates leverage in fixed costs.

    Adjusted EBITDA
    $488 millionincrease of $253 million YoY
    Q1 FY25

    New company record.

    Adjusted EBITDA margin
    11.5%3.8 percentage point increase YoY
    Q1 FY25

    Within long-term financial model range of 8% to 13.5%.

    GAAP operating income
    $394 million
    Q1 FY25

    New company record. Approximately 80% conversion from adjusted EBITDA.

    GAAP operating margin
    9.3%
    Q1 FY25

    New company record, leading the public auto retail industry.

    Market share
    approximately 1%
    Q1 FY25 annualized

    Indicates significant room for growth.

    Production increase rate
    approximately 80 units per week
    last 12 months

    Consistent increase in production.

    Production locations
    23
    current

    Provides capacity for future growth.

    NPS
    near 3-year highs
    Q1 FY25

    Reflects investments in customer experience.

    Sales growth in older markets
    about 25%vs. previous best Q1
    Q1 FY25

    Indicates continued growth even in mature markets.

    Used cars sold in US less than 10 years old
    something on the order of 85%
    annual

    Relevant to Carvana's current sales distribution.

    Industry KPIs

    6
    MetricValueDetails
    Sg a OPEX ratio$750 reductionUSD
    Comparable salesup about 25%%
    Per unit economics$3,308USD
    Store count growth23locations
    Gross margin drivers—
    Distribution supply chain cost economics—

    Deals & partnerships

    3
    ADESAAcquisition of physical auction business, providing access to real estate and reconditioning capabilities.

    The acquisition of ADESA several years ago provided crucial infrastructure for Carvana's growth, allowing it to grow into existing capacity.

    AllyLong-standing financing arrangement.long period of time

    Ally has been a great partner for Carvana's financing needs.

    Various buyersSecuritization program and pooled loan sales.

    Carvana's securitization program is stronger than ever, with more recurring buyers for the residual sale portion and the addition of new large pool buyers this quarter.

    Risks & headwinds

    2
    Tariff impact on car prices

    New car prices more likely to rise than used car prices

    Mitigation: Carvana's adaptive system automatically adjusts to customer preferences (e.g., less expensive cars). Management believes the business model is well-suited to offer value in such an environment.

    Recession or macro downturn

    Not quantified, but management believes the company is in a much stronger position than in 2022/2023.

    Mitigation: Carvana is now the most profitable automotive retailer, with significant margins and cash balances, providing a greater ability to absorb macro variations. The company expects to behave more like other profitable automotive retailers during downturns, which historically have not seen severe changes.

    What to watch in Q2 FY25

    5

    Q2 Retail Units Sold

    next quarter
    Current133,898 units (Q1 FY25)
    TargetSequential increase, new company record

    Why it matters

    Verifying sequential growth and new records in retail units sold will confirm the company's continued momentum and execution against its short-term guidance.

    Assuming the environment remains stable, looking toward Q2, we expect a sequential increase in both retail units sold and adjusted EBITDA, leading to all-time company records on both metrics.

    Q&A highlights

    5

    How is Carvana thinking about the current macro environment, especially tariffs, and how does the company manage pricing and GPUs to balance growth and profitability?

    Management believes tariffs could potentially benefit the used car market by driving up new car prices more. Carvana focuses on its competitive advantages in expenses, revenues, and customer experience, adapting its system to market changes. The company aims to unlock fundamental gains and share the majority with customers through better pricing or experience investments to drive demand.

    “I think we've heard reasonable arguments that it would be more likely they would drive up new car prices by more than used car prices. And so it may be a directional benefit to used cars.”

    asked by Ronald Josey · answered by Ernest Garcia

    2 min read6 chapters

    Detailed Narrative

    01

    Achievement of Long-Term Financial Model

    Carvana has achieved its long-term adjusted EBITDA margin range of 8% to 13.5% for the last four consecutive quarters, reaching 11.5% in Q1 FY25. This accomplishment, forecasted in 2018 when the company was significantly subscale, is attributed to the mature unit economics of the automotive industry and Carvana's differentiated approach. Management believes this predictive capability will continue as the company scales.

    02

    New Long-Term Growth and Profitability Objectives

    The company has set a new objective to grow to 3 million annual retail sales with 13.5% adjusted EBITDA margins within the next 5 to 10 years. This goal is viewed as exciting and achievable, with a strategy to prioritize growth over margin within reasonable ranges, while maintaining exceptional customer experiences and efficient operations. Carvana currently holds approximately 1% of the total used and new car market, indicating significant room for expansion.

    03

    Operational Efficiency and SG&A Leverage

    Q1 FY25 demonstrated strong operational leverage, with a $750 reduction in non-GAAP SG&A expense per retail unit sold. The Carvana operations portion of SG&A decreased by $192 to $1,658 per retail unit, and the overhead portion decreased by $449 per retail unit. These improvements are driven by efficiency initiatives and the inherent leverage in the company's cost structure as it scales, with further opportunities identified.

    04

    Strength in Financing and Loan Monetization

    Carvana reported exceptional finance GPU in Q1, driven by higher spreads between origination interest rates and funding costs, as well as a higher attachment rate on vehicle service contracts. The company's securitization program is stronger than ever, with increased support from recurring buyers and the addition of new large pool buyers. Management emphasized continuous improvements in credit scoring, pricing, underwriting, and lowering the cost of funds.

    05

    Capacity for Future Growth

    Carvana is well-positioned for future growth due to existing infrastructure, including the ADESA acquisition which provided access to real estate and underutilized inspection centers. The company has been consistently increasing production by approximately 80 units per week over the last 12 months. To reach 3 million units in 5 years, production would need to increase by about 180 units per week, which management believes is achievable given the current 23 production locations and an expected future total of around 60.

    06

    Market Adoption and Brand Building

    Despite significant growth, Carvana believes it is still early in its market adoption curve. The company focuses on delivering differentiated customer experiences to build awareness, understanding, and trust. Older, more mature markets like Atlanta and Phoenix continue to show strong sales growth of approximately 25% compared to their previous best Q1, indicating ongoing market share gains even in established areas.

    AI-generated summary of the company’s earnings call. Not investment advice.