Carvana Co. (CVNA) on Q1 2022 Results - Earnings Call Transcript

Operator: Good day, and welcome to the Carvana First Quarter 2022 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Mike Levin, VP of Investor Relations. Please go ahead. Mike Levin: Thank you, Betsy. Good afternoon, ladies and gentlemen. Thank you for joining us on Carvana's First Quarter 2022 Earnings Conference Call. Please note that, this call will be simultaneously webcast on the Investor Relations section of the company's corporate website at investors.carvana.com. The first quarter shareholder letter is also posted on the IR website. Also, we posted additional information on the ADESA US acquisition transactions, which can be found in the Events and Presentations page of the IR website. Joining me on the call today are Ernie Garcia, Chief Executive Officer; and Mark Jenkins, Chief Financial Officer. Before we start, I would like to remind you that the following discussion contains forward-looking statements within the meaning of the federal securities laws, including, but not limited to, Carvana's market opportunities and future financial results that involve risks and uncertainties that may cause actual results to differ materially from those discussed here. A detailed discussion of the material factors that cause actual results to differ from forward-looking statements can be found in the Risk Factors section of Carvana's most recent Form 10-K. The forward-looking statements and risks in this conference call are based on current expectations as of today, and Carvana assumes no obligation to update or revise them whether as a result of new developments or otherwise. Unless otherwise noted on today's call, all comparisons are on a year-over-year basis. Our commentary today will include non-GAAP financial measures. 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 Investor Relations website. And now with that said, I'd like to turn it over to Ernie Garcia. Ernie? Ernie Garcia: Thanks, Mike, and thanks everyone for joining our call. The first quarter was a challenging quarter for Carvana. There were a number of impacts on the business, some internal and some external that combined to negatively impact our financial results. We view these impacts as transitory setbacks, and I will hit them first. Secondly, I will discuss what we are working on internally to address each of these impacts. Next, I'll touch on the underlying demand for our offering. And finally, I'll close on our thoughts on the long term. First, let's discuss the impacts to our results. There were three primary drivers of our results in the first quarter. The first is our operational constraints that most severely impacted our inspection centers and logistics network. These began with Omicron, were exacerbated by winter storms and then the path to recovery has been slowed by our inspection center logistics network and inventory growth causing us to produce and move more inventory to newly opened IRCs that are further away from our average customers, leading to additional network complexity. These effects had negative impacts on both sales volumes and retail GPU. The second was industry-wide impacts. Affordability and general consumer sentiment combine to drive fewer industry-wide sales in prior periods. While we continue to rapidly grow market share throughout the quarter, the combination of these economic factors and our operational constraints caused our growth to come in lower than we were anticipating. Because of the operational requirements of our business, we generally plan and build for growth 6 to 12 months in advance, depending on the lead times necessary to ramp each operational team. On average, across our history, this has served us well as it has enabled us to maintain much higher levels of growth in businesses with our operational complexity historically have been able to achieve. But given the internal and external factors described above, this quarter, it caused us to carry more expenses than we had sales to offset them with. This led to total SG&A levels that were largely on plan in total dollars being much higher per unit than prior periods and, to a lesser degree, also flowed through COGS driving down total GPU. Thirdly, interest rates moved up rapidly in the quarter. As we originate the loans our customers use to buy parts from us and then sell them later, interest rate increases between initially showing our customers their financing terms and ultimately selling those loans leads to a reduction in the value of the loans we sell, which impact of reducing other GPU. These factors combined to lead to a clear step back in our financial results. While this isn't what we are shooting for, it is straightforward to understand and it suggests straightforward solutions. Returning to positive EBITDA and resuming our marks to our long-term financial model from there, requires that we resolve our operational constraints that we get our expenses and sales back into balance through a combination of sales increases and cost efficiencies and that we adjust our process in our finance group to reduce the impact of rapidly rising rates on GPU until we return to an environment with more stable rates. We have detailed plans that are already in motion in each of these areas. Our logistics team has clear plans in several key areas to catch up the level of our metrics were a year ago and then to move significantly beyond them. The addition of ADESA to our network will help to accelerate these plans further. Logistics progress will also unlock the ability to make more of our inventory visible to more of our customers, which is a straightforward way to drive sales up faster, as faster delivery time, larger selections increase customer conversion. Beyond that, the team is working on several near and medium-term plans to improve the selection of more affordable cars we have for our customers. These plans start as simply as buying a greater quantity of less expensive cars and extend the changes to our inspection center processes to produce more of those cars and the other product enhancements that make it easier for our customers to find and purchase less expensive cars. In addition, we are using our temporary excess capacity as an opportunity to gain additional cost efficiencies. While we are always aiming for cost improvement, the constant pressure of growth often dominates our priorities and slows our progress. Across the company, we have each of our operational teams focused on process and product improvements to increase efficiency in an effort to reduce cost and improve our scalability as part of project catapult. We are determined to make the most of this opportunity. Next, I want to touch on the underlying demand for our offering. Here, the signs continue to look great. We continue to rapidly gain market share in this difficult environment as we grew by 14%, while the market around us was shrinking. Further, we can look at subpopulations of our customers that are less impacted by affordability and interest rates to get a deeper view into demand. Our customers with FICO scores over 700 grew approximately 50% despite our logistics constraints and our ongoing suppression of inventory visibility. Lastly, I want to close with a couple of thoughts on the long term. At any point in time, the company's success is driven by the sum of the structural forces that define an industry by the macroeconomic backdrop and by company-specific factors. In the long run, the macroeconomic backdrop disappears from that equation as it just becomes its average. Structurally, nothing has changed. We're a fragmented 40 million unit per year market, with significant margins and customers who are open to and excited about something new. From a company-specific perspective, we continue to make constant progress. During this period, we have excess capacity, we have a transitory reduction in the amount of energy necessary to keep up with growth. While we will not allow that to reduce our energy output, but we’ll not allow that to reduce our energy output in the least. We will simply point more of our energy towards system and process improvements to maintain the same aggregate level of relentless improvement. In nine years, we've gone from an idea to a company with over $12 billion in revenue, and we are still just 1% of our market. In nine years, we went from the company with negative gross profit to a company with over 4,500 gross profit per unit. In nine years, we went from the company that lost $0.30 of EBITDA for every dollar of revenue to a company with approximately EBITDA breakeven just last year. That constant progress has been the result of the opportunity our market has presented us, the power of the business model we have built, the quality of the team we have assembled and the endless effort, creativity and passion the team is poured in. Some quarters are bumpier than others. Unfortunately, in the real world, they are rarely perfectly straight lines to anywhere. While it might be a little harder to see this quarter than most, we remain squarely on the path to building the largest and most profitable automotive retailer and to changing the way people buy and sell cars. The march continues. Mark. Mark Jenkins: Thank you, Ernie, and thank you all for joining us today. Carvana continued to gain market share in Q1, but several external and internal factors impacted our financial results. Some of these impact the used vehicle industry as a whole, such as Omicron, used vehicle prices, interest rates and other macroeconomic factors and others were more specific to Carvana such as reconditioning and logistics network disruptions. The impact of these factors on retail units sold volume was the primary driver of our results in Q1. We generally prepare for sales volume 6 to 12 months in advance, meaning we built capacity in most of our business functions for significantly more volume than we fulfilled in Q1. With our costs relatively fixed in the short term, the lower retail unit volume led to higher cost of goods sold per unit and higher SG&A per unit. These effects, combined with rapidly rising interest rates and widening credit spreads to lead to lower EBITDA margin. In Q1, retail units sold totaled 105,185, an increase of 14%. Total revenue was $3.497 billion, an increase of 56%. Total gross profit per unit in Q1 was $2,833 a decrease of $823 year-over-year. This total gross profit included a $76 per unit impact from Ernie's 1 million Unit Milestone Gift to Carvana employees. Retail GPU was $808 in Q1, a decrease of $403. Retail GPU was impacted by a more than $600 per unit increase in reconditioning and inbound transport costs relative to the prior year and a more than $100 per unit decrease in shipping revenue, driven by refunds to customers following extended delivery times. Retail cost increases in Q1 were primarily due to inefficiencies in the inspection and reconditioning centers and logistics network, which in turn were driven by Omicron, severe weather events and the extended time lines required to recover from these events, and due to lower retail units sold volume, which increased per unit cost. We believe the factors impacting Q1 were transitory, and we expect to see retail costs move toward more normalized levels over the coming quarters as our logistics network normalizes, and our expense levels are better balanced with sales volumes. Wholesale GPU was $219 in Q1, a decrease of $8, driven by higher volume, offset by lower profit per unit. Other GPU was $1,806 in Q1, a decrease of $412. Year-over-year changes in other GPU were primarily driven by higher benchmark interest rates at the time of loan sale relative to origination interest rates and widening of credit spreads following the onset of the conflict between Russia and Ukraine, partially offset by the impact of higher industry-wide used vehicle prices on average loan size. Looking sequentially, the rapid rise in benchmark interest rates and widening credit spreads had a significant impact from the spread between funding costs and origination interest rates in Q1 versus Q4. This increase in spread had a more than $600 impact on other GPU in Q1. We expect this spread to move toward more normalized levels over the coming quarters. The same factors that impacted retail units sold and total GPU also impacted EBITDA margin in Q1. EBITDA margin was minus 11.6%, a decrease from minus 1.3%. EBITDA margin included a 0.8% negative impact from Ernie's 1 million Unit Milestone Gift to Carvana employees. While we faced a uniquely difficult environment in the first quarter, we are already seeing positive trends across our key metrics, and we expect meaningful sequential improvement in Q2 versus Q1 in retail units sold, revenue, total GPU, SG&A per retail unit sold and EBITDA margin. In our last shareholder letter, we provided an expectation that we would achieve over 4,000 GPU and approximately EBITDA breakeven in the last three quarters of 2022 taken in aggregate. We now expect to return to over 4,000 GPU and positive EBITDA to be pushed back a few quarters and then to resume our march toward our long-term financial model. We are on track to close our acquisition of ADESA U.S. in May and are excited about the role that ADESA U.S. will play in our path toward our long-term goals. The ADESA U.S. footprint includes 56 sites with approximately 6.5 million square feet of buildings on more than 4,000 acres. We expect to be able to build approximately two million units of annual reconditioning capacity in these locations, while still operating ADESA U.S.’s wholesale auction business. This is the equivalent of approximately 30 greenfield Carvana IRC locations in terms of the production volume that we expect to unlock over time. Adding the ADESA U.S. footprint will dramatically improve our logistics network over time. With the addition of these locations, we will eventually have reconditioned inventory within 50 miles of 58% of the US population and within 200 miles of 94%. This will have the benefit of reducing shipping distances, times and costs, accelerating us to our long-term financial model. We expect the ADESA U.S. purchase price to be financed primarily with $2.275 billion in unsecured notes. In addition, we expect to raise an additional $1 billion in preferred equity and $1 billion in common equity for future real estate improvements on the ADESA U.S. sites and for general corporate purposes. These financing transactions will place us in our strongest total liquidity resources and production capacity position ever, giving us a strong foundation for profitable growth and significant flexibility to execute our plan. On March 31, we had approximately $1.7 billion in total liquidity resources, including cash, revolving availability and financeable real estate and securities. In total, we expect the transactions to generate approximately $1.9 billion of net cash proceeds after payment of the ADESA U.S. purchase price and more than $900 million of financeable real estate, bringing our total liquidity resources to approximately $4.5 billion pro forma for the transactions. In addition, we estimate that the ADESA U.S. locations have approximately 200,000 units of facility capacity that is available for use with limited incremental site improvements. Mining our own IRCs with these ADESA U.S. locations, we expect total annual capacity at full utilization to be approximately 1.4 million units by the end of 2022. We are excited to join forces with the ADESA U.S. team on the path toward our long-term goals of buying and selling millions of cars per year and becoming the largest and most profitable auto retailer. Thank you for your attention. We'll now take questions. Operator: We will now begin the question-and-answer session. The first question today comes from Zach Fadem with Wells Fargo. Please go ahead. John Parke: Hey, good afternoon, guys. This is John Parke on for Zach. Mark Jenkins: Hey, John. John Parke: I guess with the two offerings you just announced, it doesn't sound like you guys are really changing the way you put on financing the acquisition. But can you guys kind of share how you're thinking about the debt terms, I guess, the incremental interest expense as well as any associated CapEx plan with this acquisition in 2022? Mark Jenkins: Sure. So, yes, I think we have announced our plans for financing the ADESA purchase as well as future real estate improvements on the ADESA site and additional funds for general corporate purposes. We expect that to take the form of $2.275 billion in unsecured notes, $1 billion of preferred equity and $1 billion of common equity. I think the specific terms on that, we'll discuss in the coming days. But I think that's the basic transaction structure. I think we feel really great about that transaction structure. I think it gives us a lot of flexibility to execute our plan. I think we feel really great about the trajectory that we're on. We feel really great about joining forces with ADESA U.S. and all the benefits that, that brings to our core business. And so, yes, I think we feel grateful about the acquisition and the financing structure. And then in terms of some of your questions on specifics on the securities, I think, we'll talk more about that in the coming days. In terms of CapEx, one of the nice benefits of the ADESA acquisition is, we do expect it to meaningfully reduce our quarterly CapEx outflows from the levels that over the past several quarters. And the reason for that is we have been spending a significant amount through 2021 and early 2022 on building out our own Carvana greenfield IRCs. That's been a meaningful use of capital expenditures for us. Now with the ADESA locations online, we do expect to be outlaying meaningfully less CapEx on certainly Carvana greenfield IRCs and then in general. So I think that's the directional guidance that I would give there. John Parke: Great. And then just kind of switching gears a little bit on like, I guess, financing GPU. You guys talked about the $600 sequential impact from the compressing ABS spreads normalizing. I guess, I mean, is there any way to kind of help us think about like what a normal level of other GPU should be? Mark Jenkins: Sure. So, I mean, I think we have talked a little bit about other GPU. I think we had a strong year on other GPU in 2021. We do think there was tailwinds to our other GPU in 2021 that came from elevated industry-wide used vehicle prices, because basically, the way that, that works is, the higher used vehicle prices lead to higher average loan sizes, which leads to higher other GPU, other things being equal. We sized that about $150 per unit. And then I think the other point that I would make on other GPU is, we see significant opportunities in front of us to expand other GPU from a fundamental perspective off of what we've seen historically. I think that takes the form of fundamental improvements in the finance platform, other fundamental improvements in ancillary products, including existing and new ancillary products. So, I think overall, we feel like we built a business to generate very significant other revenues and very significant other GPU over time. I think Q1 was certainly an outlier, not representative at all of what we would expect to see on a normalized basis. Operator: The next question comes from Chris Bottiglieri with BNP. Please go ahead. Chris Bottiglieri: Hey thanks for taking the question. Yes, I guess the first question is one of your peers today highlighted that there's been some chatter that ADESA is losing a bunch of its OEM relationships because of the acquisition. So, I just want to get a sense for like as you think about the EBITDA you've acquired, what type of attrition standards that you've -- attrition estimates you've assumed? And then two, I guess, just like bigger picture, is there any opportunity to restructure the deal to incorporate some of this? Do you have to pay up breakage fee, if you walk away from a deal? Just be helpful to think through that before you approach the Capital Markets Day. Ernie Garcia: Sure. So, let me just start with the reiteration of how excited we are about this transaction. We do think it's a -- has the potential to be a truly transformative transaction, giving us a nationwide footprint, the capacity to produce a lot more cars, the ability to put those cars closer to customers to shrink delivery times to reduce delivery costs, to enhance the customer experience, and to do it at greater volume and to do it all faster and also to accelerate our path to our long-term financial model because of the benefits of those locations. So, we're extremely excited about that. And then we're also excited about the auction business itself and the way that, that kind of works when paired with the Carvana business. So, I want to start there, and that dominates anything that happens kind of quarter-to-quarter, day-to-day or any other results. I do think that there has been across the auction business in general across all different auction groups. There has been something of a reduction in volume over the last quarter, much like we've seen in retail, and I think ADESA has not been immune to that. I think there have been a small handful of both buyers and sellers who have elected at least in the short-term and not do business with ADESA's part of the transaction. That’s actually probably been maybe a little less than we were anticipating so far. We've heard some really positive news as well. We don’t think that’s actually pulling through and impacting the results in a way that is noticeable as of yet. So, I think most importantly we are extremely about the transaction. It's very much a long-term foundational view that is generating that excitement and that extends across reconditioning, logistics, and the exciting things that we can do together with the auction. So, we're excited. I think there will probably be some of that noise, maybe there's a little bit more of that in the future, but it's been -- it has not been at a level that is concerning at least to us. Chris Bottiglieri: Got you. That's helpful. Then just a related follow-up. It looks like there's an extra $1 billion of capital being raised now. Can you maybe just talk about that just because how frankly scared the macro backdrop is you're just being a little bit conservative with the balance sheet, or would you look to kind of repay some debt outstanding with some of the proceeds? Trying to understand what the extra $1 billion comes from. I apologize if you already addressed this. Mark Jenkins: No, you're good. So, what I would say is I think the way that we've chosen to structure this purchase and the capital that we're raising is aimed at giving us maximum flexibility. It dramatically enhances our liquidity position. I think it does give us a lot of flexibility in the future to do interesting things. Undoubtedly, this quarter is not what we were planning for. We both hit in our prepared remarks. It's in the shareholder letter. We do plan for growth six to 12 months in advance. The world looks very different six, 12 months ago. And so we built for a different environment than we find ourselves in today that had costs. Those show up in the results that we're reporting. And now we're starting from a worst place when we would have liked to start. And so I think for the remainder of this year, we have to kind of dig out of that hole a little bit. So, that also generates rationale for a little bit of additional cushion. And then obviously, the macro backdrop is uncertain. And I think that extends to the broader macro economy and also to the way the auto industry is going to evolve from here. There are some pretty unique things happening in the auto industry these days that I at least haven't seen in my career. And so, we think that, given the opportunity that we've got, the size of that opportunity, the strength of which our customers have responded to our offering over the last nine years, the market share that we've seen continually growing across our markets, the continued market share growth that we've seen, the addition of ADESA and the ability for us to build into that opportunity. We just want to make sure that we position ourselves very well to ride out whatever storm may or may not come. And so, I think that this structure gives us the ability to do that. It gives us the ability to continue to run our play. And that's what we're going to do, because we think the opportunity is absolutely massive. Operator: The next question comes from John Colantuoni with Jefferies. Please, go ahead. John Colantuoni: Thanks for taking my questions. So the shareholder letter mentioned aligning revenue and costs over the coming quarters, while also mentioning that profitability suffered somewhat in Q1 from having a high level of fixed costs. Maybe you could just help square those two comments, and also help detail some of the levers you have to become more efficient over the coming quarters. Ernie Garcia: Sure. So, I mean, first of all, let's walk through how I think the numbers work in the simplest way we can. So, as we said, we aim for growth 6 to 12 months in advance. And that's because we've grown at a very fast rate. We do have real ops. Our growth is not continuous and smooth. It tends to be discontinuous around tax season, which is the end of February, early March. So that requires planning, and we have to build up our operational capacity ahead of time. If we go back in time to Q4, we grew at 57%. In Q3, we're growing at 74%. So we clearly were growing at higher rates, and we were anticipating higher rates of sales in Q1, because we didn't appreciate what would happen industry-wide with affordability and interest rates and consumer sentiment, everything pushing overall volumes down. And so, we build more capacity. And so, one way to look at that is, if you look at our SG&A per unit, it's at levels that we haven't been at in a really long time. And we've been at much, much lower levels. We've been on the order of $2,500 less many times in our history. And so, even if we just kind of do a simple math there and say we would have aimed for this level of growth and not kind of built for a higher level of growth across 100,000 sales, that's $250 million, that's a really big difference. And so, we built for more than showed up. And I think that's where we find ourselves today. The other impact that kind of drove the results was some of that kind of extra capacity we built also does flow through COGS, and it impacted various GPU line items, and then we saw interest rates move back. And so some of those things kind of led us to where we are. I think going forward, the most important thing that we can do is we just need to align our cost levels with sales. And the good news is, we've been growing market share very consistently even through this environment. So the underlying business continues to grow relative to the market. We grew at 14% in the quarter, which isn't as fast as we would have liked, but it's very solid in light of a shrinking environment. We continue to see more evidence of the underlying demand growth if we look a bit deeper. We pointed to the statistic of customers over 700 FICO grew that 50% in the quarter. Across all of our cohorts, we saw growth year-over-year in the quarter despite the shrinking market. So I think what we have to do now is, we just have to continue to position the business to benefit from that growth. We have to try to do our best to understand what's going to happen in the macro environment, because as we're continuing to take market share, there's a question about what's going on with the aggregate level of sales across the industry? As long as that's still shrinking, that will be a headwind to growth. When that abates and even stabilizes somewhere that should be less of a headwind, which will be beneficial. And then at some point, that, that will reverse and will turn into a tailwind. And then we also have some operational levers that we have that are in our control. We talked about -- we definitely took a hit from Omicron and logistics network. And then that was extended by winter storms. And then, as we've opened three inspection centers in the last quarter and on the quarter before it. And we've got kind of inventory in different places, that grew a little faster than we anticipated. That put a little bit of extra strain on the network. Unfortunately, that extra strain has put us in a position where we have not yet increased the visibility of inventory across our network to customers everywhere. So those are operational undertakings that we're very focused on. We want to try to get our logistics network back to where it was a year ago and then continue to proceed positively from there that would lead to faster delivery times and greater sales all else constant. And then, that puts us in a spot to be able to make inventory visible, which should also lead to greater sales of all comp. And so that's the kind of easiest and most important way to get back to balances to drive up sales. And then, I think something that we're trying to do internally and something that I'm incredibly proud of the team for is every moment, whether it's the moment you plan for, if it's a little bit different than the moment you anticipated, it is some sort of an opportunity. And as a company for the last nine years, we've been characterized by sprinting as fast as we possibly can to keep up with the demand that we've seen. And I think the company has done a great job. The team has done a great job keeping up with that growth and growing GPU and levering EBITDA. But undoubtedly, when you're growing that fast, there are just trade-offs to get made, and there are priorities that you have to kind of surrender to. And so growth usually wins. And that means that kind of cost reductions off times do take a back seat. And we haven't had a lot of opportunities where there's less immediate pressure on us to grow. And I think the advantage that we have today and the opportunity we have today is we do have excess capacity. And so we've got the team pointing their energy at, let's find ways to get more efficient fast than we otherwise would have, because still got all this effort. And now we have this new opportunity where we're not pointing a lot of that effort in the direction of just keeping our head above water with growth. And so that's the other big opportunity that we've got. And somewhere in the mix there between growing sales as a result of our market share growth, growing sales as a result of continuing to improve our operations with the overlay of whatever happens in the market. And then, getting expenses because of this opportunity that we've got, we expect to get back in balance, and then we'll continue to build from there. So that's our plan. And we feel really good about it. John Colantuoni: Thanks for that. Just wanted to quickly ask about, the proposed offering from this morning -- from this afternoon, sorry, it sounds like last quarter, the $1 billion of additional financing was being mostly invested into the ADESA assets. But the proposed offering, mentioned that you'll also be now investing that $1 billion into working capital and general corporate purposes in addition to that, the investments in the ADESA assets. So two questions and that's also in addition to raising an additional $1 billion in equity. So two questions here, can you just quantify how much of that $1 billion you'll be investing into each of the buckets that you outlined in the proposed offering? And then second, what changed since last quarter that's necessitating an additional $2 billion in cash? Thanks. Mark Jenkins: Sure. So on the construction improvements to the ADESA locations, there's nothing changed there. So we still expect to invest approximately $1 million over a period of multiple years in the ADESA locations in order to move them from what we estimate is about 200,000 infrastructure capacity today, if fully staffed from an annual retail reconditioning perspective up to 2 million annual units of production capacity at full utilization when fully staffed, which is our goal for the ADESA locations. So that is exactly the same as we've always thought about it. I think we do plan to fill out the locations. We expect that to cost about $1 billion over a period of multiple years. In terms of the additional capital, I mean, I think the way we're thinking about that is, we have a very big opportunity as a company. I think we're extremely excited about the opportunity in front of us to take meaningful market share to drive strong unit economics, to take advantage of the ADESA acquisition, to get additional reconditioning capacity closer to more customers to improve customer experience and fast speed delivery times, take advantage of the logistics network benefits that come from having a more broadly distributed footprint. And so, I think we decided to raise that additional capital just to allow us to completely focus on that goal building toward our long-term model and to stop having conversations about liquidity and what happens in a deep recession and a prolonged recession and all those sorts of things. So, I think we feel really good about the transaction structure that we've put together. I think we feel great about the ADESA acquisition and the overall trajectory that, that places us on. Operator: The next question comes from Michael Montani with Evercore ISI. Please go ahead. Michael Montani: Thanks for taking the question. I had two questions. The first one was around the demand side. So last quarter, you had given some color around how units grew for households with $100,000 plus of income versus those with $50K. So, I was wondering if you could discuss that and/or the impact of stimulus, which we think could have been 500 bps to 1,000 bps? And then I had a separate question. Mark Jenkins: Sure. So what I would say is, at a high level, those kinds of metrics remain the same or kind of even more severe, where those with higher incomes have outgrown those with lower incomes by even more recently. So, I think this kind of theme of affordability has continued to get stronger over the last several months. So, whether you're looking at that in income, in credit, we provided the statistic with customer builder 700 FICO or an age. I think that basically shows up anywhere. So that is clearly something that is very active in terms of what's going on in the auto industry today. Those with higher incomes and better credit are still buying cars at much higher levels than those with lower incomes and lower credit in this environment. I think it's hard to disentangle the stimulus. There were several different ways of stimulus last year and the year before and it's hard for us to precisely disentangle that. Clearly, that is something we're comping over. Last year, it was tax season here as a little bit of stimulus story thereafter. And this year, tax season, in general, I would say was much softer in terms of impact than tax seasons historically have been. I think it's hard to disentangle the kind of comping stimulus effect from the affordability issues and the general consumer confidence and just kind of socioeconomic issues and everything going on in the world. But clearly, it all played something of a role. John Colantuoni: Okay. That's helpful. And then just on the headcount front, we had seen a pretty significant kind of quarter-on-quarter reduction in job openings. And I'm just wondering if you could talk to kind of if you assume volumes are relatively similar or improved kind of only modestly. How long do you think it would take to kind of rightsize the cost structure for that kind of environment? Is it kind of a one quarter thing, or is it more two to three quarters? Ernie Garcia: Sure. So I don't think we're going to give precise time lines on that. What I'll say is, we're going to be working hard in every direction. We've been growing market share quickly. We clearly have operational opportunities that we expect will drive additional growth, all else constant. We're clearly focused from a product perspective on driving additional affordability, which I think will be helpful for customers. And then we're also very focused on gaining cost efficiencies as quickly as we can. I would say our plan right now is sprint in all those different directions. And then, we'll see where that all comes. I think it's -- historically, it's been easier for us to provide specific guidance and forecast when we're trying to predict what's going on with our demand and what's going on with our execution. I think today we have a significant overlay of dynamism in the economy broadly. And I think we want to be careful about being too specific in any of our projections as a result of that. Operator: The next question today comes from Brian Nagel with Oppenheimer. Please go ahead. Brian Nagel: Good afternoon. Thanks for taking my questions. So I apologize, I want to focus a bit shorter term. But just there was a lot of comment -- you made a lot of comments, a lot of detail with regard to the effects in the quarter being transitory. Could you help us -- could you talk more about the trend through the quarter than you're hearing even into Q2, both with unit sales as well as GPU and maybe some of the early improvements you're already starting to see as some of these factors begin to abate? Ernie Garcia: Sure. Well, I think we'll definitely have to talk about Q1. I mean, in Q1, I would say it was for the most part, just kind of continually -- it looked like the industry environment was deteriorating throughout is I think probably the simplest way to characterize that. And again, disentangling how much of that was affordability, how much of that was just general consumer confidence or interest rates is very, very hard. But I think just looking at auto sales across the industry and looking at auto sales of peers, it looked like it was deteriorating throughout the quarter. And I think it's very, very early in Q2, so I don't think we're going to provide too specific of a view there. But I do think that from the time that we last spoke and had our last earnings call, things clearly continued to deteriorate from an industry perspective. Now, we do think that's transitory. There's a question of duration. But this industry is a $40 million transaction industry. It's been that way for a very long time. If you kind of zoom out over any reasonable period of time, that's what it averages and kind of that -- those transactions come from the fact that there's 27 million cars on the road and consumers trade with each other once every 6.75 years, and that's kind of the math that works out. In a moment like this, it gets very easy for many people to kind of put off the decision to purchase a car for many possible underlying reasons. And so historically, you can see car sales slow for a period and generally, that generates pent-up demand. And it alleviates relatively quickly. I think we do have extra dynamics going on right now. We have inflation. We have reduced new car production. We have car prices that are massively outpacing inflation in terms of price increases. So I think it's hard to know exactly how those forces will all play out in the near-term. I think from our perspective, we made this comment in prepared remarks, the most important thing we can do is continue to build towards the structural opportunity that sits in front of us, which is this 40 million opportunity and continue to make gains as a company and then just position ourselves to be resilient to whatever the macro economy brings us, and we think capital is a big part of that, and we think we've positioned ourselves well for whatever that does bring. Brian Nagel: Okay. That's helpful. And then so just to follow up on that. I mean that you're talking primarily about the unit sales been. But with regard to -- on the GPU side in particular, the reconditioning costs, have you started to see that dynamic improve yet? Ernie Garcia: Sorry. So yes, so on the retail cost side. So, I mean, I do think Omicron had very acute effects, for example, on the reconditioning centers and we are moving further away from that. So I think that's beneficial other things being equal. We definitely have been seeing improvements in the logistics network versus the most disruptive points. So I think that's beneficial other things being equal. So I would say we are seeing some positive data there. Operator: The next question comes from Rajat Gupta from JPMorgan. Please go ahead. Rajat Gupta: Hi. Good afternoon. Good evening. Thanks for taking the question. Just first one to know on the -- the consumer environment in the near-term. In the shareholder letter, you mentioned that you're seeing a pretty substantial sequential improvement already in your metrics, including sales. Is that primarily a function of just elevating some of the capacity constraints or bottlenecks, or is there something in the demand environment that's helping that? Just wanted to clarify that, and I have a follow up. Ernie Garcia: Sure. So I think -- I guess these are a bit difficult to disentangle. But from a logistics perspective, for example, we have made some gains. We're -- if we kind of look at where we were a year ago and then compare ourselves to the peak, depending on what metric you're looking at, we've maybe made kind of half the gains back to where we would like to be if we were in the same spot as we were a year ago. And then we've got to go from there. So I think there have been some benefits that are specific to Carvana that we believe are driving some benefit. And then we also do believe that we are growing market share. And so as long as even kind of the rate of industry-wide sales shrinking reduces all else constant, that should be positive for us as long as we continue to execute on our side. So I think, like I said, it's very early in the quarter. We don't want to talk too much about it, but I think there have been some at least operational gains that we are making, and they are likely having a positive impact. Rajat Gupta: Got it. Thanks for clarifying that. And the other thing you mentioned in the auto GPU that you are able to successfully pass on the benchmark increases through APRs in the month of April. Have you seen any impact on demand because of that, or has that been very consistent versus what you would have expected? I mean some of your competitors had some different perspectives on that. So I was just curious like what you're seeing in like, how is that influencing demand, if at all? Like or is it all pretty much sticking pretty nicely? Thanks. Ernie Garcia: Sure. I would say all else constant, there's no question that increasing interest rates negatively impacts demand, and it's something that we try to make sure that we're measuring carefully all the time inside the company. I think the other thing that's true is that benchmark rates go up and as risk spreads go up, the rest of the market also raises interest rates. And so from a kind of competitive option perspective, consumer options just in general kind of go up. And so I think that there is kind of this term that's often used that we've used in the past as well that interest rates are somewhat sticky where when they're going up, it's sometimes difficult to pass all of the increases on to customers instantly in a way that is economically optimal. It just tends to take a little bit longer because different groups do take different views and it takes a little bit of time to adjust. But generally, that adjustment period is not super long, and then the same is true on the other side as well. So I think undoubtedly, we would expect to see more demand if we were not raising interest rates with the environment, but I think that, that would be – the rest of the market is also raising interest with the environment. And so I think that -- we are not seeing the same impacts that we would see if we were raising interest rates by ourselves out the market raising interest rates alongside us. Operator: The next question comes from Adam Jonas with Morgan Stanley. Please go ahead. Adam Jonas: Hey, Ernie. What – can you tell us about Project Catapult, please? You're referring to a lot of the cost actions. And based on the e-mails I'm getting tonight, your quarterly cash burn and how – and what you can control to manage that even if it wasn't part of the plan is kind of a big impact on how long the capital that you're in process of raising can last you depending on outcome. So it sounds super important, but you mentioned logistics teams and some stuff, but I don't know if you could be a little more specific with those efficiency levers in terms of dollar terms or how we can dynamic that? Ernie Garcia: Sure. Well, first of all, Project Catapult the internal term that we use for the project that's running across all of our different operational groups right now. So that was a little bit of an internal call out to our teams. There's a lot going on across – across every single operational team. There are very clear goals and very clear metrics and a cadence of kind of catching up and accountability to make sure that we can gain as quickly as we possibly can. And we really are excited internally about using this as an opportunity to make gains that are hard to make in moments where you have as much pressure as we've had on average from growth. So I think there are many, many different subcomponents to that plan, and it does cross every operational team and several product teams as well. So I don't even really know where to begin, but I would say that the overall theme is called the catapult and put ourselves in a spot where we're really ready to efficiently grow when the market supports us and where we get gains in the near-term in all these areas where we know we can be better, and we finally have an opportunity to focus on it. So that's the general theme. Adam Jonas: So Ernie, I'm interpreting that as it's not purely a cost cutting program. It's an efficiency program that can yield savings in a prolonged period of half the growth that you would have anticipated if at 14%, if that was prolonged and not what you're capacitized for that you could lower the burn rate in the next couple of quarters? Is that relevant? Ernie Garcia: Yeah, I think efficiency is kind of lower cost and simpler to scale up. And so I think it's the pursuit of efficiencies across all of our different operational teams. Operator: The next question comes from Seth Basham with Wedbush Securities. Please go ahead. Seth Basham: Thanks a lot. My first question is just a clarifying one on the last one. So you are in the process of cutting costs in certain areas of the business to reduce the cash burn. Ernie Garcia: Sorry, that was your question. Yes. So, we are working on these projects that I discussed to find efficiencies across the business. That extends to every operating team, and all those constant, we do expect that to reduce variable costs. Seth Basham: Okay. Thank you. And then my follow-up question is just understanding when you announce the ADESA deal, you were thinking of financing at that point in time from my understanding, solely with debt and now you're financing it probably with preferred equity and an additional equity cushion. So, what changed related to that financing component for the ADESA acquisition and the improvements from the debt components of the preferred equity component between then and now? Ernie Garcia: Sure. So I think you maybe separate that into two. So, one is the addition of equity. And I think that, that was driven by giving us more flexibility as discussed earlier. We do think our opportunity is enormous. We think the market around us has moved a little bit. We think that suggests that we should put ourselves into a position where we can operate as flexibly as possible to take full advantage of the opportunity that we've got. And so I think that's an addition. And then, I think in the capital structure, we evaluated a lot of different possible solutions and evaluated those through a lot of different lenses, cost efficiency, flexibility, pre-payability and came down with this being the right capital structure. So I think there are a bunch of considerations there. Operator: The next question comes from Michael Baker with D.A. Davidson. Please go ahead. Michael Baker: Okay. Thanks. A couple real quick ones here, one and then a follow-up. Just on used car pricing in the industry, what's your view on where it's going? Some of the indexes seem to be coming down on a sequential basis, and then the year-over-year growth has been a little bit less than it has been yet you're seeing the opposite, your used car -- your ASPs are up and up at an accelerating rate, one of your competitors that reported this morning, same thing year-over-year increases were higher than last quarter and sequentially, the prices are getting higher. So, why the discrepancy do you think, and where do you see used car prices going? Ernie Garcia: Well, that's a very hard question. So let's start with maybe the discrepancy. I think the discrepancy could be partially in timing and then it could also be the gap between wholesale markets and retail markets. So, we definitely saw car prices -- let's start with wholesale pricing. We definitely saw wholesale prices kind of move up in the end of last year and into early this year. And then more recently, we've seen wholesale prices kind of start to fall back a bit. But I think when you're comparing quarter-over-quarter, year-over-year. It just kind of depends on the blend of where car prices were across the sum of that period. And so, I think maybe some of those discrepancies could just be a function of what different periods you're looking at and what different companies you're looking at. I think generally speaking, retail prices have been lagging wholesale prices. And generally speaking, they moved down a little bit more smoothly or up a little bit more smoothly. The way that a large portion of the market operates is that cars are kind of purchased at a point in time and then they're financed on a floor plan and they're kind of sold cost plus for lack of a kind of more complicated description. There's a lot more that goes into, I think, that's a good first order way to think about it. And so oftentimes, if wholesale prices drop, it's not necessarily clear that retail prices will immediately follow, because many of the cars that are sitting on dealer lots were bought in the previous period, and there's debt against those cars at a price that was prevailing price to that previous period and often times, dealers are not in a position to take loss on those cars or choose not to take a loss on those cars, and say, I'll just prices longer and then sell them at a higher price. So you tend to see a little bit more stability in retail prices. Those -- I started with kind of the historical prices and then moved on to the dynamics and what can sometimes create a gap between wholesale and retail. As far as where it goes from here, I think the simple answer is, I certainly don't know. I think today, depending on what kind of bucket of used car prices you're looking at, many cars are 40% more expensive than a year ago, whereas economy-wide, inflation is closer to 8%. So relative to other goods, cars are more expensive today than they have historically been. You would -- or I guess, I would at least expect that over a medium period of time, cars will likely kind of have the same relationship to other goods that they've historically had. And so that would mean either more inflation or car prices will come down at some point. And then I think probably the single biggest input to car prices today and the single biggest input to a lot of the unique dynamics that are happening across the new car market and the used car market is just new car production levels, which are obviously much lower than they've historically been. And so I think that it's hard to figure out how all that's going to balance out. And I think we'll be paying very close attention trying to do the best job we can to predict it and trying to manage the business in a way that's resilient to whatever direction those things could move. But I don't think we're confident in precisely how it will work out. I will say our hope is that car prices come down. I think all else constant, you would -- we would certainly prefer car prices to come down. I think in transition, there's a chance that, that would provide something of a headwind to retail GPU. I also think because of the dynamics discussed with kind of the gap between the wholesale market and the retail market, it's not obvious that headwind would be as strong as it might look. And if you saw wholesale prices move down and then also would clearly be a benefit to our customers if car prices were lower, and that would probably play a big part in returning the industry to normal, which would cause kind of the industry dynamics to reverse from what's been a headwind recently to a tailwind, which we think would be great for the business. So I think our hope is the car prices to go down. I think we would like to stay away from trying to precisely call it. Michael Baker : Yes. That makes sense. And just a follow-up on that. You said in the past, Ernie, that the ideal environment is lower used car prices, as you just reiterated, but also lower interest rates. I think what we might get here is one of those lower car prices, but I think we're seeing higher interest rates. How would you sort of characterize that environment honestly, one to 10, let's say, as being -- 10 being the most ideal environment? Ernie Garcia: I mean, I think if we're going with one to 10, I think 10 would have to be everything is low and competition gives up and consumers are excited, I think, that competes. That would be 10. I think moving off of that idea, I think, the most important thing is cars that people can afford because of the sum of vehicle prices and interest rates, which the vast majority of consumers are financing their purchases. And so affordability for them is kind of the intersection of -- or the combination of both car prices and interest rates. And then I just think stability. We feel like we've got an enormous opportunity, and we want to build into that opportunity. But building into that opportunity as efficiently as possible is made easier if we have clear visibility into what the future holds. And so if we had more stability in the market, I think that would be easier for us to just kind of stably grow and to be able to rely on what the market's going to do around us. And I think we care more about that probably than levels of either rates or prices but certainly would love for affordability to get better for our customers as well. Operator: The next question comes from Chris Pierce with Needham. Please go ahead. Chris Pierce: Just two. On the first one, we talked a lot about efficiency, but you guys spent $21 million more dollars to 8,000 less cars as far as advertising. I just want to think about advertising. Is that something that was preplanned and that kind of the demand environment is stuck up by any guys, or is that something that's kind of a bigger picture sacred cow? And the second question will be around credit spreads? Thanks. Ernie Garcia: Sure. So what I would say on that is, I think, as I said, across the board, we build our plans out in advance. And then something that we've learned to do over time is be careful about yanking wheel too much too quickly because generally, you regret it when you do. And I think when we talk about marketing, in particular, we still remain a relatively young brand that's building a lot of awareness. And we think that there's a lot of value in continuing to build awareness and understanding of what we do and trust in what we do. And we also think that all times, marketing is something that has a potentially long payoff. I think a lot of times, marketing dollars are thought of as kind of a direct investment where dollar goes in and a sale comes out. But the truth is a lot of what you're doing with marketing is getting impressions on people and communicating what you do and how you do it, and those impressions add up and you build a brand with that and the payoff of marketing can be long. And so we will look to make moves that we think are intelligent across the board across time as we're managing the business, but we also try to be careful to not yank the wheel too much. So that's part of what you're seeing. Chris Pierce: Understood. And then if I look at Q1 API or some securitization versus Q4, if you're going to -- and we're talking about higher FICO score customers being a larger part of the growth. I guess, can APR move higher because as interest rates entire large even these customers, your best customers will face higher rates? I'm just trying to figure out how the spread can widen because you've only got two levers and your yield levers, the lever you don't really have much control over? Ernie Garcia: Sure. So I think the similar way to probably think about that is just customers with higher FICOs are different customers than customers with lower FICOs. And so the interest rate spread that matters there is the spread between their rates and their funding costs. And on other customers, their rate and their funding costs. And so I think what matters is keeping the spread between those two things in a place that you can monetize in a consistent way. I think what happened in the quarter that is unique, the mix shift effects don't matter all that much because the spreads are kind of priced in, in a way that is thoughtful and the mix shifts don't matter too much. What happened in the quarter is when we originate a loan, we have an interest rate that we show to a customer and there's an expectation of the underlying funding cost. And then if the actual funding cost ends up being different than that expectation because either benchmarks or risk premiums or expected losses move between the moment of origination and the moment of sale then that ends up being a headwind. And so what we saw, obviously, was pretty dramatic in straight moves. I believe it's the most dramatic benchmarks have moved since the great financial crisis, and that had an impact. But I think that, we're -- if you look at the actual rates that were charged to customers at any point in time and the expected funding costs throughout the quarter, we’re originating loans in a very similar spot to where we were previously. Operator: Our last question today will come from Naved Khan with SunTrust. Please, go ahead. Robert Zeller: Thanks. This is Robert Zeller on for Naved. So just -- I'm just curious on the -- so you guys are planning 6 to 12 months in ahead. What short-term measures you guys have, what operational measures you have in place to react to near-term market swings or exogenous macro conditions? And then, secondly, have you said publicly or can you give us some sort of understanding of where the ADESA locations, what they're operating at today. So appreciate the projections and forecasts on what they can do at full capacity, but maybe what their -- what levels they’re operating at today for not full capacity? Thanks. Ernie Garcia: Sure. So I think, in the near term, our goal is, kind of, as outlined earlier on the call. We want to do everything we can to improve the operational constraints that we think are constricting sales that we can show customers more cars and drive sales up. And then, we're working hard to drive as much cost efficiency as we possibly can, and we'll see how that all kind of plays out. On the ADESA side, ADESA currently has facility capacity for approximately 200,000 cars per year, a little over 200,000 cars per year. And so, that kind of already exists in these sites. And then, over time, we'll be making the investments to be able to ramp up that facility capacity to the 2 million that we that we outlined earlier and in our deck. The actual utilization is far below the capacity they have. And so, there's an ability for us to hire and train and unlock more of that capacity, but there are steps between where we are in doing that. But the facilities exist and are ready to go, but there's still a need for hiring and training to unlock the 2K-plus. And then, just would reiterate again, I think, we put our shareholder letter kind of our footprint and the ADESA footprint. And I really think that that's a powerful page to take a look at, because it's -- if you look at our footprint today and you look at where our reconditioning centers are and you think about this through the lens of the logistics constraints that we've seen over the last four or five months, you can really see how that works, right? We're buying cars nationwide, and we're shipping a lot of those cars to middle of the country to get reconditioned and we ship them all the way back out to customers. And when you kind of look at that ADESA footprint and you overlay it on the map, you can see how all of those kind of inbound and outbound transport legs really reduced. And to kind of maximally get advantage of our business model, our logistics network, it does require a coordination between where cars are produced and logistics network and where cars are purchased. And we think that this gives us an incredible opportunity to coordinate that much better, much more tightly and with lower distances and times sitting between cars and customers. So we're obviously really excited about that, and we'll look to gain the benefits from that as quickly as we can. Robert Zeller: Great. Thanks. Ernie Garcia: Thank you. Operator: This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks. Ernie Garcia: Great. Well, thank you, everyone, and thanks for joining the call. To everyone on team Carvana, let’s really take advantage of the opportunity. We've talked about it a lot internally, but this is an opportunity that we have. And if we take advantage of it, we're going to look back on it very fondly. And I think there's a huge chance that we can make this into a big positive. So let's do that. I appreciate everything you guys do, appreciate your taking the time to listen to the call, and we'll talk to you again next quarter. Thanks. Operator: The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.
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Carvana Earns an Upgrade at RBC Capital, Stock Surges

RBC Capital Markets upgraded Carvana (NYSE:CVNA) from Underperform to Sector Perform, citing an improved risk-reward outlook. Shares gained more than 7% on Friday. The bank expressed optimism that the stock could rise further before valuation concerns resurface, making a bearish stance challenging to justify for now.

The analysts highlighted the potential for Carvana's return to significant unit growth to positively impact its stock price, especially considering the high short interest in the company. They also suggested that Carvana's cash generation per vehicle might be stronger than widely assumed.

With an estimated $7.4 billion in obligations over the next seven years, recent boosts in profitability per car could help Carvana manage its debt payments. Additionally, the analysts pointed out that an increasing stock price could enhance Carvana's liquidity situation, potentially easing its access to capital markets.

Carvana Surges 33% on Strong Outlook, Despite Q4 Miss

Carvana (NYSE:CVNA) shares jumped more than 33% intra-day today after the company provided better-than-expected guidance, despite its fourth-quarter results missing Wall Street estimates.

Q4 EPS came in at ($1.00), falling short of the analyst prediction of ($0.80). The company's revenue for the quarter was reported at $2.42 billion, not meeting the expected $2.56 billion.

Looking into the future, amidst ongoing macroeconomic and industry uncertainties, Carvana provided an outlook for the first quarter of 2024, expected an increase in retail units sold compared to the same period last year, and an adjusted EBITDA well over $100 million.

This forecast is based on the performance observed in the early part of Q1. The company expects the Retail Gross Profit per Unit (GPU) to be similar to Q4 levels, with potential for improvement. It also anticipates sequential growth in Wholesale GPU and Other GPU, alongside a decrease in Selling, General, and Administrative (SG&A) expenses per retail unit sold.

For the full year of 2024, Carvana is aiming for an increase in both the number of retail units sold and adjusted EBITDA in comparison to the previous year.

Carvana Receives a Downgrade From Jefferies

Carvana (NYSE:CVNA) was downgraded by Jefferies analysts, who expressed skepticism about the company's current situation and asserted that Wall Street's estimates are overly optimistic.

The analysts downgraded their rating from Hold to Underperform and significantly lowered the price target from $55 to $30 per share. The analysts' rationale for the downgrade lies in the belief that the consensus is overestimating the sustainability of the recent surge in profitability, which the analysts attribute to temporary tailwinds that are expected to diminish in the upcoming quarters. Despite assuming that per unit economics will remain better than pre-pandemic levels, the analysts’ revised 2024 GPU/EBITDA estimates are considerably lower than the Street's projections.

Carvana Stock Jumps 40% on Q2 Beat

Carvana (NYSE:CVNA) shares jumped more than 40% today after the company reported its Q2 earnings results, with EPS of ($0.55) coming in better than the Street estimate of ($1.15). Revenue was $2.97 billion, beating the Streets estimate of $2.6 billion.

DA Davidson analysts increased their price target to $60 from $18, while reiterating their Neutral rating on the stock. According to the analysts, Carvana has completed the initial phase of its turnaround and is progressing well toward the next phase. The company has improved its financial position by shifting its focus from top-line growth to profitability. Additionally, Carvana has undergone a favorable capital restructuring and shows signs of improved industry trends or at least less negative trends.

Carvana Stock Jumps 40% on Q2 Beat

Carvana (NYSE:CVNA) shares jumped more than 40% today after the company reported its Q2 earnings results, with EPS of ($0.55) coming in better than the Street estimate of ($1.15). Revenue was $2.97 billion, beating the Streets estimate of $2.6 billion.

DA Davidson analysts increased their price target to $60 from $18, while reiterating their Neutral rating on the stock. According to the analysts, Carvana has completed the initial phase of its turnaround and is progressing well toward the next phase. The company has improved its financial position by shifting its focus from top-line growth to profitability. Additionally, Carvana has undergone a favorable capital restructuring and shows signs of improved industry trends or at least less negative trends.

Carvana’s Optimistic Outlook May be Temporary Positive

Citi raised its price target on Carvana Co. (NYSE:CVNA) to $25.00 from $11.00 with a Neutral rating. Carvana's recently revised profitability outlook for Q2/23, driven by faster selling/securitizing of receivables, led to an expected adjusted EBITDA of $50 million.

The analysts believe that the company's optimistic forecast, which led to significant share price gains, may be a temporary positive. Carvana stated that they had sold or securitized loans totaling around $2 billion in the current quarter, which exceeded the $1.3 billion amount recorded on May 4th, 2023. The company credited its robust performance in the first quarter of 2023 to its ongoing focus on improving operational efficiencies.

Carvana Shares Surge 26% on Revised Guidance

Carvana (NYSE:CVNA) shares jumped more than 26% intra-day today following the announcement of improved Q2 guidance. The company revealed that it anticipates achieving adjusted EBITDA above $50 million for the quarter, along with non-GAAP total gross profit per unit surpassing $6,000. This represents a new company record and a remarkable improvement of over 63% compared to the second quarter of the previous year.

Carvana also reported that loans sold or securitized quarter-to-date amounted to approximately $2 billion, surpassing the $1.3 billion figure as of May 4th, 2023. The company attributed its strong performance in Q1/23 to a continued emphasis on operational efficiencies.