Good afternoon and welcome to the Carvana First Quarter 2020 Earnings Conference Call. All participants will be in 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, Vice President of Investor Relations. Please go ahead.

Thank you, Gary. Good afternoon ladies and gentlemen and thank you for joining us on Carvana's first quarter 2021 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. 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 and Form 10-Q. 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 the call over to Ernie Garcia. Ernie?

Thanks Mike. And thanks all for joining the call. The first quarter was another great quarter across the board, in our shareholder letter; we always lay out our financial priorities of rapidly scaling the business of growing GPU and demonstrating operating leverage. In the first quarter, we made tremendous progress across each of these priorities. We grew units and revenue by 76% and 104%, respectively. We grew GPU by over $1,000 year-over-year and almost $300 quarter-over-quarter, and we leverage EBITDA margin by over 10% year-over-year and 2.5% quarter-over-quarter. Even more impressively, these results were achieved despite meaningful operational constraints across the business and the significant investments we've been making to alleviate them. In the first quarter, our average weekly production was up 26% versus the fourth quarter. As a result of the relatively low inventory levels we were carrying throughout the quarter, unit volumes closely tracked production of 28% sequentially. Importantly, the investments we've made in ramping up our ops capacity in general and our inspection center capacity in particular are starting to pay off. As a result of ongoing focus, weekly production levels have been up closer to 50% above the fourth quarter more recently, which positions us well to begin growing inventory and increasing selection for our customers again for the first time since the pandemic struck over a year ago. Getting to this point is the result of a lot of careful planning and hard work across our real estate inspection center, logistics, market opportunities and advocate teams who have all put in tremendous efforts to catch up to demand and to fight off the pandemic driven ops constraints through the last year. Great job and thank you to those teams. These efforts and the ongoing execution of our plan position us well for a great 2021 and 2022. And the foundation is continuing to be laid to enable us to continue scaling rapidly in the years beyond. Eight years ago, we had a dream to change the way people buy cars and we've made a lot of progress. When we look back and look out over the years, it’s just a list of simple ideas—easy to say and very hard to actually put into action. It all started by imagining a new way to buy a car that was better for our customers in every important way. The excitement of that dream enabled us to attract incredible people who made our dream their own. From there, it has just been ambition, hard work, perseverance and constant learning. And with a critical mass of enthusiastic customer-focused ambitious people, we built a self-reinforcing culture. Those simple ideas have taken us a long way. In 2013, our first year, we had $4 million of revenue. Today we're over 1,000 times larger. Looking forward, we're just as excited as we were that we're delivering to customers the best experiences available when buying or selling a car. The quality of the unit economics that emerged from the investments we've made over time are showing up in our results. The scalability of our model is apparent, and our business gets better as it gets bigger, and we're still dreaming. The ambition that underlies our dreams burns as brightly today as it did at the beginning. And with every step we take, we can see further down the field. While we're extremely proud of what we've built and the team that got us here, we're nowhere near where we ultimately want to be in either scale or scope. We're still at the beginning. To get to where we are to where we want to be, we'll maintain our customer focus, we'll keep surrounding ourselves with exceptional people. We will remain ambitious. We will stay disciplined in prioritizing our efforts. We'll keep working a little harder than those around us and we'll have fun along the way. In short, we'll traverse the path in front of us the same way we've traversed the path behind us? We know what to do; we just have to keep doing it. Mark?

Thank you, Ernie. And thank you all for joining us today. Q1 was a strong quarter for Carvana across all key financial metrics, and our financial results demonstrate significant progress toward our long-term goals. Retail units sold in Q1 totaled 92,457, an increase of 76%. Total revenue was $2.245 billion, an increase of 104%. Revenue growth outpaced retail unit growth due to higher retail average selling prices, and wholesale and other revenue. We expect revenue growth to outpace retail unit growth again in Q2, and then we expect revenue growth to be similar to retail unit growth in the back half of the year. Total GPU was $3,656 in Q1, an increase of $1,016 year-over-year, and $277 sequentially. Since Q1 2020 was impacted by the onset of COVID-19, I will focus my commentary on sequential changes. Retail GPU declined slightly to $1,211 from $1,265 in Q4, reflecting a continuation of approximately $200 per unit of transitory costs, primarily driven by rapidly ramping up our reconditioning capacity in the midst of COVID-19. We do not expect the majority of these transitory costs to impact Q2. Wholesale GPU increased to $227 from $108 in Q4, primarily driven by strong industry-wide wholesale prices in the latter part of Q1. Other GPU increased to $2,218 from $2,006 in Q4, primarily driven by completing two public securitizations for the first time in Q1, paired with an increase in ancillary product attach rates that offset a one-time benefit in Q4. EBITDA margin was negative 1.3% in Q1, a 2.6 percentage point improvement from negative 3.9% in Q4, driven by both GPU gains and SG&A leverage. We ended the quarter with more than $2 billion in total liquidity resources, giving us significant flexibility to execute our plan. We had another strong quarter of buying cars from customers in Q1, buying approximately as many cars from customers as we sold to them and achieving a customer source ratio of over 60%. Our success over the last two years has made the strength of our offering of buying cars from customers clear, and we no longer expect to provide detailed statistics on buying cars from customers each quarter. So far in Q2, we are seeing outstanding performance and in April, we set a new company record for cars bought from customers, both on an absolute basis and relative to retail units sold. We are as excited as ever about the opportunities ahead. We continue to focus on scaling our production capacity to meet demand. In Q1, we opened our 12th IRC near Birmingham, Alabama, bringing our total annual production capacity to approximately 680,000 units at full utilization. We remain on track to open one additional IRC in Q2 and eight in 2022, bringing our total capacity at full utilization to over 1.25 million units by the end of 2022. So far in Q1, we've opened 22 new markets, bringing our total to 288 and increasing our population coverage to more than 77% of the U.S. population. In May, we also launched our first five markets in the Pacific Northwest, adding the last major region to our nationwide footprint. After Q2, we expect our path to 95% population coverage to primarily consist of opening smaller fill-in markets. In our Q4 2020 shareholder letter, we outlined our expectations for 2021 including accelerated retail unit sold growth, revenue growth in line with retail unit growth, total GPU in the mid-3000s and a small EBITDA margin loss, while investing for growth and continuing our progress on demonstrating leverage. We remain on track to meet or exceed these expectations and we continue to be excited about 2021 as a significant step toward our long-term goals. Thanks for your attention. We will now take questions.

Our first question comes from Sharon Zackfia with William Blair. Please proceed.

Hi, good afternoon, I did not expect to be first. I guess congratulations on a great first quarter. And I'm trying to kind of think about your improvements that you've been making and productivity and how we should think about that for the rest of the year. And I think Ernie, you mentioned that soon you'll have available inventory ahead of the year ago period. I guess I'm wondering, when will you be back to kind of pre-pandemic levels? What's your line of sight on that? And then I know you mentioned the $200 in transitory costs on GPU, obviously, the year-over-year contraction was a little bit more than that on the car itself. What else was pressuring that? Are you finding that it's more competitive to get inventory? You're having to pay a little bit more? Any thoughts there would be great.

Sure. So let's start with production. As you know, basically, since the second quarter of last year, we've been pretty constrained in production, given the pullback that we made then and then all the demand that we've seen and just trying to catch up. So I think in the first quarter, we kept pace; basically, our sales grew sequentially at effectively the same rate as our production grew. So, I think that suggests that those constraints were still in place. But then post the end of the first quarter, we've made a lot of progress and we've continued to see our production growing. So we now expect to be able to grow inventory. Basically, what we're saying is that we've kind of gotten to a place where we expect production to be a little bit more than sales. And we don't want to specify exactly the rates which we expect inventory to grow, but that's a middle milestone to now be in a place we expect to grow inventory. And we're pretty excited about that. Obviously, growing inventory helps with conversion across the site. And so that's an important milestone that we've hit. But we're not going to quantify it from there. We'll keep working hard and trying to grow that as quickly as we can as we grow into the production capacity, we expect to be around 1.25 million by the end of 2022. Mark, you want to hit number two.

Sure. Then I'll hit the question on retail GPUs. So Q1 retail GPU was largely aligned with our expectations when taking into account the transitory costs that we talked about in Q4. When you look on a year-over-year basis, in addition to those transitory costs, last year; we talked some about the impact of some of the early phases of iteration on buying cars from customers that positively impacted GPU last Q1. I think there are some base effects from those early phases of iteration that are impacting the year-over-year comparison. I think when we look at where we're headed from here, we did call out that we expect the majority of those transitory costs to impact Q4 and Q1 this year to be gone by Q2. And so that's a tailwind to the retail GPU as we move toward Q2, other things being equal. Overall, we feel really good about our progress there, had a solid quarter in light of those transitory costs, and expect to step up in Q2.

Our next question is from Zach Fadem, with Wells Fargo, please go ahead.

Hey, guys, thanks for taking the question. Now that you've entered the Pacific Northwest, and now have reconditioning centers all over the country, can you talk about the opportunity to start listing your inventory regionally versus nationwide? And to what extent this could unlock a higher level of GPU or operating efficiencies across the business?

Sure, so obviously, we're excited about launching the Pacific Northwest—that was the last region in our footprint that we weren't yet in. So I think opening that up is exciting. That means from here to roughly our 95% population coverage goal, in the long run, we're basically looking at market fill-in. That's great news for conversion across the country. As inventory gets larger, you certainly have some duplication of inventory that is optimal, where you want to take some duplicated inventory and put it in different places around the country that are closer to customers to minimize delivery times which is also an input into conversion. So there is some of what you're talking about that kind of automatically happens with scale, we're shipping distances should drop and conversion rates should go up. We have all kinds of tests all the time where we're getting a good handle on how inventory size impacts conversion, how delivery times impact conversion and kind of what the right thing is to do internally. But I don't think that we're going to give more concrete guidance on the precise expectations that we have around those different numbers.

Got it. And then on production, you've got one more IRC to go this year. But could you talk about the glide path for adding more production lines in your existing facilities? And how should we think about the full unlock of the 680,000 in capacity as we move through the year?

Sure, so I think our way to look at that is to look at our past. We provided in our shareholder letter in Q4 2020, you can kind of see our production capacity, our facility production capacity in each of our previous years. And then you can get a sense of how long it took for us to unlock that facility capacity with actual production by just looking at kind of sales rates in the future periods. So that will give you a sense of how quickly we can unlock that. It's something we've been working on internally is being able to unlock that production capacity more quickly. We've spoken before about the many different operational parts of the business. And all those different parts of the business have different lag times associated with how quickly you can alleviate constraints if you find yourself constrained. Production is the area with the longest lead times; it's hardest to grow capacity very quickly there, as we've seen over the last year. So we definitely put a lot of focus on catching up and on making ourselves even more flexible. And you can see the results of that progress in our sales growth for the last several quarters and then the fact that we're now expecting to grow inventory. So that's been a huge focal point. It's something that we think we are continuing to get better at.

Our next question is from Nick Jones, with Citi. Please go ahead.

Great. Thanks for the question. What are the puts and takes in investing in production capacity if maybe the chip shortage lasts longer than expected? And can you be in a situation where you have too much capacity? I guess how fluid is that situation? And then the second question I have is some of your legacy competitors or brick-and-mortar competitors are laying out pretty large targets now. Ernie, how do you feel the competition has changed, really, if at all, due to COVID or people noticing what Carvana has been doing all these years? Thanks.

Sure. I think first, the used market is fairly different than the new market. It's not totally independent; it's impacted in many ways. But the use market— all those cars are already on the road today—there's around 270 million cars on the road. And basically, the used transaction is just customers trading with one another. So it's not fundamentally impacted by underlying production levels in the way that the new market is. The new market is impacting the used market to some degree today because the decrease in available supply in new flows over into excess demand for late-model used cars, which kind of flows down through all the other used year levels as well. So there are some impacts there but wouldn't expect them to be super pronounced; I don’t think that's a first-order driver of what’s going to happen to the used market over the next six months or a year. Even more importantly than that, production capacities and investment in our kind of long-term future—when we open these facilities, and we unlock that capacity by hiring and training the people in those inspection centers, that then means that we have capacity to build those cars over and over again, powering our growth to 2 million cars and beyond and to becoming the largest most profitable automotive retailer. So those are big investments in our future that are being made with a much longer lens than the current chip shortages that we're seeing today. And then as it relates to competitors, I think there was probably no reasonable expectation of our path from where we started to where we wanted to be, that there wouldn't be competition along the way. I think we've been fortunate enough to have a fair amount of success. And with success, there's always competition. So we expected competition; I think we should continue to expect competition, we should probably expect competition to continue to show up as we continue to have more success in the future. With that said, I do think if you step back and evaluate the competitive environment, this market, the used car market does have a lot of really nice properties. First of all, it's a 40 million unit market. And so the largest player has on the order of a 2% market share. We're now the second-largest player in just eight years, but it's highly fragmented. And so even some of these big goals that are being put out by others in the industry are still very, very small compared to the market itself. And by some measures, the market may be considered fairly competitive in the sense that there are tens of thousands of players in it. But those tens of thousands of players are harder to provide customers with a very similar experience to one another. And when you start to look at kind of differentiated experiences, there are very, very few players that really have the capacity to make the investments in time, energy and money that are necessary to build an e-commerce platform. And we're way ahead there. So we're really excited about our position; we think that the market that we operate in has really nice competitive dynamics, almost constant. And then we also think that the most important thing that we can do is stay focused on our customers and ourselves. It gets really easy for two competitors to look at each other and kind of chase each other in circles. We instead want to make sure that we're focusing on our customers and that we're building up the solutions that they really need. And then that's something we should ensure fronts. The last year has taught us that when you see a lot of demand and you're trying to grow really rapidly, that comes accompanied with a bunch of operational challenges that aren't trivial to solve. So we need to stay really focused on ourselves in our execution. And we think if we do that, we're going to achieve our goals.

The next question is from Chris Bottiglieri, with Exane BNP Paribas, please go ahead.

Hey guys, thanks for taking the question. I just wanted to focus on our retail GPU. Some of the movements in used car pricing I thought might have been a tailwind in Q1 versus a headwind in Q4. It was not the case; did not see that. And then, if it wasn't, if used car pricing was more favorable this quarter, were there any other headwinds that we should be thinking about as we model retail GPU that you incurred this quarter?

Sure. So I think there are always many dynamics that are going into retail GPU. I think this quarter we certainly started seeing appreciation, rapid appreciation in the wholesale market. That's appearing to some degree in the retail market that really came on more toward the end of the quarter. So, I'm not sure that was particularly large effects on our Q1 number. The main effects on Q1 were the ones I called out, namely, these transitory costs on the order of $200, roughly the same as what we experienced in Q4. That was probably the biggest unusual impact on retail GPU in Q1. And as I mentioned, we expect the majority of those transitory costs to have disappeared by Q2. So we think that the removal of those transitory impacts will be a tailwind, other things being equal as we move toward Q2.

Got it. Thank you.

Thanks.

The next question is from Rajat Gupta, with JP Morgan, please go ahead.

Good afternoon. Good evening. Thanks for taking my questions. I just had a question on like the usage follow-up to one of the previous questions you guys view. You open up more IRC, as you know, as the production capacity is increasing, and like that's the main piece selection increases? How does like the advertising leverage start to look, once that happens? Did you start to see a meaningful pickup in delivery, just how we should think about that as that capacity ramps up? And I had a follow-up.

Sure. I think there's probably a lot of ways to think about that. Certainly, as we grow inventory, we would expect conversion rates to go up. As we kind of decrease delivery time, we would expect conversion rates to go up. The relationship from conversion rates to customer acquisition cost is very clear; as conversion rates go up, you would expect to see leverage in customer acquisition costs. I think those relationships would be as expected. If you take a look at the cohort data that we've provided over the last several quarters, you can take a look at what our customer acquisition cost looks like in some of our older cohorts. I think our oldest cohort, last Q4 was approaching on the order of $500, give or take, versus a company level of around $1,100, I think in Q1. So we've demonstrated what we can do with customer acquisition costs in those older markets. In those older markets, we expect it to continue to go down over time as we grow inventory and decrease delivery times further, and build the brand. Hopefully, that gives you a sense of where we think that can go. It’s just a function of how many markets we opened, what we decide to do with our marketing budget, how quickly we can grow our inventory, how quickly we can decrease our delivery times, and how well we execute. In general, we still feel like we're very early in brand building. We measure that in lots of different ways. But virtually any measure of customer awareness is still at low levels relative to where we want to be. We won’t be shy about continuing to invest in our brand as long as we think it's a smart thing to do.

Got it. That's helpful. And I guess on the finance GPU. I know it wasn't broken out separately this quarter. But like just based on my math, it points or somewhere around like $1,700 or so. Fortunately, like is that close or accurate? Looking at versus the targets at the Analysts day about like two and a half years back, obviously rates are much lower. What are the factors that have driven this uptick? Is this kind of like a sustainable level that you would expect in the near general, medium and higher? Just curious as to how to think about that, and what a more normalized finance GPU number should look like going forward? Thanks.

Sure. So first of all, we didn't try that breakout, so we don't tend to provide that here. I think it's easy to understand our rationale there. Going back in time to our analyst day you referenced, at that time, we were selling on the order of a quarter as many cars as we're selling today, our GPU was on the order of half, maybe even less than what it is today. I think our EBITDA was five, 10, or 15 points worse. And at that time, we were trying to provide detailed walks for our investors, so they could understand how those buildups would occur over time. I think as we've matured, and as we've seen a lot of progress in many of those different line items, the market in general has a much better understanding of how the things progress, we're just kind of simplifying our reporting and kind of aligning more closely with industry standards. We tend to break it out at that level of detail going forward, but I think it's not hard to infer the general areas that it's in; as you pointed to, that general area is very exciting. It's very strong compared to what we initially outlined at that analyst day in 2018. There are a couple reasons for that, some of them are fundamental and sustainable. I think we've really done a pretty good job with that business as we've made a lot of fundamental progress in terms of the way that we're able to assess credit risk and price credit risk, and the way that we're able to monetize our finance platform. So there are a lot of things that we've done there that we're proud of and think that there's probably some additional fundamental value that we can unlock. I think we're also in something of a unique environment, you know, early in the pandemic, we tightened credit pretty dramatically; we've held credit tighter than probably would be the norm and have almost constant. Over the last several quarters, we've been in a very low-interest rate environment. So that's helpful. There are a couple things that aren't necessarily persistent across time, but we still think there's progress to be made there. In the rest of other, we think there's progress to be made in our other existing items, we think there's progress to be made by adding additional items as well over time. We think that you'll want to have several success stories relative to our long-term model that we put out in 2018. We think that gives us a lot of flexibility going forward.

The next question is from Collin Sebastian with Baird, please go ahead.

Thanks. Good afternoon. I have a couple of questions. I guess, first off, I was hoping you could update us on the attach rates of other products and services and how much room there might be to grow those. And then secondly, there have been some questions around Google's testing of auto listing ads, and curious if that's something that you might find attractive to participate in? Or if you think that might change the competitive landscape at all? Thanks.

Sure, so I apologize; I think I'm not able to give you kind of boring answers to those questions. We don't plan to break out our attach rates for other products and services. We believe that there is room to continue to improve there. We've made a lot of improvement over the last several years, but we think there's clearly room to go from here. As far as Google testing a different ad product, we use Google as one of our many customer acquisition channels. We use them in search marketing, and then we use them in several other ways as well. I think we'll do that as a marketing channel. We'll evaluate it like we evaluate all of our other marketing channels. To the extent it gives us a high-quality return, we would expect to utilize that as well.

The next question is from Michael Montani, with Evercore ISI. Please go ahead.

Thank you for taking the question. So first one I had was just around when you're able to self-source a unit. Is there a sense that you can provide of the kind of tailwind that that gives to GPU versus when you have to go to auction? I guess I was thinking potentially 10% benefit over $1,000 but just wondering if you could give any clarity there; and then I had a follow-up.

Sure. Go ahead, Mark.

Yes, sure, I can take that one. I think it varies quarter-to-quarter, but a reasonable way to think about the benefit of sourcing it from our customers is to look at it in the context of our wholesale GPU. The wholesale GPU captures the difference between our acquisition cost of a car from a customer and the wholesale market trading price of that car. That's a good way to think about the cost benefit of customer sourcing. It does vary quarter-to-quarter; this quarter, we were around $800 or so on wholesale GPU. That's a reasonable way to keep track of the relative cost benefit of customer sourcing.

Okay, that makes sense. And then just a follow-up question I had was any incremental color you can share this year and then next year with the eight IRCs on how to think about the CapEx outlook, what's kind of a normal number, and then specifically, how does this year and next year look?

Yes, sure. A rough way to think about the capital investment related to one of these 67,000 unit IRCs is on the order of $50 million per IRC, maybe a little bit more than that, but on that order of magnitude. The way we think about that from a financing perspective is we've historically sale leaseback our IRC's; we think there’s lots of very efficient ways and a great market for financing those IRC investments, so that they're not actually net outlays for the business, but they're financed outlays. That's to give you a rough order of magnitude of how much they cost. We feel really good about the desirability of those assets from a financing perspective.

The next question is from Nat Schindler with Bank of America, please go ahead.

Yes, great. Thank you, guys. I think the GPU questions made under desk. So I thought I'd try something a little different. Could you walk through maybe what you saw, probably more on a weekly or daily basis prior to stimulus tax and then after them going up, and in how much impact that had on the quarter? Secondly, on a related note, with the tax filing date pushed out to May 15. Does that have any impact on the seasonality that is usually more Q1 weighted as people get their tax returns? Finally, well, let's just stop it; I can add more.

So nice multi-car questionnaire, let's try to break it down. Let me try to combine both concepts. I think both tax refunds and stimulus basically take the form of government depositing relatively large checks in the bank account of many, many people at once. That didn't look materially different than it looked in years past. Generally, what happens is people start to get notifications through email or wherever else that they have money hit their account. You'll see kind of the evening before a lot of traffic activity happen on the site, and then the next day, you'll start to see sales show up. I think that was undoubtedly material this year to us. A key statistic to keep in mind is we did grow sales sequentially by 28%, and we also grew production sequentially by 26%. We undoubtedly saw increased demand kind of on the day after stimulus was dropped, but that form that takes will just further compress your inventory, therefore reducing conversion rates for everyone afterwards. If we had to try to imagine kind of what would have happened to our sales absent stimulus, that's hard to do. Directionally, we clearly would have been less on the days and weeks immediately after stimulus. Our expectations would have been more in the weeks, kind of a couple of weeks after the stimulus drop. I don't know how big the impact was, but I think it was smaller this year than it would have been in previous years because in previous years, we were carrying enough inventory heading into that kind of event to handle that big onslaught of demand and still have sufficient inventory for our customers afterwards. This year was a little different. And the tax returns being pushed out a little bit, I think that did have an impact, but I think that impact is largely behind us. The vast majority of that impact is behind us. I don't think that's too meaningful for the future.

So you don’t expect the normal Q1 tax refund call it seasonality to be drawn out into Q2, it was pretty much still well taken up into Q1, despite being pushed out a week, a month.

The tax filing date was pushed out a month from what I believe is April 15 to May 15. But the date at which most customers get money in their accounts has historically been sometime in February. That might have been a week later than normal; but it had a normal spread from there in terms of when you see the demand impact. That didn't move as much; just the filing date itself moved. And the filing date itself is far less powerful than the day that the tax refunds are released to the masses.

The next question is from Naved Khan, with Truist Securities, please go ahead.

Yes, thanks a lot. Maybe on a related note. Since the noise from the stimulus and the tax seems to be behind us, can you maybe give us some sense of how the April trends are looking like for you? And how should we think about the shape of the quarter? And then I have a follow-up?

Sure. We want to stay away from providing too much detailed kind of intra-period color, but we provided an outlook in the shareholder letter and I think that captures our expectations. Demand has been very strong for really the last year for our offering, and we've continually been carrying a lower inventory than we wish we were carrying. We're excited now to kind of be at a place where we believe that we'll be able to start growing inventory, which we think is helpful. Things continue to look great from our perspective. There's nothing notable to call out that would go in any other direction. Those expectations are what we have in our outlook.

Okay, thanks. And then maybe you guys mentioned that the opportunity for more ancillary products. Is there a near-term potential to introduce a new product on the platform or is that still days away?

I think across the entire business, there are many, many different things that we can focus on. Obviously, we have a very complicated business for vehicle acquisition, transporting it to the inspection centers, running the inspection centers, merchandising it for customers, pricing for customers, building the finance business, running our warranty product, there's so much that we can work on. We have across the business about 70 different product teams that are working on all these various roadmaps at different points in time. We do our best to prioritize all the different projects as intelligently as we can. Generally speaking, we won't comment on what that underlying prioritization looks like, but there’s no doubt that there are opportunities in the future to add additional products; and that could be potentially exciting.

The next question is from Ron Josey, with JMP Securities, please go ahead.

Great, thanks. I wanted to ask two questions, please. I think just a follow-up on an earlier question on the expansion of the Pacific Northwest. Can you just help Ernie talk about the distribution in the time delivery and how you can flex your supply chain into those five new markets in that overall region, which is new? And then the second question is just on brand awareness, with 95% population coverage now insight, and I think still pretty low brand awareness, as we've talked about 100 million marketing spend in the quarter is pretty interesting. Just wanted to get your sense on how we should think about marketing spend going forward, how you’re putting those dollars to work around brand awareness, educational spend, and performance. Thank you.

So the Pacific Northwest is something we've been looking at for a long time. But it's a relatively isolated population center; the way up in the Northwest, and so it took us a long time to get to a place where we thought it made sense to add that to our logistics network. Over the last month or two, we've added that and the Salt Lake City area in Utah, which gives us a midpoint that allows us to connect up there with California. We thought it was an absolute time to go ahead and pull the trigger on that. We're excited to fill out the rest of our regional footprint. On brand awareness, I do think that we remain very low in brand awareness. Our dollar spend is starting to approach pretty sizable numbers that are meaningful compared to the marketing budgets of lots of companies. We have to also keep in mind that our accumulated dollar spend is still very low compared to more mature companies that have been around for a long time. We think that it's still early; we're spending a lot in brand, and we definitely spend a lot on kind of education. For a customer to buy a car from Carvana, they have to first know that you exist, understand what you do and how it's different from buying a car in a traditional way. We've got a lot of value propositions that we have to educate them about. Then they have to trust that you're real and your return policy is real, and that they can trust the quality of the car that comes their way. All those things take time to build up in the consumer's mind. We're testing a lot and learning a lot as we go. I think we're very excited about our position with customer acquisition costs, given the knowledge that we've accumulated over time by just looking at how we've leveraged our older cohorts. We're confident that we know how to leverage customer acquisition pretty significantly, but we also believe that we’re very early in brand building. As long as we find different channels that we think are hitting a different audience and educating them in different ways, we won’t be shy about spending that money and building our brand for good investment in the long term.

The next question is from Alex Potter, with Piper Sandler, please go ahead.

Great, thanks a lot. I had a question about certified pre-owned; I was just wondering if you have a strategy for trying to break in there? Or is that a segment that you consider more or less off-limits? Anything you'd be willing to share on that front would be interesting.

I think there's maybe a couple of ways to approach that problem. First of all, every car that we sell is certified—it's Carvana certified—and our certification process was patterned off of some of the luxury manufacturers' certification processes. The cars that we deliver to customers are of that quality. The specific brand certified pre-owned is generally reserved for the combination of franchise dealers and oftentimes the branded OEM warranty associated with that sale, although that's not always necessarily a condition of the brand of certified pre-owned. We believe that we're breaking into that market by delivering very high-quality cars and by building a logistics network and infrastructure of reconditioning centers that are able to certify cars to that same quality. That's our goal, but the particular brand is generally protected by our franchise dealers.

Okay, understood. And then last question, customer source ratio, still really strong. I can appreciate that you won't be disclosing that going forward. I guess, maybe just qualitatively, you're still running well ahead of what you thought you could do several years ago, which has been great. Are you starting to get convinced now that you can actually keep running indefinitely at these higher customer sourcing rates? Thanks.

At a very high level, the market for selling cars is around 40 million possible units. Generally speaking, a customer getting a car is also getting rid of another car. The market for us buying cars is theoretically similar in size. If you look at Q1 sales of 92,000 and the number of cars bought from customers, in a similar ballpark, you're basically looking at something like 1% of the market. We're very, very small compared to both of those markets. They are connected in certain ways through brand, particularly our brand, and the speed at which we can build our brand and generate awareness across all customers that we both buy and sell cars. They're also fairly disconnected, in the sense that only a subset of those transactions happens simultaneously when a customer is both buying a car and trading another car. A lot of them are separated in time, where a customer will buy a car and then maybe sell a car later or sell a car and buy a car later. They can grow independently. We've undoubtedly seen tremendous progress in that business over the last couple of years and we're extremely excited about it. I think both the retail business and the business of buying cars from customers are going to race each other to the future.

The next question is from Seth Basham with Wedbush Securities. Please go ahead.

Thanks a lot and good afternoon. My question is back on the topic of finance GPU. Seems like we had a high watermark there with this quarter's results. I'm trying to understand if you think that's the high watermark for 2021, or where do you think that can go longer term?

I think for other GPU in general, we've definitely hit the highest level ever. As described earlier, I think there are fundamental gains that we can continue to make in every line item of other GPU, and there are opportunities for certain products that we can add over time. That’s exciting. It’s hard to size the beneficial impacts that exist in this environment where we're doing something that we have control over, but it's likely leading to slightly higher other GPU, running with tighter credit. And we've benefited from very low-interest rates. Those are likely to unwind. The balance of those things is hard to precisely predict, but we're clearly in great shape versus the long-term model that we outlined a couple of years ago. I think it's too early, and we're in too unique of an environment to update that model. We think in general, that's probably roughly the right way to continue to think about it, and we've done very well against that model in the last several quarters.

Got it, alright, helpful. My follow-up question is just around reconditioning. Have you been using third-party reconditioning for things other than specialized services? And do you plan to do that in the future?

Sure. In the past, we've talked about how we've had various tests to identify how we could ramp up our production capacity across the business. That has included utilizing some third-party reconditioning; we are continuing to utilize some third-party reconditioning today. It remains a significant minority of the cars we produce overall and that's our expectation for the future as well. But it is something we are utilizing and continuing to test today.

The next question comes from John Colantuoni with Jefferies. Please go ahead.

Hi, thanks for taking my question. Can you talk about the tight inventory environment in the wholesale market and some of the measures Carvana has implemented to unlock new channels for inventory acquisition? And if you're expecting those measures to have any notable impacts on the near-term vehicle GPU outside of what's going on with wholesale prices? Thanks.

I can take that one. Our number one channel for sourcing inventory has now become sourcing cars directly from customers, which has several advantages that we've talked about historically. We're certainly going to continue to focus on that; that's a business that we want to build and continue to grow over the long-term. In terms of the wholesale market dynamics, we're still certainly buying cars on the wholesale market. I think we're buying cars; we're making money on those cars, and we retail them. I think we feel very comfortable in the current environment. From a sourcing perspective, our main area of focus is going to be continued growth of the business of buying cars from customers.

Great, thanks so much.

Thank you.

And our final question comes from Edward Yruma with KeyBank. Please go ahead.

Hey, thanks for squeezing me in. Just two quick ones for me. I guess, first on interest rates. We've seen any significant movement in the industry to offer your consumers; has there been an impact? And then a broader question: When your competitors, I guess, as they've scaled, have had kind of customer service and closed difficulties. Obviously, your numbers have been phenomenal, but how would you score kind of your customer service levels, particularly as you continue to ramp your business? Thanks.

Sure. So I think on interest rates, they came down obviously since pre-pandemic pretty dramatically, and then they've kind of bounced around a little bit from there. There's been some upward movement over the last quarter or so but nothing material. That’s where the story is; they're low. I don’t think recent movements are super material. In terms of customer service levels, our focus from day one has been to build a business from the ground up that delivers great customer experiences and to build all the things that are required to really enable those great experiences to be differentiated in a fundamental way. That's always been our focus. When we look at kind of all of our scores for what customer experience looks like; there are a lot of different things that drive that. First and foremost is the way that we've designed the business—the way that we've designed the customer experience. Then I think, from there, you've got your technology, processes, and the quality of those, and kind of how good experiences are capable of delivering. Very importantly, the next layer is how much do all the people that talk to your customers, that depict your customers, cars that deliver the car to customers—how much do they care about the customers and care about what we're doing together and empathize with the exciting moments of customers having when they are getting a car, which is the second-largest purchase they make in their life. I think we've done a pretty good job building a culture that cares about delivering great customer experiences. The last layer is do you have sufficient capacity across your operations groups to deliver to customers great experiences. Over time, we’ve been constrained many, many times; throughout the pandemic, you've heard of various constraints. If we go back to 2019, we had logistics and market operations constraints; prior to that, we had constraints in the call center. We have had constraints across the business at various points in time. Those constraints generally lead to our measures of customer experience going down a little bit. They remain at levels that are far above industry standard. Importantly, when we continue to step up, get our feet underneath us, and alleviate those constraints, we see them go right back to where they were, which means we’re in a great place in the foundational elements that matter most: business design, technology, processes, and culture. We’re really happy about the way we've been able to manage customer experience, which is our primary goal through all of this growth that has driven us to be 1,000 times larger than we were in the first year that we launched in 2013. There are impacts from very high levels of growth; those impacts are in the directions that you would expect, but we've done a good job managing them historically.

Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thanks, everyone for joining the call. And to the entire Carvana team, thank you. Great quarter, great job to all the operations teams. This has been a long slog; you've done an incredible job coming in every day and delivering great customer experiences. We really appreciate it. I hope that you hear the sincerity of that appreciation; it doesn’t just sound like something that we say every call. To the inspection center team in particular, this has been an absolute battle. Great job to all of you. I know that you've taken the last couple of calls and pinned those up on your locker for inspiration. Clearly, it did inspire. You’ve done a great job. Please keep going. We still got a lot of ground to cover, but thanks to all. Have a good one.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.