Earnings Call Transcript
CARVANA CO. (CVNA)
Earnings Call Transcript - CVNA Q1 2025
Operator, Operator
Good day, and welcome to Carvana's First Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. Please note, this event is being recorded. I would now like to turn the conference over to Meg Kehan, Investor Relations. Please go ahead.
Meg Kehan, Investor Relations
Thank you. Good afternoon, ladies and gentlemen, and thank you for joining us on Carvana's first quarter 2025 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. Additionally, we posted a set of supplemental financial tables for Q1, which can be found in the Events & Presentations page of our 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 Forms 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. Our commentary today will include non-GAAP financial metrics. Unless otherwise specified, all references to GPU and SG&A will be to the non-GAAP metrics, and all references to EBITDA will be to adjusted EBITDA. Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our shareholder letter issued today, a copy of which can be found on our IR website. And with that said, I'd like to turn the call over to Ernie Garcia. Ernie?
Ernie Garcia, CEO
Thanks, Meg, and thanks, everyone, for joining the call. In 2018, we held an Analyst Day where we walked through the long-term economics we believe our business model could deliver. That analysis resulted in us projecting a long-term EBITDA margin range of 8% to 13.5% at a time when our actual adjusted EBITDA margin was negative 9%. For the last four consecutive quarters, we have been in that range. And in Q1, in a seasonally weaker quarter, we were reporting 11.5%. This achievement is worth reflecting on, and it begs an important question. Why were we able to accurately forecast how our model would perform as a five-year-old newly public company that was significantly subscale and 20% of revenue away from our margin target? The answer is that the automotive industry is simpler when you zoom out than it looks when you zoom in. It is a mature industry with mature unit economics. It is highly fragmented with many industry players using similar processes with similar goals and similar underlying economics. This reality provides a lot of stability and makes the key to understanding any given player about understanding where they are different from the rest of the industry. This is the method we use to determine our own long-term financial model in 2018. We went line by line, using automotive retail history, simple mental models for the way our industry works and a bottom-up analysis of the differences in cost and revenues of our business given our novel approach. Zooming out has been predictive over the last seven years, and we expect it to be predictive in the future as well. When we went public in 2017, we opened our S1 with the statement of our mission to change the way people buy cars. What we meant by this is that we wanted to build a business so differentiated in selection, experience, and value that it just became the way people buy cars. We wouldn't have said that then if we didn't believe it. We've always believed it. But today, it is much more apparent externally that our mission is achievable. What happens when we continue growing selection and benefiting from the other positive feedback in our business? What happens when we continue unlocking and sharing value with our customers, further separating our offering speed, experience, and value? What happens when more people hear from their friends and family that buying a car from Carvana was fast, fun, and fair? What we think happens is that Carvana becomes the way people buy and sell cars. We are in an incredible position with an incredible business and an incredible team in order to continue our rapid march toward fulfilling this mission, we are setting our next objective. To grow to 3 million annual retail sales with 13.5% adjusted EBITDA margins in the next 5 to 10 years. Given the position we're in and the fundamental gains we see in front of us, the path to that goal, which we currently view as both very exciting and very achievable, is that we continue marching straight to 13.5% EBITDA margin and rapidly grow to 3 million units while sharing significant additional value with our customers along the way. While we believe this is a likely path, we are too young a company that is too early in taking advantage of our opportunity, and 5 to 10 years is too long of a time to have flexibility available to us. Accordingly, it is important to communicate our priorities. Over the next 5 to 10 years, we plan to prioritize growth over margin within reasonable margin ranges and plan to manage the speed of our growth to ensure we continue to deliver exceptional customer experiences and that we maintain high-quality efficient operations. There are 40 million used cars sold every year in the U.S. There are an additional 16 million new cars sold every year. Adding this up and using last quarter's unit sales annualized, we are still just about 1% of this market. It's very early in the Carvana story, and we are firmly on the path to becoming the way people buy and sell cars.
Mark Jenkins, CFO
Thank you, Ernie, and thank you all for joining us today. Our first quarter results were outstanding and driven by our team's ability to achieve further fundamental gains and operating efficiencies while also delivering significant year-over-year growth. For the fifth consecutive quarter, we earned positive net income, and we set new records for retail units sold revenue, adjusted EBITDA, GAAP operating income, and GAAP operating margin. Unless otherwise noted, all further comparisons will be on a year-over-year basis. Retail units sold totaled 133,898 in Q1, an increase of 46% and a new company record. Revenue was $4.232 billion, an increase of 38% and also a new company record. Consistent with past quarters, our growth in the first quarter was driven by our three long-term drivers of growth: a continuously improving customer offering; increasing awareness, understanding, and trust; and increasing inventory selection and other benefits of scale. We believe as we continue on our path of profitable growth, each driver will improve, creating more positive feedback in our model. Our strong profitability results in Q1 were again driven by sustained and fundamental improvements in GPU and operations expenses as well as leveraging our overhead expenses. Non-GAAP retail GPU was $3,308, an increase of $97. Year-over-year changes were primarily driven by reductions in reconditioning and inbound transport costs and lower retail depreciation rates, partially offset by lower spreads between wholesale and retail market prices. Non-GAAP wholesale GPU was $964, a decrease of $189. Year-over-year changes were primarily driven by faster growth in retail units than wholesale vehicle and wholesale marketplace units and higher wholesale vehicle depreciation rates. Non-GAAP Other GPU was $2,868, an increase of $430. Year-over-year changes in Other GPU were primarily driven by higher spreads between origination interest rates and funding costs, as well as a higher attachment rate on vehicle service contracts. Non-GAAP SG&A expense was $468 million, an increase of 20%. Q1 was another strong quarter for demonstrating the power of our model to leverage SG&A expenses. Our 46% growth in retail units sold led to a $750 reduction in non-GAAP SG&A expense per retail unit sold. The Carvana operations portion of SG&A expense totaled $1,658 for retail units sold, a decrease of $192, driven by our operational efficiency initiatives. The overhead portion of SG&A expense totaled $160 million, an increase of $9 million and a decrease of $449 on a per retail unit basis. We continue to see opportunities for significant improvement in per unit SG&A expenses over time and as we scale, driven by both continued efficiency and operational expenses as well as leverage in the fixed components of our cost structure. Adjusted EBITDA was $488 million in Q1, an increase of $253 million and a new company record. Adjusted EBITDA margin was 11.5% in Q1, a 3.8 percentage point increase. Our adjusted EBITDA margin of 11.5% was industry-leading and is well within our long-term financial model EBITDA margin range of 8% to 13.5%. Our adjusted EBITDA is very high quality compared to many rapidly growing companies due to our relatively low noncash expenses. We converted approximately 80% of adjusted EBITDA into $394 million of GAAP operating income and a 9.3% GAAP operating margin in Q1, leading the public auto retail industry. As previously noted, we currently carry many expenses that support retail unit sales capacity of over 1 million units and expect our GAAP operating income to grow faster than adjusted EBITDA over time. Q1 was a record quarter that again demonstrated the significant power of our business model. Assuming the environment remains stable, looking toward Q2, we expect a sequential increase in both retail units sold and adjusted EBITDA, leading to all-time company records on both metrics. We remain on track to deliver significant growth in both retail units sold and adjusted EBITDA in FY 2025. In conclusion, our results in Q1 were exceptional, and we remain highly motivated by our opportunity to continue driving significant profitable growth. Thank you for your attention. We will now take questions.
Operator, Operator
We will now begin the question-and-answer session. The first question comes from Ron Josey with Citi. Please go ahead.
Ron Josey, Analyst
I have two questions. Ernie, in the letter, we discussed various topics, but you specifically mentioned having clear visibility on continued financial performance. For the first part of my question, could you share your thoughts on the current macro environment and how tariffs will affect us in the short term? I understand that you provided long-term guidance, but I'm interested in your insights on the immediate impact. My second question is about pricing and GPUs. When managing the business, do you differentiate between retail GPUs and total GPUs? As you benefit from improved retail GPUs, do you pass those savings on as lower prices, which might affect retail GPUs, while still achieving better results with financing GPUs? I'm trying to grasp how these efficiencies translate into greater growth and how that ultimately contributes to the overall profitability of the company. I hope that makes sense.
Ernie Garcia, CEO
I'll try to be brief on the first point because I don't think we have as much compelling information to share compared to others. Regarding tariffs, we believe there's a valid perspective that if tariffs lead to higher car prices, that would be negative. It's likely that new car prices would rise more than used car prices, potentially benefiting the used car market. Businesses that can deliver value to consumers may benefit as well, and we see ourselves fitting into that category. Our approach has always focused on comparing our expenses and revenues to others in the industry, as well as the overall experience we provide. If we perform better in these areas, we are likely to succeed, although it is a competitive and mature industry. We put considerable effort into these aspects rather than getting caught up in a fluctuating macro environment. We do pay attention to market shifts, and fortunately, our system adapts to changes. If customers prefer less expensive cars, we will adjust our purchasing accordingly, and vice versa. Recently, when tariffs were announced, we noticed a slight increase in demand and adjusted our operations to maintain a steady sales pace. After that, we observed a brief decline, but it seems to have stabilized now, and our overall expectations remain unchanged. In terms of pricing overall, we have been focusing on fundamental gains, which have been significant over the past couple of years. We have improved various cost and revenue aspects while also enhancing customer experiences. As we approach our annual planning, we are establishing targets for Q4 this year and Q2 next year, and the opportunities ahead look promising and substantial. Our biggest challenge is deciding which initiatives to pursue, allowing us to maximize our efforts. We believe there are substantial fundamental gains to be achieved and are inclined to share most of these benefits with our customers, which will help us enhance our offerings. Our current performance stands at 11.5% this quarter during a typically weaker period, which we view as strong. We believe there are additional points of fixed-cost leverage to explore, especially as our more mature markets show better performance compared to our average. The potential gains suggest we could exceed our 13.5% target, and we find that encouraging as it supports future growth that we aim to share with our customers in various ways, whether economically or through enhanced services. We've made significant strides in efficiency, such as delivering cars faster, responding to customer inquiries more quickly, and reducing the volume of customer calls. We are committed to continuing this trend and will strive to capture the anticipated gains while ensuring they benefit our customers. We see a clear path ahead, and now it's up to us to execute effectively, as we believe we have a tremendous opportunity.
Operator, Operator
Next question comes from Brian Nagel with Oppenheimer. Please go ahead.
Brian Nagel, Analyst
First off, congratulations. I mean another very, very nice quarter. So, congrats.
Ernie Garcia, CEO
Thank you. We really do appreciate that. And we do keep track over here. Just remember coming up next.
Brian Nagel, Analyst
I have two questions that I'll ask together. First, you've been managing your retail GPU effectively, and I'm curious about your perspective on its future trajectory, considering both the positives and challenges in the near and long term. Secondly, regarding the long-term financial goals for the Company that you introduced today, what kind of additional investments are you considering to support those expected volumes, and when can we anticipate the new capacity coming online?
Ernie Garcia, CEO
Sure. So, I think as it relates to the various GPU line items, I mean the way that we think about it first order is we try to break it down, we say, what are the various inputs. So, retail GPU, you've got inbound transport, you've got your acquisition cost, you've got reconditioning. You've got the price that we put in front of customers, which is driven by how well we're merchandising and how effectively we're driving demand to those cars. And so, those are various areas where we have goals and we have projects that we're trying to tackle in every one of those areas, and we try to get better. And so, I think first and foremost, we try to get fundamentally better. And if we get fundamentally better, then we've got good options. One option you show that in the bottom line. One option you pass it back to customers either in price itself or in some other form of investment and drive incremental demand. And so generally speaking, I think that we feel like we're in a pretty good spot from an overall GPU perspective. And it's driving us to this place where the EBITDA economic walk that we did a moment ago gets you to very, very exciting places. So, I think we're going to be managing kind of across the economics of the business to try to make sure that we're in a great overall margin spot. And we're going to try to get better in every subline of every revenue line item and every expense line item. And we think we have visibility to do that, and we'll seek to continue doing that. I think as it relates to investments to keep going from here, I think we are in a pretty unique and exciting position. We acquired ADESA several years back now. And through that acquisition, we got access to a lot of real estate. We've been methodically opening up our mega sites, which support both auction capabilities and reconditioning capabilities. And then we also have underutilized inspection centers ourselves. So, I think we're positioned very well to kind of grow into that infrastructure. I think, of course, along the way, there will be investments. Mark has given some CapEx guidance for this year, I'm sure, over time, we'll continue to provide that. But I think relative to most companies with this kind of opportunity, I think there's a lot of kind of infrastructure that we get the benefit of growing into. So, I think we're in a great spot there, and we're excited about it, and we'll work hard to unlock it.
Operator, Operator
The next question comes from Rajat Gupta with JPMorgan. Please go ahead.
Rajat Gupta, Analyst
Great. I have one question just on the macro and you have several questions being asked over the last few months around how is Carvana positioned to tackle another recession, maybe a severe recession. Could you help us understand like what's different now in the business versus '21, '22? How should we think about the challenges you might face in the lending market, gain on sale margins, et cetera. If you could just walk us through like some of maybe two or three top aspects that are very different from 2022, which puts in a better position to navigate a downtrend. And I have a quick follow-up.
Ernie Garcia, CEO
Sure. Okay. Well, you started that question with a great and then you didn't follow it up. So, was that great that it was your turn or was that great quarter just so we can keep our staff on this side.
Rajat Gupta, Analyst
Both, both.
Ernie Garcia, CEO
Thank you for your question. I believe it's a valid one. To address it, I’d like to reference the automotive industry as a whole. We were quite different as a company at the beginning of 2022; we were not generating profits but were experiencing significant growth and moving quickly in a particular direction, confident in our support from investors. We then faced several challenges, including a unique rise in interest rates and car prices, forcing us to change our strategy dramatically. Several factors coincided at that time, creating an impression of a trend that we do not believe will define our future. Currently, we are the most profitable automotive retailer by a considerable margin. With an adjusted EBITDA margin approximately double that of the average public automotive retailer, we find ourselves in a far better position. We have strong margins and cash reserves, and we are still growing rapidly. This suggests we can handle fluctuations in the macroeconomic environment much more effectively, similar to other profitable automotive retailers during past downturns. Historically, the changes during those times were not drastic. Additionally, despite facing challenges in the finance GPU, we've navigated tough times like COVID, where we experienced a slight decline in finance GPU, but it recovered soon after. Throughout 2022 and 2023, we dealt with adverse perceptions online but maintained relatively stable GPU. Our competitive market means we all face the same conditions; worsening consumer credit, rising interest rates, and fluctuating car prices are factors that everyone considers. Therefore, we expect our experience to more closely resemble that of other successful automotive retailers facing challenging situations rather than the struggles of 2022 or 2023. We will do our utmost to ensure this is the case.
Rajat Gupta, Analyst
Got it. Got it. And just a follow-up on just like the lending backdrop. You added like a new partner last year. Curious where you are in discussions, potentially adding more partners? Do you see yourself having more partners or additional partners this year? Where are we in those discussions today.
Ernie Garcia, CEO
I believe we are stronger than ever before. Our securitization program has also reached new heights, with increased support in the residual sale area, particularly in the whole loan risk-taking segment. We have more repeat buyers than in the past. Our long-standing arrangement with Ally has been beneficial for both parties, and we have successfully executed large pooled loan sales, including adding a new significant buyer this quarter. Overall, we feel confident in our position. We produce high-quality assets that deliver predictable cash flows and attractive yields compared to many other market options. In summary, we feel as positive about the situation as we ever have, which is reflected in this quarter's results. We achieved exceptional finance GPU this quarter, and the trend has been improving for over a year and a half. This aligns with the positive trends we are seeing.
Operator, Operator
The next question comes from Chris Bottiglieri with BNP Paribas. Please go ahead.
Christopher Bottiglieri, Analyst
First one, I'm not sure I heard you correctly, but it sounded like you recast the TAM to the $40 million used plus new, and now you're 1% of that TAM. So just in context of acquiring that small dealership that you bought in the franchise space, just currently thinking, wanted to hear how you're thinking about the new vehicle opportunity.
Ernie Garcia, CEO
Sure. So, we bought that dealership. I think that begs a series of intriguing questions, but it's also very early. I think we're just in the process now of experimenting and learning. And so, I think it's a bit early to share much more than that, but stay tuned.
Christopher Bottiglieri, Analyst
Okay. That's fair. And then I was hoping to dig in on the ramp, like you provided some interesting context in the shareholder letter, like you can get to 3 million, 5 years versus 10, and what that implies for like the weekly production capacity. I mean you do it in five, you'd have to almost probably start this year or this coming year to do that. But I guess, what are the steps you do differently to hit it in 5 years versus 10? Like how does that change your capacity needs it's the same facilities, but I guess what do you do differently to do it in 5 versus 10? Is it more demand based? Or is it more like how you approach investment and scale it up more quickly?
Ernie Garcia, CEO
Sure. Over the past year, we've seen significant growth in both sales and inventory, which indicates that we've been ramping up production. On average, we've increased our production by around 80 units each week consistently over this time. This achievement, thanks to our dedicated team, sets us up well for the future. If we maintain this pace, we estimate that to reach 3 million sales, we would only need to increase our production to about 90 units per week over ten years. For a five-year goal, we would need to ramp up to around 180 units per week, which feels quite ambitious but doable. Currently, we operate around 23 production locations, and we aim to expand that to about 60 over time. Growth in production is primarily at the facility level and necessitates effective organization, leadership, and hiring. While it will be a considerable effort, we believe it is manageable, especially with more facilities in place. Our focus will be on enhancing customer experiences through efficient operations, which should drive demand. Historically, our consistent offering has fueled demand growth, and we expect that to continue as we improve our capabilities. Achieving 3 million units is significant, but given the larger used market, this goal is within reach. Our business model, which is more profitable than other public automotive retailers and growing rapidly, gives us confidence in pursuing this target.
Operator, Operator
The next question comes from Sharon Zackfia with William Blair. Please go ahead.
Sharon Zackfia, Analyst
I feel a lot of pressure to say congratulations. So, I will do so, because I know you're keeping track.
Ernie Garcia, CEO
You’re keeping You have forced. we're still going to count it.
Sharon Zackfia, Analyst
I feel that was a bit forced. It's a long day out here. I wanted to revisit the concept of reinvesting future gains with your customers. I want to clarify that we're talking about future gains and that we do not anticipate any significant downturn in GPU in the near term, as I have been receiving questions about that. If you could provide some clarification, that would be helpful. Additionally, as you consider reinvesting further gains with consumers, how are you prioritizing those reinvestments? Are there specific areas with a quick return on investment that you believe will drive conversion or traffic? Are there particular return thresholds that you're keeping in mind for this reinvestment? I think it’s a comprehensive approach, and I would appreciate it if you could define what you mean by reasonable margin ranges.
Ernie Garcia, CEO
We're not going to do that. Let's start with the first question. Earlier in the call, we stated that we'll prioritize growth over margin within reasonable ranges. This naturally raises the question of whether our margin decline is part of the plan. To be clear, we view 5 to 10 years as a long timeframe, and for a company that's only 1% of the market, flexibility is crucial. Right now, we're on a solid path, and our long-term strategy is not geared toward an immediate reduction in margin. That is not our intention. We believe we're making great progress and are very enthusiastic about it. Moving forward, our plan is to continue unlocking fundamental gains, which we believe remain substantial. Year-over-year, the change in our EBITDA margin translates to roughly an additional $1,000 per unit of value unlocked. If we can achieve that level of unlocking quickly, there should be more opportunities ahead, and we aim to capitalize on that. We also plan to share this value with our customers in various ways. Our objective is to create a simpler, faster, and more enjoyable car-buying experience that delivers greater value. Concerns about margins declining often lead to thoughts of lowering prices, reducing rates, or increasing bids on cars we purchase from customers. While all of that is feasible and on the table, we're committed to sharing value with customers intelligently over time. Investing in speed and enjoyment of the process is also worthwhile. These are the areas we've focused on over the past couple of years, leading to our high NPS and the positive metrics we shared earlier. Generally, investing in customer offerings takes more work and is challenging. We tend to invest more focus than dollars. Ideally, we’ll aim to prioritize our focus on enhancing the customer experience because we believe it’s crucial. In many cases, that is more effective than just financial investment. We're in a position where there are substantial opportunities for unlocking additional value, which we find exciting, and we plan to invest thoughtfully as we move forward.
Sharon Zackfia, Analyst
Can I follow up on that? Is that as you're starting to kind of embark on these kinds of investments, are those things you're going to outline to us on the Street so that we're aware of kind of where you're prioritizing that investment?
Ernie Garcia, CEO
I don't want to go into specifics about the exact forms we'll discuss in the future, but I believe we will. The areas we talked about earlier show that service levels across the entire business are improving. These are the areas where we've focused our efforts over the last 12 months, and it’s reflected in the numbers we’re discussing today.
Operator, Operator
Next question comes from Michael Montani with Evercore ISI. Please go ahead.
Michael Montani, Analyst
Just wanted to ask if I could about some of the work that you all have been doing with respect to third-party marketplace selling, if you could give us an update on that and how it's going? And then also, if there's anything that we should be keeping in mind as we build out models and so forth with respect to the potential for ancillary revenue streams, whether it's third-party logistics or reconditioning. So that was the question I had.
Mark Jenkins, CFO
Sure, I can hit both of those. So, I think the offerings that we've been developing related to either wholesale or retail marketplace, I think are going well. I think we've talked a bit before about some of the fundamental opportunities we see to create a better offering for commercial sellers that gives them options to send a car to Carvana and either wholesale it through a physical auction in ADESA, wholesale it through our new digital auction offering that has been expanding this year, ADESA Clear, or to sell it via our retail marketplace offering. And so that's something where we see real fundamental gains in the time it takes to get a car from a commercial seller into the hands of the ultimate customer and also an opportunity to cut out costs out of the system in doing that same thing. I'd say we're incredibly early in that story and thinking about what that can ultimately be. But I do think that it's a place in the industry where we see real fundamental opportunity for a faster and lower-cost offering that makes everybody better. And so, I do think it's something that we're excited about, but it's very, very early days, and really thinking about what that could ultimately be. In terms of your question about what should I put into the model on ancillary revenue streams? And you mentioned a couple around third-party reconditioning or logistics services. I think certainly, we see opportunities in those areas. Those areas are not a near-term focus. I think our near-term focus is starting from where we are today is roughly a 1% player in this industry, and really continuing to grow the key offering of selling cars to more and more customers. And I think that's really where our focus is going to be. And I think there are ancillary opportunities like the ones that you pointed to, but they're not a near-term focus.
Operator, Operator
The next question comes from Jeff Lick with Stephens Inc. Please go ahead.
Jeffrey Lick, Analyst
I'll add my congratulations and through really a tremendous quarter.
Ernie Garcia, CEO
So, it's our first tremendous. Thank you.
Jeffrey Lick, Analyst
No problem. I'm always trying to be a trendsetter. I have a question for Mark. Mark, was there anything in the data this quarter that surprised you? And for Ernie, we're really only about four years post-COVID, and you mentioned recurring customers. We see all these tremendous volumes that you're achieving, but the truth is that people still don't know you that well. We're all operating under the assumption from the last 40 to 50 years that cars are bought at dealerships. It feels like we're still very early in the adoption process. I would be interested to hear your thoughts on this and what the data indicates regarding our position on the adoption curve.
Mark Jenkins, CFO
Sure, yes, on the thing this quarter that surprised me the most, I have to say the aftermarket reaction initially to our earnings release today was probably the biggest surprise. I mean, we think we had an unbelievable quarter set records across almost every key metric. I think the numbers that we're putting up here with 46% retail unit sales growth in our roughly flat industry. I think the leading the industry on adjusted EBITDA margin by nearly 2x while growing at that 46% year-over-year growth rate, having very strong conversion of adjusted EBITDA to GAAP operating income, I think making us look very favorable on that metric compared to other many high-growth technology companies. I think we're just really excited about all these metrics. We think Q1 was an incredible quarter. We're expecting sequential growth in retail units sold and adjusted EBITDA in Q2 as well. And so, we're excited about that. And so I just think the way we feel like we're positioned right now, the numbers that we're putting up, the way we're executing, I think we're very, very excited about. So, we're certainly surprised to see that first few minutes reaction to our earnings print.
Ernie Garcia, CEO
Yes, I have a different perspective on that question. I hope you're correct, and there is considerable evidence to support that. One way we gather customer feedback is through calls every couple of weeks, speaking to two or three customers for about half an hour to discuss their experiences. We aim to talk to a variety of customers, such as those who purchased an EV or those who are repeat buyers or had less than perfect experiences. During these conversations, we learn a lot, especially since we're speaking with people who made significant purchases online. Some share stories about recommendations from friends or neighbors, which influenced their decision. Others mention how they discovered us online, saw our branding, and decided to engage because we appeared to be a legitimate company. While it's disappointing from a brand-building standpoint, it presents a significant opportunity. We aspire to be recognized as the preferred way to buy cars, transitioning from word-of-mouth recommendations from a few to a larger network of friends and family confidently saying, "Just go to Carvana. It’s easy." Given the vastness of this market and how infrequently people purchase cars, building a strong brand takes time. The key is providing exceptional customer experiences individually and offering something truly unique, which we believe we are achieving. We recognize that it's still early in our journey, and we're enthusiastic about our progress. We evaluate brand awareness through surveys, where our results indicate good recognition. Customers often mention having seen our logo, showing they know of our existence. However, we need to improve on ensuring that customers understand our wide selection, simple purchase process, quick financing, trade-in options, and our seven-day return policy. This understanding represents a genuine opportunity for us. Lastly, purchasing a car comes down to trust—customers must feel confident they are buying a quality product and know they can return it if needed. This is where recommendations from friends, family, and neighbors matter. All of these insights suggest we need to continue delivering excellent experiences. Our data reflects this optimism, as we observe higher market shares in our established markets compared to newer ones, indicating ongoing growth across all areas. Looking at the company level, our sales have increased by about 25%, and in key markets like Atlanta and Phoenix, we've also seen similar growth compared to previous highs. This indicates that we are continuously enhancing awareness, understanding, and trust in these markets, and we are excited about the potential ahead.
Jeffrey Lick, Analyst
Well, just as a quick follow-up. In your advertising, you never really lead into just how much better the experience is over the status quo. And then to your point about quality you really haven't ever shown people just how these cars are reconditioned relative to what they might be buying. So, I'm curious why you haven't done that.
Ernie Garcia, CEO
I believe we have an outstanding marketing team that creates exceptional assets, and a diligent quantitative marketing team that effectively positions those assets in front of potential customers. We've explored various strategies. If you look back at the initial version of our website, it consisted of five bullet points explaining why we thought our approach to car buying was beneficial for consumers. I was surprised to find that those five bullet points about the economics of car buying weren't very persuasive. Marketing is a challenging yet crucial task; attracting someone's attention and getting them to consider a different perspective is not easy. However, we have dedicated teams striving to achieve that. Additionally, the entire Carvana team works tirelessly to ensure that when a customer decides to buy from us, they have a compelling story to share, and we are confident this approach will yield results over time. We will continue to communicate our story, especially regarding vehicle quality. If someone's willing to spend a few minutes with us, I believe we can present a very compelling narrative about our vehicle quality, as many have witnessed at our inspection centers. However, reaching millions of consumers to convey that narrative is difficult. We will keep working on explaining these experiences. We've had notable successes and innovative ideas in the past, and we are constantly rolling out engaging ads that I encourage you to check out. Indeed, this challenge is ongoing, but I think it holds considerable promise for the future.
Jeffrey Lick, Analyst
Awesome. Well, congrats on the stock is still up. So, we'll talk to you soon.
Operator, Operator
The next question comes from Daniela Haigian with Morgan Stanley. Please go ahead.
Daniela Haigian, Analyst
On the financing side, I appreciate your comments on the additional whole loan buyers added to the platform. In that vein, can you comment on gain on sale. It looks like it increased sequentially to over 11% of receivables sold this quarter, impressive considering the market backdrop, can you speak to your various loan monetization channels, profitability across each, what's driving the higher gain?
Mark Jenkins, CFO
Sure. I can address that. One key area we're focused on is the GPU, including finance GPU, where we aim to achieve significant improvements. These improvements come in different ways. First, we are enhancing the platform itself, such as improving credit scoring, pricing, and underwriting processes, utilizing more data, and continually optimizing our lending operations. Additionally, making fundamental gains involves actions that reduce our cost of funds, like attracting new buyers to the platform, which can have a positive impact. We have already made substantial progress in both areas and still see significant opportunities for further improvements. We will continue to explore ways to enhance both aspects. Regarding specific quarter metrics, year-over-year comparisons show that benchmark rates have fluctuated, and our origination rates' spread was somewhat wider this quarter than in previous ones, which is a contributing factor. Ultimately, the most crucial element is our team's dedication to achieving ongoing fundamental gains on both the lending and monetization sides of the platform.
Operator, Operator
The next question comes from Marvin Fong with BTIG. Please go ahead.
Marvin Fong, Analyst
Congratulations on the strong quarter. It’s clear that you are producing at a remarkable rate. How should we assess your ability to continue sourcing around 80% to 85% of your retail units from consumers? Can you maintain that level? Do you think access to the wholesale marketplace will help meet that demand? Additionally, your conversion rates appear to be performing well with similar traffic, and your unit sales have increased. Could you elaborate on this? Is the improvement attributed to better delivery availability and previous initiatives, or were there factors like tariffs and consumer urgency that may have had a significant impact this quarter? Any insights on conversion rates would be appreciated.
Ernie Garcia, CEO
Great. Yes. You asked about sourcing inventory, which is a good question. I can anticipate similar inquiries regarding the price we pay for inventory and its implications for retail GPU, as well as our capacity to sell loans at increasing scales and whether that would pressure GPU. When considering our potential growth to six times our current size, these are all valid questions. One approach to evaluate this is to reflect on when we were one-sixth of our current size, about six to six and a half years ago. Since then, our offerings have remained relatively consistent, although we've added some capabilities that have improved our economics. Overall, our industry maintains stable economics across transactions when combining retail, finance, wholesale, and everything available. This model has proven to be very reliable, which is why we successfully created a long-term financial model and achieved it seven years later. Looking ahead, we expect the same stability. For instance, 40 million transactions represent consumers exchanging 270 million cars every six or seven years. Our aim is to enhance our role in this system through buying and selling cars, along with leveraging our ADESA platform and the additional capabilities we’re developing. Our growth has primarily stemmed from gaining market share and displacing competitors, while the underlying economics of the system have remained remarkably stable over time, and we anticipate that will continue. Therefore, we expect to sustain our growth in similar ways, and generally speaking, things have been stable, which we foresee continuing for fundamental reasons.
Operator, Operator
The next question comes from Alex Potter with Piper Sandler. Please go ahead.
Alex Potter, Analyst
Perfect. Great quarter. Wow. It actually was a very good quarter. I don't want to be facetious. Appreciate it.
Ernie Garcia, CEO
I appreciate it. I appreciate the wow, too. And the pause, a little drama in that.
Alex Potter, Analyst
Yes. So, I'll just keep it to one question here. Obviously, it's exciting to see this new framework. Once you get into the millions of units, presumably, you're going to be reaching down market in terms of pricing. Obviously, if it's a 15- or a 20-year-old car that's selling for a couple of thousand dollars on Craigslist or something that counts as a transaction, but presumably the economics aren't as attractive or might be less sort of ancillary finance BSC type stuff and more pure retail GPU. So, if you can comment on how you expect your own economics to evolve over time as you reach down into those lower price points, that would be very interesting?
Ernie Garcia, CEO
Yes, sure. What I would say is I think we don't necessarily expect to need to evolve all that much in terms of the distribution of cars that we're selling, I think that that's an opportunity for us, but it's not obviously that it's a need. I think if you look at used cars sold in the U.S., the significant majority are less than 10 years old, which is a subset of cars that we're selling today. I think it's something on the order of 85%, give or take, but that number might not be exactly right, the cars sold are less than 10 years. And so today, if you go to our website, we're selling cars across that spectrum. I think you can break those sales in other ways as well. Franchise dealers generally have about 1/3 of the 40 million transactions, call that kind of 14 independent dealers generally have around 1/3, give or take, and then private party has around 1/3. And I think those numbers from different sources can vary a little bit. But you're talking about millions and millions of transactions and in all of those buckets. So, I think we're currently reasonably broad, but I think there is room for us to go both upmarket where I think we have a demand of opportunity and I think a little bit down market. And I think this market is just very, very big and the opportunity is significant. So, I think as we head from here to 3 million, it's not obvious that our average sale needs to move all that much. We think that what we're selling today is likely to be pretty reflective of what we'll be selling at that point.
Operator, Operator
The next question comes from Michael McGovern with Bank of America. Please go ahead.
Michael McGovern, Analyst
I have two. First, do you expect any impact from the auto part tariffs on your reconditioning costs or on retail GPU? And then second, I guess, more broadly, do you still expect similar seasonality this year in retail GPU to what we've seen in the past where you might have Q4 and then Q1 be a little bit lower and then have some normal seasonal uplift in Q2.
Mark Jenkins, CFO
Let me address the second question first. The seasonal pattern in retail GPU typically sees Q4 and Q1 as the lower quarters of the year, while Q2 and Q3 tend to be the higher quarters. I believe this expectation holds true for this year based on current observations. That represents the usual seasonal pattern, and there's no reason to anticipate a change in that trend this year. Regarding your question about tariffs and their impact on reconditioning costs, we will have to wait and see how the situation develops. At this point, we are not making any specific predictions about the effects of those tariffs.
Ernie Garcia, CEO
And the one thing that I would add there, I think the mental model that has been reasonably predictive is that we're in a competitive market with others that share similar cost to us. And so, to the extent there's some input cost that changes, generally speaking, the way that, that has played out is it that input cost is passed through. I think the simplest way to see that, that is the case is just to look at like the retail GPUs of all of the various automotive retailers over a long period of time where over the last five or six years, we've seen enormous swings in car prices. We've generally seen pretty stable retail GPUs. And I think any other shared cost is more likely than not to have that same kind of relationship in the future.
Operator, Operator
The next question comes from John Colantuoni with Jefferies. Please go ahead.
John Colantuoni, Analyst
Great. I wanted to ask a high-level question. So, if I look at the 3 million target, it implies 250,000 to 500,000 incremental units each year, which is at the high end, about 3x more incremental units than you've ever added historically. I'm curious how you plan to unlock that much incremental consumer demand for your offering? And also, how you can expand units that much without inefficiencies popping back up into the business?
Ernie Garcia, CEO
Sure. Well, so I think we gave kind of our long explanation of the way the operation has been working over the last year, which I think is one helpful way to think about what we've been able to unlock over the last year. I think I'm going to have one more operation and I'll swing back to demand. I think another thing to keep in mind is, operationally, I think that we produced on a per facility basis, at significantly higher rates, and we've grown significantly faster per facility than we did over last year in the past. In 2018 through '21, we had significantly fewer facilities, and we were ramping sales at a very fast rate. And if you kind of do the math on a per facility basis, then we were growing pretty quickly. So, I think that there is plenty of data in our history to suggest that we can execute at that level. And then I think on the demand side, I think, generally speaking, we've had an offering that's been very stable and we've moved through several orders of magnitude as we've grown the business. And I think, generally speaking, our economics have been very stable across several orders of magnitude and our consumer offering has been very stable across several orders of magnitude. And we think that, that's because we have an offering that customers love. That is very simple and gives them a broad selection and great value. And as we grow, there is positive feedback just directly in the system even as it relates to just conversion of existing customers as you have more cars, the odds that a customer finds the car they're looking for go up. As you have more cars at more inventory pools, you can deliver cars faster. And so there's some benefits there to conversion. So, I think historically, demand has not been the governor on our growth. Generally speaking, it has been more our ability to operationally handle it. And I think looking forward to the market of this size, I think we'll work hard to make sure that we're delivering great experiences that in turn, turn into demand and then we'll work hard to make sure that we're operationally fulfilling that demand as best we can. But we certainly think that the 3 million is a very achievable number over time.
Operator, Operator
This concludes the question-and-answer session. I would like to turn the conference back over to Ernie Garcia for any closing remarks. Please go ahead.
Ernie Garcia, CEO
Thank you. Well, thanks everyone for joining the call. Really appreciate it. Carvana team, another awesome quarter. Thank you, guys so much. I really do think these results have just been kind of a hit parade over the last several quarters, and I hope you're incredibly proud of what you're building, and I hope you take a moment to be proud, but you don't let it go to your head and we keep fighting because we got a lot of building left to do. We got new goals, and I think we have every opportunity to go chase down. So, thank you all so much, and let's go do it. Thanks, everyone.
Operator, Operator
The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.