Carvana Co. (NYSE:CVNA) Q3 2019 Earnings Conference Call - Final Transcript

Nov 06, 2019 • 05:30 pm ET


Carvana Co. (NYSE:CVNA) Q3 2019 Earnings Conference Call - Final Transcript


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Ernie Garcia

billion in revenue per quarter.

Our offering in buying cars from customers was a standout this quarter. So I want to take a little extra time discussing it. The annual growth is a remarkable figure, but I think the quarterly growth is even more telling. We grew cars bought from customers by 40% quarter-over-quarter. That is pretty exceptional, and it has unsurprisingly put some pressures on the business to quickly adapt. Those adaptations are well underway and include investments in several areas as well as additional preparations for another big growth year in 2020.

We view the progress we are seeing in buying cars from our customers as a significant improvement to our platform. When reducing used car sales what they fundamentally are, they're simply swaps between different customers through the mechanism of all the middleman institutions that make up automotive retail. The more of that chain that we can integrate and improve, the more value we can pass on to our customers and the better business we can build.

Now I'd like to turn to the current state of the business. When we launched Carvana, we felt like we had three simple questions that separated us from achieving our goals. Number one, could we build an offering compelling enough that customers would buy a car in a whole new way? Number two, could we do that with strong unit economics? And number three, could we execute against that enormous opportunity?

Revisiting these questions a useful way to assess our progress. We believe the first question has been addressed. The quality of our customer offering, which drives our growth, answers it. The fact that in less than seven years, we have become the third largest retailer of used cars in the US with a completely new offering answer is it resoundingly. We've built something that our customers love.

We believe the second question has been answered as well. We are not yet a profitable company, and we remain intensely focused on this goal. But on the question of unit economics, the data is pretty clear. In the third quarter, 80% of our markets, which made up 97% of our sales, were contribution positive and 14 markets, which made up 35% of our sales, were EBITDA positive after fully allocating all logistics and corporate expenses.

The Company-level gains are every bit as powerful. In just three years, we've taken GPU from about $1,000 to about $3,000 and we've improved our EBITDA margins by nearly 20%. All that progress and levers has come, despite the investments required to grow retail transactions roughly 10 times and total transactions approximately 15 times over that same period. We've built the business that already has a strong unit economics, and there is clear visibility to our long-term model.

This leaves us with the third question. Can we execute against this incredible opportunity? Our execution so far gives us confidence. At about 6.5 years, we've gone from zero to 70,000 transactions per quarter. That said, this is