Q4 2025 Carvana Co Earnings Call

February 18, 2026

Speaker #2: After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one, on a touch-tone phone.

Speaker #2: To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Meg Kehan with Investor Relations.

Speaker #2: Please go ahead. Thank you, Nick. Good afternoon, ladies and gentlemen, and thank you for joining us on CARVANA's fourth quarter and full year 2025 earnings conference call.

Meg Kehan: Thank you, Nick. Good afternoon, ladies and gentlemen, and thank you for joining us on Carvana's Fourth Quarter and Full Year 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 fourth quarter shareholder letter is also posted on the IR website. Additionally, we posted a set of supplemental financial tables for Q4, which can be found on the Events and Presentations page of our IR website. Joining me on the call today are Ernie Garcia, Chief Executive Officer, and Mark Jenkins, Chief Financial Officer.

Speaker #2: 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 fourth quarter shareholder letter is also posted on the IR website.

Speaker #2: Additionally, we posted a set of supplemental financial tables for Q4, which can be found on the Events and Presentations page of our IR website.

Speaker #2: 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 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.

Meg Kehan: Before we start, I would like to remind you that the following discussion contains forward-looking statements within the meanings of 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 materially from forward-looking statements can be found in the Risk Factors section of Carvana's most recent Form 10-K. The forward-looking statements and risks in this conference call are based on current expectations as of today, and Carvana assumes no obligation to update or revise them, whether as a result of new developments or otherwise. Our commentary today will include non-GAAP financial metrics.

Speaker #2: A detailed discussion of the material factors that cause actual results to differ materially from forward-looking statements can be found in the Risk Factors section of CARVANA's most recent Form 10-K.

Speaker #2: 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.

Speaker #2: 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.

Meg Kehan: 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. And with that said, I'd like to turn the call over to Ernie Garcia. Ernie?

Speaker #2: Reconciliations between GAAP and non-GAAP metrics before a reported result can be found in our shareholder letter issued today. And with that said, I'd like to turn the call over to Ernie Garcia.

Speaker #2: Ernie?

Speaker #3: Thanks, Meg. And thanks, everyone, for joining the call. 2025 is another incredible year for CARVANA. There are many useful ways to describe the progress that we've made but one approach I return to each year, starting with the graphs at the beginning of our shareholder letter.

Ernie Garcia: Thanks, Meg, and thanks, everyone, for joining the call. 2025 was another incredible year for Carvana. There are many useful ways to describe the progress that we've made, but one approach I return to each year is starting with the graphs at the beginning of our shareholder letter. I find that useful because they provide a simple visual view of the big picture, and the big-picture story is clear and meaningful. The first observation from the graphs is that both volume and financial performance are moving up into the right rapidly. This is only possible if you offer customers something that is sufficiently different and desirable that it causes them to break habit, and if the business model itself is sufficiently different and efficient, that enables qualitatively different results.

Speaker #3: I find that useful because they provide a simple, visual view of the big picture. And the big picture story is clear and meaningful. The first observation from the graphs is that both volume and financial performance are moving up and to the right rapidly.

Speaker #3: This is only possible if you offer customers something that is sufficiently different and desirable that it causes them to break habit, and if the business model itself is sufficiently different and efficient that it enables qualitatively different results.

Speaker #3: When we went public, we wrote that our mission was to change the way people buy and sell cars and the graphs show that we have built a customer value proposition and a business model with the power to do it.

Ernie Garcia: When we went public, we wrote that our mission was to change the way people buy and sell cars, and the graphs show that we have built a customer value proposition and a business model with the power to do it. Having a great customer offering is the single most important thing. We have it, and we are making it better every year. Looking at the year in our current position, there are three key takeaways in our minds. One, we are getting better and more differentiated as we get bigger. In the last 12 months, we increased customer selection by 20,000 cars. 20,000. We are delivering cars to our customers a full day faster. We have put more cars closer to our customers, leading to $60 average savings on shipping fees for our customers.

Speaker #3: Having a great customer offering is the single most important thing. We have it and we are making it better every year. Looking at the year in our current position, there are three key takeaways in our minds.

Speaker #3: One, we are getting better and more differentiated as we get bigger. In the last 12 months, we increased customer selection by 20,000 cars—20,000.

Speaker #3: We are delivering cars to our customers a full day faster. We have put more cars closer to our customers, leading to $60 average savings on shipping fees for our customers.

Speaker #3: We have reduced the interest rates our customers pay on their loans by about 1% relative to benchmark on average. We have made the transaction simple and straightforward enough that many of our customers can confidently make it all the way to the vehicle handoff without ever speaking to a person at CARVANA.

Ernie Garcia: We have reduced the interest rates our customers pay on their loans by about 1% relative to benchmark on average. We've made the transaction simple and straightforward enough that many of our customers can confidently make it all the way to the vehicle handoff without ever speaking to a person at Carvana, and customers are telling us they love it with MBS at multi-year highs. That's a lot of progress we made in a year, where we also improved our EBITDA margin by 100 basis points. Lots of good things have to be true to make all that possible, and those things are hard to replicate. Two, we are making rapid progress toward our goals. With every step, our path to our current goal of 3 million retail units a year and 13.5% adjusted EBITDA margin becomes clearer, and this year was a big step.

Speaker #3: And customers are telling us they love it, with NPS at multi-year highs. That's a lot of progress to be made in a year where we also improved our EBITDA margin by 100 basis points.

Speaker #3: Lots of good things have to be true to make all that possible, and those things are hard to replicate. Two, we are making rapid progress toward our goals.

Speaker #3: With every step, our path to our current goal of 3 million retail units a year and a 13.5% adjusted EBITDA margin becomes clearer. And this year was a big step.

Speaker #3: We estimate that fixed cost leverage alone will be worth about 2 points of adjusted EBITDA margin over time. We are making rapid progress in fundamental gains that is lowering variable costs and increasing the efficiency of variable monetization which gives us more fuel to hit our financial goals and to keep providing additional value to our customers over time.

Ernie Garcia: We estimate that fixed cost leverage alone will be worth about 2 points of Adjusted EBITDA margin over time. We are making rapid progress in fundamental gains. That is, lowering variable costs and increasing the efficiency of variable monetization, which gives us more fuel to hit our financial goals and to keep providing additional value to our customers over time. On units, we grew by 43% in 2025, meaning that the compounding annual growth rates necessary to hit our 2030 to 2035 retail unit goal are now 38% and 18%, respectively. With the quality of our customer offering and the positive feedback in our business, we believe there is plenty of fuel to get us to our 3 million unit goal and beyond.

Speaker #3: On units, we grew by 43% in 2025, meaning that the compounding annual growth rates necessary to hit our 2030 to 2035 retail unit goal are now 38% and 18% respectively.

Speaker #3: With the quality of our customer offering and the positive feedback in our business, we believe there is plenty of fuel to get us to our $3 million unit goal and beyond.

Speaker #3: But we have a lot of work to do, and to keep scaling our operational machine to handle all that volume. And that brings us to point number three.

Ernie Garcia: But we have a lot of work to do, and to keep scaling our operational machine to handle all that volume. And that brings us to point number 3. We have the infrastructure to scale, and we just need to execute. The most operationally intensive part of our business is vehicle reconditioning. Continuing to scale reconditioning quickly, cost efficiently, and at high quality has been, currently is, and for the foreseeable future, will be a central focus. We have a better foundation to scale reconditioning effectively than we have ever had in the past. We already own the real estate for 3 million units per year. We have already made the investments in the facilities to produce 1.5 million cars per year. Our systems that manage the entire process flow through our reconditioning centers are more capable and robust than they have ever been.

Speaker #3: We have the infrastructure to scale, and we just need to execute. The most operationally intensive part of our business is vehicle reconditioning. Continuing to scale reconditioning quickly, cost-efficiently, and at high quality currently is, and for the foreseeable future will be, a central focus.

Speaker #3: We have a better foundation to scale reconditioning effectively than we have ever had in the past. We already own the real estate for 3 million units per year.

Speaker #3: We have already made the investments in the facilities to produce 1.5 million cars per year. Our systems that manage the entire process flow through our reconditioning centers are more capable and robust than they have ever been.

Speaker #3: And we have more locations that are capable of reconditioning cars—34 as of today—than we have ever had, meaning we can scale hiring and production faster because of access to more people and more geographies.

Ernie Garcia: We have more locations that are capable of reconditioning cars, 34 as of today, than we have ever had, meaning we can scale hiring and production faster because of access to more people in more geographies. It's still hard work, and we still have significant room to continue to push more of the complexity of managing cars through these locations into systems, with the goals of continually improving consistency across locations and of making scaling easier. The team is up for the challenge. The Carvana future is bright. The experiences we deliver to our customers are exceptional and getting better all the time. The scale of our opportunity is enormous, and the financial opportunity is clear to see.

Speaker #3: But it's still hard work and we still have significant room to continue to push more of the complexity of managing cars through these locations into systems with the goals of continually improving consistency across locations and of making scaling easier.

Speaker #3: The team is up to the challenge. The Carvana future is bright. The experience that we deliver to our customers is exceptional and getting better all the time.

Speaker #3: The scale of our opportunity is enormous, and the financial opportunity is clear to see. And we have a team that has proven that we can tackle the difficult technology and operational challenges that are in front of us and turn them into moats that are behind us.

Ernie Garcia: We have a team that has proven that we can tackle the difficult technology and operational challenges that are in front of us and turn them into moats that are behind us. The march continues. Mark.

Speaker #3: The march continues, Mark.

Speaker #4: Thank you, Ernie, and thank you all for joining us today. Unless otherwise noted, all comparisons will be on a year-over-year basis. 2025 is an exceptional year for Carvana.

Mark Jenkins: Thank you, Ernie, and thank you all for joining us today. Unless otherwise noted, all comparisons will be on a year-over-year basis. 2025 was an exceptional year for Carvana. We entered the year focused on three key objectives. One, delivering significant growth in retail units sold and Adjusted EBITDA. Two, driving fundamental gains in unit economics and customer experience. And three, developing foundational capabilities. By these measures, 2025 was a resounding success. In full year 2025, we grew retail units sold by 43% to a record 596,641. We integrated 10 additional ADESA locations. We expanded our digital auction capabilities nationwide. We reached multi-year highs on customer Net Promoter Score, and we increased Adjusted EBITDA margin to a record 11%, again, making us the fastest-growing and most profitable company in our industry.

Speaker #4: We entered the year focused on three key objectives. One, delivering significant growth in retail units sold and adjusted EBITDA. Two, driving fundamental gains in unit economics and customer experience.

Speaker #4: And three, developing foundational capabilities. By these measures, 2025 was a resounding success. In full year 2025, we grew retail units sold by 43% to a record $596,641.

Speaker #4: We integrated 10 additional Odessa locations, we expanded our digital auction capabilities nationwide, we reached multi-year highs on customer net promoter score, and we increased adjusted EBITDA margin to a record 11%.

Speaker #4: Again, making us the fastest growing and most profitable company in our industry. Moving to the fourth quarter, retail units sold totaled $163,522 in Q4 and increased of 43% and a new company record.

Mark Jenkins: Moving to the fourth quarter, retail units sold totaled 163,552 in Q4, an increase of 43% and a new company record. Revenue was $5.603 billion, an increase of 58%. Revenue growth exceeded retail units sold growth primarily due to traditional gross revenue treatment for certain vehicles acquired from a large retail marketplace partner. Consistent with past quarters, our growth in the fourth 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. The fourth quarter marked our eighth consecutive quarter of industry-leading retail unit growth and unit economics.

Speaker #4: Revenue was $5.603 billion and increased of 58%. Revenue growth exceeded retail units sold growth primarily due to traditional gross revenue treatment for certain vehicles acquired from a large retail marketplace partner.

Speaker #4: Consistent with past quarters, our growth in the fourth 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.

Speaker #4: The fourth quarter marked our eighth consecutive quarter of industry-leading retail unit growth and unit economics. Non-GAAP retail GPU decreased by $255, primarily driven by higher non-vehicle costs, lower shipping distances flowing through to customers in the form of lower shipping fees, and higher retail depreciation rates.

Mark Jenkins: Non-GAAP retail GPU decreased by $255, primarily driven by higher non-vehicle costs, lower shipping distances flowing through to customers in the form of lower shipping fees, and higher retail depreciation rates. Non-GAAP wholesale GPU decreased by $148, primarily driven by faster growth in retail units sold than wholesale marketplace units. Non-GAAP other GPU increased by $49, primarily driven by improvements in cost of funds and higher finance and VSC attach rates, partially offset by our decision to give back to customers in the form of lower interest rates. Since our last reporting, we again expanded our loan sale platform by entering into a fourth loan purchase agreement with a long-standing loan partner for up to $4 billion of loan purchases through December 2027.

Speaker #4: Non-GAAP wholesale GPU decreased by 148 dollars primarily driven by faster growth in retail units sold than wholesale marketplace units. Non-GAAP other GPU increased by 49 dollars primarily driven by improvements in cost of funds and higher finance and VSC attach rates partially offset by our decision to give back to customers in the form of lower interest rates.

Speaker #4: Since our last reporting, we again expanded our loan sale platform by entering into a fourth loan purchase agreement with a long-standing loan partner for up to $4 billion of loan purchases through December 2027.

Speaker #4: This brings the total of our new partner loan purchase agreements to $12 million of next two years in addition to $6 billion with Ally through October 2026.

Mark Jenkins: This brings the total of our new partner loan purchase agreements to $12 billion over the next two years, in addition to $6 billion with Ally through October 2026. Q4 was another strong quarter for levering SG&A expenses. Our 43% growth in retail units sold led to a $340 reduction in non-GAAP SG&A expense for retail units sold, including a $57 reduction in operations expenses and a $3,344 reduction in overhead expenses. Advertising expense increased by $83 per retail unit sold as we continue to invest in building awareness, understanding, and trust of our customer offering. With approximately 1.6% market share of the used vehicle retail market, compared to approximately 20% e-commerce adoption in non-automotive retail verticals, we believe we are in the early days of customer awareness and adoption of our model.

Speaker #4: Q4 was another strong quarter for levering SG&A expenses. Our 43% growth in retail units sold led to a $340 reduction in non-GAAP SG&A expense per retail unit sold, including a $57 reduction in operations expenses, and a $344 reduction in overhead expenses.

Speaker #4: Advertising expense increased by $83 per retail unit sold as we continue to invest in building awareness, understanding, and trust of our customer offering. With approximately 1.6% market share of the used vehicle retail market compared to approximately 20% e-commerce adoption in non-automotive retail verticals, we believe we are in the early days of customer awareness and adoption of our model.

Speaker #4: We see we continue to see opportunities for significant SG&A expense leverage over time and as we scale, driven by both continued improvements in operational expenses as well as leverage in the fixed components of our cost structure.

Mark Jenkins: We see, we continue to see opportunities for significant SG&A expense leverage over time and as we scale, driven by both continued improvements in operational expenses, as well as leverage in the fixed components of our cost structure. Net income was $951 million, an increase of $792 million. Net income was positively impacted by a non-cash benefit of $618 million, including a net non-cash tax benefit of $685 million, partially offset by a $67 million reduction in the fair value of warrants.

Speaker #4: Net income was $951 million, an increase of $792 million. Net income was positively impacted by a non-cash benefit of $618 million, including a net non-cash tax benefit of $685 million, partially offset by a $67 million reduction in the fair value of warrants.

Speaker #4: Net income margin was 17.0%, an increase from 4.5%. Adjusted EBITDA was $511 million, an increase of $152 million and a new Q4 record. Adjusted EBITDA margin was 9.1%, a decrease from 10.1%, primarily driven by increased retail revenue per unit resulting from the traditional gross revenue treatment mentioned previously.

Ernie Garcia: ...Net income margin was 17.0%, an increase from 4.5%. Adjusted EBITDA was $511 million, an increase of $152 million, and a new Q4 record. Adjusted EBITDA margin was 9.1%, a decrease from 10.1%, primarily driven by increased retail revenue per unit, resulting from the traditional gross revenue treatment mentioned previously. GAAP operating income was $424 million, or 83% of adjusted EBITDA, an increase of $164 million and a new Q4 record. 2025 was a strong year for our balance sheet. We ended 2025 with $2.3 billion of cash and equivalents, retired $709 million of corporate notes, and reduced our net debt to trailing twelve-month adjusted EBITDA ratio to 1.3x, our strongest financial position ever.

Mark Jenkins: ...Net income margin was 17.0%, an increase from 4.5%. Adjusted EBITDA was $511 million, an increase of $152 million, and a new Q4 record. Adjusted EBITDA margin was 9.1%, a decrease from 10.1%, primarily driven by increased retail revenue per unit, resulting from the traditional gross revenue treatment mentioned previously. GAAP operating income was $424 million, or 83% of adjusted EBITDA, an increase of $164 million and a new Q4 record. 2025 was a strong year for our balance sheet. We ended 2025 with $2.3 billion of cash and equivalents, retired $709 million of corporate notes, and reduced our net debt to trailing twelve-month adjusted EBITDA ratio to 1.3x, our strongest financial position ever.

Speaker #4: GAAP operating income was $424 million, or 83% of adjusted EBITDA, an increase of $164 million and a new Q4 record. 2025 was a strong year for our balance sheet.

Speaker #4: We ended 2025 with $2.3 billion of cash and equivalents, retired $709 million of corporate notes, and reduced our net debt to trailing 12-month adjusted EBITDA ratio to 1.3 times.

Speaker #4: Our strongest financial position ever. As discussed in prior quarters, we remain committed to driving toward investment-grade quality credit ratios over time. In 2026, we plan to maintain our three key objectives from 2025 while placing additional weight on driving significant profitable growth at scale.

Ernie Garcia: As discussed in prior quarters, we remain committed to driving toward investment-grade quality credit ratios over time. In 2026, we plan to maintain our three key objectives from 2025, while placing additional weight on driving significant profitable growth at scale. Looking forward, assuming the environment remains stable, we expect significant growth in both retail units sold and Adjusted EBITDA in full year 2026, including a sequential increase in both retail units sold and Adjusted EBITDA in Q1 2026. In conclusion, Q4 represented another strong quarter, closing out our best year in company history. We remain excited about progressing toward our goals of becoming the largest and most profitable auto retailer and buying and selling millions of cars. Thanks for your attention. We'll now take questions.

Mark Jenkins: As discussed in prior quarters, we remain committed to driving toward investment-grade quality credit ratios over time. In 2026, we plan to maintain our three key objectives from 2025, while placing additional weight on driving significant profitable growth at scale. Looking forward, assuming the environment remains stable, we expect significant growth in both retail units sold and Adjusted EBITDA in full year 2026, including a sequential increase in both retail units sold and Adjusted EBITDA in Q1 2026. In conclusion, Q4 represented another strong quarter, closing out our best year in company history. We remain excited about progressing toward our goals of becoming the largest and most profitable auto retailer and buying and selling millions of cars. Thanks for your attention. We'll now take questions.

Speaker #4: Looking forward, assuming the environment remains stable, we expect significant growth in both retail units sold and adjusted EBITDA in full year 2026, including a sequential increase in both retail units sold and adjusted EBITDA in Q1 2026.

Speaker #4: In conclusion, Q4 represented another strong quarter, closing out our best year in company history. We remain excited about progressing toward our goals of becoming the retailer and buying and selling millions of cars.

Speaker #4: Thank you for your attention. We'll now take questions.

Speaker #3: Thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys.

Operator: Thank you. We will now begin the question-and-answer session. To ask a question, you may press star, then one on your touch-tone phone. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you'd like to withdraw your question, please press star, then two. In the interest of time, please limit yourself to one question and one follow-up. You may rejoin the queue for additional questions. The first question will come from Sharon Zackfia with William Blair. Please go ahead.

Speaker #3: If at any time your question has been addressed and you'd like to withdraw your question, please press star, then 2. In the interest of time, please limit yourself to one question and one follow-up.

Speaker #3: You may rejoin the Q for additional questions. And the first question will come from Sharon Zakafia with William Blair. Please go ahead.

Speaker #4: Hi, thanks for taking the question. I guess I wanted to kind of double-click on the reconditioning dynamic. So, if you could maybe talk about the challenges you're facing as you're growing at this rapid pace, which is certainly hard to keep up with.

Sharon Zackfia: Hi, thanks for taking the question. I guess I wanted to kind of double-click, click on the reconditioning dynamics. So if you could maybe talk about kind of the challenges you're facing as you're growing at this rapid pace, which is certainly hard to keep up with. And I think in the shareholder letter, you mentioned something like, you know, if you got all of the locations to the top quartile, you'd, you'd get a $220 benefit per car. You know, what, what is a reasonable timeline to kind of move that bell curve to the right? And do you see the opportunity for GPU to be flatter up for the full year? Thanks.

Speaker #4: And I think in the shareholder letter, you mentioned something like, if you got all of the locations to the top quartile, you'd get a $220 benefit per car.

Speaker #4: What is a reasonable timeline to kind of move that bell curve to the right? And do you see the opportunity for GPU to be flatter up for the full year?

Speaker #4: Thanks.

Speaker #3: Yeah, so first, I would say I think that team’s done an incredible job for a long time, and we’ve been obviously working hard to scale that part of the business.

Ernie Garcia: So first, I would say I think that team's done an incredible job for a long time, and we've been obviously working hard to scale that part of the business. I think, as we've said before, as a general matter, I think for any operational business, oftentimes the most difficult parts are the parts where you're moving the most people and things, and for us, that's reconditioning centers, and so that tends to be the most difficult area to scale. I think in addition to, you know, growing at 43%, supporting unit growth of 43% and also growing our inventory last year, that team also has been hard at work opening these additional integration sites, which is great because it lays the foundation for additional growth in the future.

Speaker #3: I think, as we've said before, as a general matter, I think for any operational business, oftentimes the most difficult parts are the parts where you're moving the most people and things.

Speaker #3: And for us, that's reconditioning centers. And so, that tends to be the most difficult area to scale. I think, in addition to growing at 43%, supporting unit growth of 43%, and also growing our inventory last year, that team also has been hard at work opening these additional integration sites.

Speaker #3: Which is great because it lays the foundation for additional growth in the future. And then I think in Q4, there's no question that our expenses were a little higher than we would have liked there.

Ernie Garcia: I think in Q4, there's no question that our expenses were a little higher than we would've liked. I think that is partially the result of these additional sites kind of having a single line instead of multiple lines, and there being some extra costs that flow through there as a result. I think it's also partially a result of as we kind of spread out, we had some newer managers, and I think a trend that we've seen is locations that have managers that have been around for longer tend to perform a bit better. I think those are addressable issues.

Speaker #3: And I think that is partially the result of these additional sites kind of having a single line instead of multiple lines and there being some extra costs that flow through there as a result.

Speaker #3: I think it's also partially a result of, as we kind of spread out, we had some newer managers. And I think a trend that we've seen is locations that have managers who have been around for longer tend to perform a bit better.

Speaker #3: And so I think those are addressable issues. I think many of you have been to many tours inside of our inspection centers and seen all the work that we've done in Carly to make that process as automated as possible.

Ernie Garcia: I think many of you have been to many tours inside of our inspection centers and seen all the work that we've done in Carli to make that process as automated as possible. I think we've got some opportunities to also make the management of those processes more automated. I think that those capabilities are kind of focused more on lifting the floor of performance instead of raising the ceiling. I think a lot of what we've done so far has been about raising the ceiling. So I think we've got opportunities. I think we've got a very clear plan.

Speaker #3: I think we've got some opportunities to also make the management of those processes more automated. And I think that those capabilities are kind of focused more on lifting the floor of performance instead of raising the ceiling.

Speaker #3: I think a lot of what we've done so far has been about raising the ceiling. So I think we've got opportunities. I think we've got a very clear plan.

Speaker #3: I think this is one of those things where, sometimes, if you take a little step backwards, it kind of fires you up.

Ernie Garcia: I think this is one of those things where I think sometimes if you take a little step backwards, it kind of fires you up, and my strong guess is we'll be in a better spot in 3 to 6 months than we would have been otherwise. I think that team is fired up and ready to go, and you know, no one's excited about taking a little backward step there. We're focused on it. I do not think it'll have long-term implications. I think we'll react to it very positively as we have to many other similar things in the past, and I think we'll get right back at it.

Speaker #3: And my strong guess is we'll be in a better spot in three to six months than we would have been otherwise. I think that team is fired up and ready to go.

Speaker #3: And if no one's excited about taking a little backward step there, so we're focused on it. I do not think it'll have long-term implications.

Speaker #3: I think we'll react to it very positively, as we have to many other similar things in the past. And I think we'll get right back at it.

Speaker #4: Thanks for that. I guess, as a follow-up, I know you have your AI brain, I think, as well in the shareholder letter. And it seems to me you would be maybe the most uniquely poised to benefit from what's happening in AI.

Sharon Zackfia: Thanks for that. I guess as a follow-up, I know you have your AI brain, I think, as well in the shareholder letter, and it seems to me you would be maybe the most uniquely poised to benefit from what's happening in AI. Can you talk about what the early kind of nascent uses are that you're implementing AI to do? And then if you're seeing anything in the competitive set or if it's just, you know, business as usual, there? Thanks.

Speaker #4: Can you talk about what the early, kind of nascent uses are that you're implementing AI to do? And then, if you're seeing anything in the competitive set, or if it's just business as usual there.

Speaker #4: Thanks.

Speaker #3: Sure. Well, I mean, I think if we start with things that are visible to investors, I think we put some stats in there. We have 30% of our retail customers now go through the entire process without talking to a person until they get the car.

Ernie Garcia: Sure. Well, I think if we start with things that are visible to investors, I think we put some stats in there. You know, we have 30% of our retail customers now go through the entire process without talking to a person until they get the car. We have 60% of our customers that are selling cars to us go through the process without talking to anyone until they drop off their car. That's only possible because of the systems that we've built, and those systems being intuitive and automated and straightforward. And I think a major set of tools that contributes to that is Sebastian and other tools that emerge from that AI brain.

Speaker #3: We have 60% of our customers that are selling cars to us that go through the process without talking to anyone until they drop off their car.

Speaker #3: That's only possible because of the systems that we've built, and those systems being intuitive and automated and straightforward. And I think a major set of tools that contributes to that is Sebastian and other tools that emerge from that AI brain.

Speaker #3: So, I think that that's a very clear place where we're getting more scalable, where we're reducing costs, and, I think very importantly, where we're improving customer experience.

Ernie Garcia: So I think that that's a very clear place where we're getting more scalable, where we're reducing costs, and I think very importantly, where we're improving customer experience. Those customers who go through the experience in that way have a higher NPS than customers that call us. And I think that also speaks to the power of those systems. So I think that's an area where it's very apparent, I think, even from the outside looking in. And we've been focused on that for several years, and I think you'll continue to get better all the time. I think if you look at other parts of the business, including just the speed at which we're developing new products, that continues to get better all the time.

Speaker #3: Those customers that go through the experience in that way have a higher NPS than customers that call us. And I think that that also speaks to the power of those systems.

Speaker #3: So I think that's an area where it's very apparent. I think, even from the outside looking in, and we've been focused on that for several years.

Speaker #3: And I think we continue to get better all the time. I think if you look at other parts of the business, including just the speed at which we're developing new products, that continues to get better all the time.

Speaker #3: I think there's been a couple of material step changes up in the quality of these different tools, and we're seeing internally those step changes start to flow through the business.

Ernie Garcia: I think there's been a couple material step changes up in the quality of these different tools. And we're seeing internally, those step changes start to flow through the business, and, and we're getting things done faster. I think that is still relatively early. I think the last-- I mean, the last year has been a massive step up in the quality of these tools, and I think the last 3 to 6 months has been another very large step up in the quality of these tools.

Speaker #3: And we're getting things done faster. I think that is still relatively early. I think the last—I mean, the last year has been a massive step up in the quality of these tools.

Speaker #3: And I think the last three to six months has been another very large step up in the quality of these tools. But we do believe that we're fundamentally extremely well positioned to benefit from these things because we have a big deterministic system that's vertically integrated that has access to all the information.

Ernie Garcia: But we do believe that we're fundamentally extremely well positioned to benefit from these things because we have a big deterministic system that's vertically integrated, that has access to all the information, and that brain has every system feeding it, so we can give customers very simple answers to any questions they've got in really any software interface that we choose to put on top of it. So we think that's very powerful. And then I think, you know, importantly, to try to, you know, discuss, you know, a relative negative as something that I think is a long-term positive. I think even that it... You know, a discussion today is, what does AI mean for, you know, different companies in the long term?

Speaker #3: And that brain has every system feeding it so it can give customers very simple answers to any questions they've got in really any software interface that we choose to put on top of it.

Speaker #3: So we think that's very powerful. And then, I think importantly, to try to discuss a relative negative as something that I think is a long-term positive, I think even that a discussion today is: what does AI mean for different companies in the long term?

Speaker #3: And I think we're sitting here talking about the realities of our business, including financing and logistics and reconditioning and these difficult operational things. I think that those are other areas of the business that are very important to deliver great customer—not subject to AI disruption in the immediate term.

Ernie Garcia: And I think, you know, we're sitting here talking about the realities of our business, including financing, logistics, and reconditioning, and these difficult operational things. I think that, you know, those are other areas of the business that are very important to deliver a great customer experience, and those are areas that are, you know, not subject to AI disruption in the immediate term. So we think that we're positioned to benefit in a major way. We think that competitively, we're incredibly well positioned compared to the rest of our industry, and we think that our business itself is also positioned to be, you know, an AI winner and not something that is disrupted by AI. So our view is the sum of all that is very positive, and we remain excited.

Speaker #3: So we think that we're positioned to benefit in a major way. We think the competitively we're incredibly well-positioned compared to the rest of our industry.

Speaker #3: And we think that our business itself is also positioned to be an AI winner and not something that is disrupted by AI. So our view is that some of all that is very positive.

Speaker #3: And we remain excited.

Speaker #1: The next question will come from Jeff Lick with Stevens. Please go ahead.

Operator: The next question will come from Jeff Licht with Stephens. Please go ahead.

Jeff Lick: Good afternoon. Thanks for taking my question, and congrats on a nice quarter and a great year.

Speaker #5: Good afternoon. Thanks for taking my question, and congrats on a nice quarter and a great year. I was just wondering, Ernie and Mark, can you talk about the environment?

Jeff Lick: Good afternoon. Thanks for taking my question, and congrats on a nice quarter and a great year.

Ernie Garcia: Thank you.

Jeff Lick: You know, I was just wondering, Ernie and Mark, can you talk about, you know, the environment, the at least the depreciation environment, it's actually kind of reversed a little bit in Q1 so far. So I was wondering if you could just, you know, talk about, and you highlighted in the letter that you expect a sequential improvement. But, you know, maybe if you can just talk about the, you know, the puts and takes in the path of travel for GPU, not only in Q1, but for 2026.

Speaker #5: At least the depreciation environment's actually kind of reversed a little bit in Q1 so far, so I was wondering if you could just talk about—you highlighted in the letter that you expect a sequential improvement.

Speaker #5: But maybe if you could just talk about the puts and takes and the path of travel for GPU, not only in Q1 but for 2026.

Speaker #3: Sure. Yeah, I could take that one. So, Ernie hit pretty well on some of the cost dynamics of Q4. We do expect those cost dynamics to play out in Q1 as well.

Mark Jenkins: Sure. Yeah, I can, I can take that one. So, you know, Ernie hit pretty well on some of the cost dynamics of Q4. We do expect those cost dynamics to play out in Q1 as well, and do expect, you know, our non-vehicle costs to be up on a year-over-year basis in Q1. Despite that, we expect a sequential increase in retail GPU in Q1. So we expect to overcome those cost headwinds and demonstrate a sequential increase. You know, beyond that, you know, I don't have too much commentary to give. I think we'll, you know, we'll see how the year progresses. Obviously, you know, we've had a lot of success driving strong GP- retail GPUs for a long period of time.

Speaker #3: And do expect our non-vehicle costs to be up on a year-over-year basis in Q1. Despite that, we expect a sequential increase in retail GPU in Q1.

Speaker #3: So we expect to overcome those cost headwinds and demonstrate a sequential increase. Beyond that, I don't have too much commentary to give. I think we'll see how the year progresses.

Speaker #3: Obviously, we've had a lot of success driving strong retail GPUs for a long period of time, and that's just one of the many places where we've demonstrated a lot of success over time, including obviously the significant growth.

Mark Jenkins: You know, that's just one of the many places where we've demonstrated a lot of success over time, including, you know, obviously, the significant growth. In addition to that, you know, very significant growth throughout the income statement, including adjusted EBITDA, operating income, and net income. You know, our goal in 2026 is to have another great year, to have another year we drive very significant, you know, top and bottom line growth, and that's what we're going to be focused on.

Speaker #3: But in addition to that, very significant growth throughout the income statement, including adjusted EBITDA, operating income, and net income. So our goal in 2026 is to have another great year, to have another year where we drive very significant top and bottom-line growth.

Speaker #3: And that's what we're going to be focused on.

Speaker #5: Awesome. I'll let someone else ask a question. Thanks very much, Justin. 2026.

Jeff Lick: Awesome. I'll let someone else ask a question. Thanks very much. Best of luck, 26.

Speaker #3: Thank you.

Mark Jenkins: Thank you.

Operator: The next question will come from Daniela Hagan with Morgan Stanley. Please go ahead.

Speaker #1: The next question will come from Daniela Hagan with Morgan Stanley. Please go ahead.

Speaker #4: Great, thanks for taking the question. First one—you might have addressed this a bit with the retail GPU commentary—but overall on EBITDA, the variable adjusted EBITDA margin decelerated down to 7% this quarter.

Daniela Haigian: Great. Thanks for taking the question. First one, you might have addressed a bit with the retail GPU commentary, but overall, on EBITDA, the variable Adjusted EBITDA margin decelerated down to 7% this quarter. Is this a one-off decline? How should investors be thinking about this metric longer term? And is the pace of growth needed to reach that longer-term target, the 18% to 38% CAGR, like you mentioned, Ernie, is that supportive of incremental margin expansion? Thanks.

Speaker #4: Is this a one-off decline? How should investors be thinking about this metric longer term? And is the pace of growth needed to reach that longer-term target—the 18 to 38 percent CAGR, like you mentioned, Ernie?

Speaker #4: Is that supportive of incremental margin expansion? Thanks.

Speaker #3: Sure. So I think maybe the first thing I would say, on the beginning point, is I think revenue changes play a very big role in that calculation.

Ernie Garcia: Sure. I think maybe the first thing I would say on the beginning point is, I think revenue changes play a very big role in that calculation. I think if you look year over year, we moved away from marketplace units, and that meant we moved to a more traditional kind of gross revenue accounting on a number of units. If you look at EBITDA dollars per unit instead in Q4, I believe they were down by about $14 year over year, which is, you know, first order flat. I think, you know, calcs kind of on EBITDA dollars, I think would look significantly different. I think looking forward, you know, we feel like we gave you a little bit of a walk.

Speaker #3: I think if you look year over year, we moved away from marketplace units, and that meant we moved to more traditional, kind of gross revenue accounting on a number of units.

Speaker #3: If you look at EBITDA dollars per unit instead in Q4, I believe they were down by about $14 year over year, which is, first order, flat.

Speaker #3: So I think Calc's kind of on EBITDA dollars, I think, would look significantly different. I think, looking forward, we feel like we gave you a little bit of a walk.

Speaker #3: I think you can see where our margins are today. We clearly have significant fixed costs to leverage. We clearly have significant fundamental gains throughout the business.

Ernie Garcia: I think you can see where our margins are today. We clearly have significant fixed costs to leverage. We clearly have significant fundamental gains throughout the business. You can see those showing up in our expense line items. I think, you know, we remain very excited by the progress that we're seeing in operational expense, despite the fact that we're passing value back to customers and faster delivery times and other ways that do have some cost. So I think we've still got a lot of room for that. So we feel like the path to 13.5 is very straightforward, and not only is it straightforward, we think that there's clearly significant additional gains that can be made and handed back to customers along the way.

Speaker #3: You can see those showing up in our expense line items. I think we remain very excited by the progress that we're seeing in operational expense, despite the fact that we're passing value back to customers in faster delivery times and other ways that do have some costs.

Speaker #3: So, I think we've still got a lot of room for that. So, we feel like the path to 13.5 is very straightforward.

Speaker #3: And not only is it straightforward, we think that there's clearly significant additional gains that can be made and handed back to customers along the way.

Speaker #3: I think our goal has been, remains, and always will be to try to make progress across all areas of the business rapidly and simultaneously.

Ernie Garcia: I think our goal has been, remains, and always will be to try to make progress across all areas of the business rapidly and simultaneously. So we're gonna, you know, we're gonna try to always push, you know, all those numbers up. Our EBITDA margin, our EBITDA dollars, our growth, our customer experience. And I think that's where our priorities come in. We gotta then try to figure out what are our priorities, and we gotta pick projects that push us in the right directions. And so we try to communicate that clearly to investors as well as in the same way that we communicate it internally. But the opportunity is clearly there.

Speaker #3: So, we're going to try to always push all those numbers up—our EBITDA margin, our EBITDA dollars, our growth, our customer experience—and I think that's where our priorities come in.

Speaker #3: We’ve got to then try to figure out what our priorities are. And we’ve got to pick projects that push us in the right directions.

Speaker #3: And so we try to communicate that clearly to investors as well, in the same way that we communicate it internally. But the opportunity is clearly there.

Speaker #3: I think, in terms of the opportunity and the way we're thinking about the business, nothing has changed. I mean, really, since we started the business, it's just a function of how well we execute at any point in time.

Ernie Garcia: I think in terms of the opportunity, the way we're thinking about the business, nothing has changed, I mean, really, since we started the business. It's just a function of how well we execute at any point in time. The opportunity is there, and if we execute well, we'll go get it, and we'll get it all simultaneously.

Speaker #3: The opportunity is there, and if we execute well, we'll go get it. And we'll get it all simultaneously.

Speaker #4: Thank you. That’s helpful color. My follow-up is, I guess, the question on everyone’s minds here. I just want to give you an opportunity to clarify some concerns around the related party transactions.

Daniela Haigian: Thank you. That's, that's helpful color. My follow-up is, I guess, the question on, on everyone's minds here. I just wanna give you an opportunity to clarify some concerns around the related party transactions. Does Carvana sell loans to related parties? Do the related parties originate loans for cars sold on Carvana? I think if you look at the 10-K, you, you might have some answers there, but just any messages for investors on that topic here?

Speaker #4: Does Carvana sell loans to related parties? Do the related parties originate loans for cars sold on Carvana? I think if you look at the 10-K, you might have some answers there.

Speaker #4: But just any messages for investors on that topic here?

Speaker #3: Sure. The answer there is very simple. All of our related party transactions are disclosed. In our financial statements, as a specific matter, we do not sell loans to related parties.

Mark Jenkins: Sure. The answer there is very simple. All of our related party transactions are disclosed in our financial statements. As a specific matter, we do not sell loans to related parties, and have not done so for all of the years from 2017 through 2025. Recent short reports that suggest otherwise are inaccurate. We have checked every single detail of those short reports to ensure that all of our reporting is entirely accurate, and definitively say that those reports are 100% inaccurate. So I think that we feel, you know, very strongly about that. We don't sell loans to related parties. We disclose our related party transactions, and there's no ambiguity about that.

Speaker #3: And have not done so for all of the years from 2017 through 2025. Recent short reports that suggest otherwise are inaccurate. We have checked every single detail of those short reports to ensure that all of our reporting is entirely accurate.

Speaker #3: I can definitively say that those reports are 100% inaccurate. So I think that we feel very strongly about that. We don't sell loans to related parties.

Speaker #3: We disclose our related party transactions, and there's no ambiguity about that.

Speaker #5: And then, maybe, a friendly request to investors out there: If we have another short report during a quiet period at the end of a year, just maybe think back to the last couple of years and recognize the pattern.

Ernie Garcia: And then maybe a friendly request to investors out there. If we have another short report during a quiet period at the end of the year, just, just maybe think back to the last couple of years and recognize the pattern.

Speaker #4: Thank you. Helpful.

Daniela Haigian: Thank you. Helpful.

Speaker #3: Thank you.

Ernie Garcia: Thank you.

Speaker #1: The next question will come from Brian Nagel with Oppenheimer. Please go ahead.

Operator: The next question will come from Brian Nagel with Oppenheimer. Please go ahead.

Speaker #6: Hey, good afternoon. Thanks for taking the questions. So my first question—and I think this goes back to Sharon's question at the beginning of the Q&A session—

Brian Nagel: Hey, good afternoon. Thanks for taking the questions. So my first question, I, and I think this goes back to Sharon's question at the, at, you know, the, the beginning of the Q&A session. But, you know, if you're looking at these, the reconditioning cost dynamic here in Q4. So I guess what I want to ask, you know, that, that was more of a challenge for Carvana in Q4. What changed? You know, why, why did that become a more, more challenging here in Q4 than it had been in Q3 or, or prior quarters?

Speaker #6: But if you're looking at the reconditioning cost dynamic here in the fourth quarter, so I guess what I want to ask you is, that was more of a challenge for Carvana in the fourth quarter.

Speaker #6: What changed? Why did that become a more challenging year in Q4 than it had been in Q3 or prior quarters?

Speaker #3: Sure. I mean, what I would say is I think that the most important answer, honestly, is there's no unique dynamic that instantaneously changed. I think the execution of that team has been exceptional for a very long time.

Ernie Garcia: Sure. I mean, what I would say is I think that... The most important answer, honestly, there's no unique dynamic that instantaneously changed. I think the execution of that team has been exceptional for a very long time, and we haven't spoken about this much, but I think we've been continually over time discussing the fact that, you know, if you look back over the last 10 years, the areas where we've run into more issues over time tend to be in reconditioning because it is fundamentally a very hard operational problem. And so I think, you know, we try to set people up for that possibility because I think it, you know, wherever there's operational complexity, there's room for variation. I think that will remain true forever.

Speaker #3: And we haven't spoken about this much, but I think we've been continually, over time, discussing the fact that if you look back over the last 10 years, the areas where we've run into more issues, over time, tend to be in reconditioning, because it is fundamentally a very hard operational problem.

Speaker #3: And so I think we try to set people up for that possibility, because I think wherever there's operational complexity, there's room for variation. And I think that will remain true forever.

Ernie Garcia: Like I said, I think that team is gonna—I really do believe that in six months we're gonna be in a better spot than we would have been if we didn't have a fourth quarter miss. I think the dynamics are straightforward. I think, you know, they're as described. We've opened a lot of facilities. We've grown quickly. We were growing inventory quickly in the fourth quarter. We were hiring new managers and kind of moving around some management layers to put us in a position to continue to grow quickly. And so I think there were moving pieces and sometimes that leads to a little backsliding, but they're fired up.

Speaker #3: Like I said, I think that team is going to—I really do believe that in six months, we're going to be in a better spot than we would have been if we didn't have a fourth quarter miss.

Speaker #3: I think the dynamics are straightforward. I think that they're as described. We've opened a lot of facilities. We've grown quickly. We were growing inventory quickly in the fourth quarter.

Speaker #3: We were hiring new managers and kind of moving around some management layers to put us in a position to continue to grow quickly. And so I think they're removing pieces.

Speaker #3: And sometimes that leads to a little backsliding. But they're fired up. I mean, just small anecdote—one of the corporate team members who runs that team, I was on the phone with this morning at 6 o'clock when he was driving out to tell us, then to go work on it.

Ernie Garcia: I mean, you know, just small anecdote, one of the corporate team members who runs that team, I was on the phone with this morning at 6:00AM when he was driving out to Tucson to go work on it. They're very aware that you know, we had a little miss, and they don't like it, and my strong guess is we're gonna end up in a good spot quickly.

Speaker #3: They're very aware that we had a little miss, and they don't like it. And my strong guess is we're going to end up in a good spot quickly.

Speaker #6: That's helpful. Thanks for reading that. My second question is also on the retail GPU. You called out, as your positioning inventory better, you're seeing this—as you indicated—that your shipping fees now are declining.

Brian Nagel: That's helpful. Thanks for that. My second question is also on the retail GV. You called out, you know, is your positioning inventory better? You're seeing, as you indicated, that, you know, your shipping fees now are declining. So, I mean, clearly, that's a positive for the business. It's very much a positive for, you know, the consumer dynamic. But, you know, as we're looking at the financials, how should we think about that? Because it's, you know, that, to some extent, undermines the one driver of GPU, but there should be benefits either in sales or your SG&A, correct?

Speaker #6: So, I mean, clearly, that's a positive for the business. It's very much a positive for the consumer dynamic. But as we're looking at the financials, how should we think about that?

Speaker #6: That, to some extent, undermines one driver of GPU. But there should be benefits, either in sales or your SG&A, correct?

Speaker #3: Sure. Yeah. So I think the simplest way to think about that is, year over year, by positioning cars closer to customers, our logistics expenses were reduced by about $60.

Ernie Garcia: Sure. Yes, so I think the simplest way to think about that is year-over-year by positioning cars closer to customers, our logistics expenses were reduced by about $60, and our shipping fees were reduced by about $60, basically making it kind of a break-even from our perspective, but making it $60 better for our customers. I think, you know, we talk about fundamental gains, and I think that that's a fundamental gain that emerges from basically scaling, where there's just kind of cost savings in the system. And then I think the question is, if we want to keep the menu of options of equivalent economic quality, you know, as the previous year to our customers, then we would basically have the ability to raise shipping costs for any given distance.

Speaker #3: And our shipping fees were reduced by about $60, basically making it kind of a break-even from our perspective, but making it $60 better for our customers.

Speaker #3: I think we talk about fundamental gains, and I think that that's a fundamental gain that emerges from basically scaling, where there's just kind of cost savings in the system.

Speaker #3: And then I think the question is, if we want to keep the menu of options of equivalent economic quality as the previous year to our customers, then we would basically have the ability to raise shipping costs for any given distance.

Speaker #3: We would keep shipping costs flat year over year on average, and we would see lower costs and the same revenue. If we choose to leave the shipping cost menu the same, then we effectively pass through those cost savings straight to our customers.

Ernie Garcia: We would keep shipping costs flat, you know, year over year on average, and we would see, you know, lower costs and the same revenue. If we choose to leave the shipping cost menu the same, then we effectively pass through those cost savings straight to our customers, and that's the election that we made. You know, we think over time, that there's a lot of value to sharing that value with our customers and just continuing to separate the offering that we have. I think, you know, today, you can see in our financial performance and our growth in our NPS. We are dramatically separated from, you know, the outside industry offering.

Speaker #3: And that's the election that we made. We think over time that there's a lot of value to sharing that value with our customers and just continuing to separate the offering that we have.

Speaker #3: I think today you can see in our financial performance, and in our growth and our NPS, we are dramatically separated from the outside industry offering.

Speaker #3: But we want to continue to separate. And we think that the more that we separate, the louder customer support becomes, and the more quickly we can take over more of the market, which is absolutely our aim.

Ernie Garcia: We want to continue to separate, and we think that the more that we separate, the louder, you know, customer support becomes, and the more quickly we can take over, you know, more of the market, which is absolutely our aim. I think we try to be thoughtful about where that money goes, but that's an area where we got better as a business, and customers benefited.

Speaker #3: So I think we try to be thoughtful about where that money goes. But that's an area where we got better as a business, and customers benefited.

Speaker #6: Appreciate it. Thank you.

Joe Spak: Appreciate it. Thank you.

Brian Nagel: Appreciate it. Thank you.

Speaker #3: Thank you.

Ernie Garcia: Thank you.

Speaker #1: The next question will come from Rajat Gupta with J.P. Morgan. Please go ahead.

Operator: The next question will come from Rajat Gupta with J.P. Morgan. Please go ahead.

Rajat Gupta: Well, great, thanks for taking the question. Just one clarification. You know, when you're seeing profitable growth for 2026, is it fair to assume that, you know, EBITDA per unit should expand in 2026 versus 2025? Just want to clarify if that is the message, and I have a follow-up.

Speaker #7: Hey, thanks for taking the question. Just one clarification. When you're seeing profitable growth for 2026, is it fair to assume that EBITDA per unit should expand in '26 versus '25?

Speaker #7: Just want to clarify if that is the message. And I have a follow-up.

Speaker #3: Sure. I mean, I think what we're trying to communicate there is subtle, and I think what we're trying to communicate is kind of similar to the way that we're discussing it internally.

Ernie Garcia: Sure. I mean, I think what we're trying to communicate there is subtle, and I think what we're trying to communicate is kind of similar to the way that we're discussing it internally. So, you know, in the letter, we talked about doing full build-outs of ADESA locations, for example. I think, you know, in market ops, you know, we're making subtle choices to operate at slightly lower utilization, you know, which happened in Q3 and in Q4 of 2025, but results in faster delivery times because we think the math of that is good. And so those are some areas where we're making, you know, some subtle changes, either in CapEx or in kind of transitioning away from fundamental gains and towards supporting growth at higher scales.

Speaker #3: So, in the letter, we talked about doing full build-outs of a desk of locations, for example. I think in market ops, we're making subtle choices to operate at slightly lower utilization.

Speaker #3: Which happened in Q3 and in Q4 of 2025, but results in faster delivery times because we think the math of that is good. And so those are some areas where we're making some subtle changes, either in CapEx or in kind of transitioning away from fundamental gains and towards supporting growth at higher scales.

Speaker #3: Those are not big moves. So, I think what we're trying to communicate is, we had those three priorities from last year. This year, we're leaning a touch into growth.

Ernie Garcia: Those are not big moves. So I think what we're trying to communicate is we had those three priorities from last year. This year, we're leading a touch into growth. The other two priorities remain the same. Our goal is always going to be to make as much progress we simultaneously can across all, you know, parts of the transaction. We don't think these are necessarily trade-offs. The trade-off is in our focus and where our priority is, more than anything else. We think that there's room to get better at everything all the time, and we'll work hard to do it. And, of course, it'll be hard, like everything that matters is.

Speaker #3: The other two priorities remain the same. Our goal is always going to be to make as much progress as we simultaneously can across all parts of the transaction.

Speaker #3: We don't think these are necessarily trade-offs. The trade-off is in our focus and where our priority is, more than anything else. We think that there's room to get better at everything all the time.

Speaker #3: And we'll work hard to do it. And, of course, it'll be hard—like everything that matters is.

Speaker #7: Understood. Maybe a little more of a high-level question. I mean, you’ve tried to be as vertically integrated as possible on everything that occurs pre-sale.

Rajat Gupta: Understood. Maybe, like, a little more of a high-level question. I mean, you've, you've tried to be as vertically integrated as possible on, on everything that occurs pre-sale. When is the right time to start getting more vertically integrated on the post-sale side, you know, maybe around loan servicing? I mean, I'm sure at some point, you know, servicing cars, you know, with some of the franchise acquisitions you're doing, comes on board. You know, just curious around your thoughts on that and the timing. Thanks.

Speaker #7: When is the right time to start getting more vertically integrated on the post-sale side? Maybe around loan servicing? I mean, I'm sure at some point, servicing cars with some of the franchise acquisitions you're doing comes on board.

Speaker #7: Just curious about your thoughts on that and the timing. Thanks.

Speaker #3: Sure. I mean, I think you can see from the sum of our choices over a long period of time that we're big believers in vertical integration, both because of the economic benefits and because of the customer experience simplification.

Ernie Garcia: Sure. Now, I think you can see from the sum of our choices over a long period of time, that we're big believers in vertical integration, both because of the economic benefits and because of the customer experience simplification. So I think as a general matter, we are believers in that, and I think that that belief is deep, and so it'll probably show up in lots of choices over a long period of time. I think in the immediate moment, we're now at a place where our contribution margins are very, very high.

Speaker #3: So I think, as a general matter, we are believers in that. And I think that that belief is deep, and so it'll probably show up in lots of choices over a long period of time.

Speaker #3: I think in the immediate moment, we're now at a place where our contribution margins are very, very high. And I think the shareholder letter that talks about 70% of our customers referencing a recommendation from a friend or family member mattering when they buy a car from us.

Ernie Garcia: And I think we have—we've also put, you know, some data in the, in the shareholder letter that talks about, you know, 70% of our customers reference, you know, a recommendation from a friend or family member mattering when they, when they buy a car from us. And that, you know, the, the majority of our customers, three quarters, are recommending us to, to multiple people after buying from us. I think those are the sorts of things that tell us that there's a lot of value, not just kind of in the math, from, from scaling. You know, the math is, is very clear because the contribution margins are very high, so that just shows up immediately.

Speaker #3: And that the majority of our customers—three-quarters—are recommending us to multiple people after buying from us. I think those are the sorts of things that tell us that there's a lot of value, not just kind of in the math from scaling. The math is very clear because the contribution margins are very high.

Speaker #3: And so that just shows up immediately, but also in just kind of laying the foundations for long-term secular growth in our market share, because we're delivering great experiences to people that they're going to tell their friends and family about for a long time.

Ernie Garcia: But also in just kind of laying the foundations for long-term secular growth in our market share, because we're delivering great experiences to people that they're going to tell their friends and family about for a long time. I think those survey results are very consistent with individual conversations. If you talk to a customer, you obviously get lots of stories, but the standard story that I feel like I hear is, "Yeah, I kind of knew what Carvana was. I knew about your vending machines. I knew you guys were innovative. I didn't really know what that meant. I went to your website, checked it out.

Speaker #3: I think those survey results are very consistent with individual conversations. If you talk to a customer, you obviously get lots of stories. But the standard story that I feel like I hear is, 'Yeah, I kind of knew what Carvana was.'

Speaker #3: I knew about your vending machines. I knew you guys were innovative. I didn't really know what that meant. I went to your website, checked it out, and before I knew it.

Ernie Garcia: You know, before I knew it, I had bought a car, and then I was almost nervous that I messed up, and it got delivered, and, you know, the advocate that delivered it was great, and then I felt so much better, and I was super excited, and I told my friends about it." And to me, that's like a very simple story, but that's just the way that actual growth happens. So, you know, we're going to focus on trying to take the machine that we've got right now, growing it, delivering more experiences like that, that cause people to talk. And we think that that's going to pay us back, and we will always be looking at, you know, foundational capabilities, would kind of be like the broad bucket that we use, that would discuss additional vertical integration.

Speaker #3: I had bought a car, and then I was almost nervous that I messed up. And it got delivered, and the advocate that delivered it was great.

Speaker #3: And then I felt so much better. And I was super excited. And I told my friends about it. And to me, that's a very simple story.

Speaker #3: But that's just the way that actual growth happens. And so we're going to focus on trying to take the machine that we've got right now, growing it, delivering more experiences like that that cause people to talk.

Speaker #3: And we think that that's going to pay us back. And we will always be looking at foundational capabilities—would kind of be the broad bucket that we use—when we discuss additional vertical integration.

Speaker #3: I think the opportunities there are straightforward. I think you can see many of them. And you listed—I'm sure you can think of more if you sat here and thought about them for a second.

Ernie Garcia: I think the opportunities there are straightforward. I think you can see many of them, and you listed. I'm sure you can think of more if you sat here and thought about them for a second. We see them too, but we're trying to be focused on what's most important, at any given point in time, because we think prioritization matters a lot, and right now it's the priorities we outlined for you.

Speaker #3: We see them too, but we're trying to be focused on what's most important at any given point in time, because we think prioritization matters a lot.

Speaker #3: And right now, it's the priorities we outlined for you.

Rajat Gupta: Understood. Thanks for all the color. Good luck.

Speaker #7: Understood. Thanks for all the color. Good luck.

Speaker #3: Thank you.

Ernie Garcia: Thank you.

Speaker #1: The next question will come from Joe Spack with UBS. Please go ahead.

Operator: The next question will come from Joe Spak with UBS. Please go ahead.

Joe Spak: Thanks so much. I'm curious if you could comment on your feelings about what your customers are saying about affordability. I know you invested a little bit into rates and financing to sort of help this quarter. Curious to sort of see what the reaction to that was, and you know, if you know, maybe more is needed or if there's anything else you could do, whether it's longer terms or whatnot. And somewhat related, you know, there's you know, a lot of EVs coming back at some, you know, I think, going at some attractive rates at auction, and I'm curious whether you think that has, that's an opportunity to you know, plug the hole, so to speak, at the lower end of the market.

Speaker #8: Thanks so much. I'm curious if you could comment on your feelings about what your customers are saying about affordability. I know you invested a little bit into rates and financing to sort of help this quarter. Curious to sort of see what the reaction to that was.

Speaker #8: And if maybe more is needed or if there's anything else you could do, whether it's longer terms or whatnot. And somewhat related, there's a lot of EVs coming back at, I think, going to some attractive rates at auction.

Speaker #8: And I'm curious whether you think that's an opportunity to plug the hole, so to speak, at the lower end of the market.

Speaker #3: Sure. I think that's a big question. I mean, I think there's no question affordability is always an issue. And we would always love for cars to be less expensive.

Ernie Garcia: ... Sure. I think that's a big question. I mean, I think there's no question affordability is always an issue, and we would always love for cars to be less expensive. And I think that it's always helpful when we can find pockets where, you know, we can give customers an offering that's better. I think we're in a market that I think in aggregate has relatively low elasticities. And what I mean by that is, if you look at kind of aggregate used car sales across a long period of time, you tend to see, you know, used car sales that are relatively flat over very long periods of time across different economic environments and affordability environments and everything else.

Speaker #3: And I think that it's always helpful when we can find pockets where we can give customers an offering that's better. I think we're in a market that, I think in aggregate, has relatively low elasticities.

Speaker #3: And what I mean by that is, if you look at kind of aggregate used car sales across a long period of time, you tend to see used car sales that are relatively flat over very long periods of time, across different economic environments and affordability environments.

Speaker #3: And everything else. So we think the thing that we can most impact is the quality of our offering relative to the rest of the market.

Ernie Garcia: So we think the thing that we can most impact is the quality of our offering relative to the rest of the market. And to do that, you know, that's kind of that term fundamental gain that we throw around a lot. It's, you know, how do we lower our costs to give customers the same experience, or get more efficient with our revenues? I think, you know, you brought up lowering rates by a point. That's a... I mean, that's a big move, and I think if you look at our GPU, you know, year-over-year, you're gonna see that approximately flat. That's pretty impressive, right? So how does that happen? How do we lower rates for our customers by about a point, have our GPU that's flat?

Speaker #3: And to do that, that's kind of that term 'fundamental gain' that we throw around a lot. It's how do we lower our cost to give customers the same experience or get more efficient with our revenues?

Speaker #3: I think you brought up lowering rates by a point. I mean, that's a big move. And I think if you look at other GPU year-over-year, you're going to see that it's approximately flat.

Speaker #3: That's pretty impressive, right? So how does that happen? How do we lower rates for our customers by about a point and have other GPU that's flat?

Ernie Garcia: We built, you know, better systems and processes that led to higher attach, and we lowered our underlying cost of funds, by bringing on additional partners and getting more efficient in the way that we're structuring transactions, and then that meant value for our customers. So I think when we can get fundamentally better, and when we're in the position that we're in, where we're already performing so well relative to the industry economically, we're in a position to share with customers. And then, you know, the benefit of that is that that creates affordability for them and separates us further from the economic quality of the outside offering and drives long-term growth. So I think that's what we're gonna be really focused on, is just trying to continually get better ourselves.

Speaker #3: We built better systems and processes that led to higher attach. And we lowered our underlying cost of funds by bringing on additional partners and getting more efficient in the way that we're structuring transactions.

Speaker #3: And then that meant value for our customers. So, I think when we can get fundamentally better, and when we're in the position that we're in where we're already performing so well relative to the industry economically, we're in a position to share with customers.

Speaker #3: And then the benefit of that is that that creates affordability for them and separates us further from the economic quality of the outside offering.

Speaker #3: And drives long-term growth. So, I think that's what we're going to be really focused on, is just trying to continually get better ourselves, and as it relates to EVs or any other segment, that would allow us to try to plug some affordability gaps.

Ernie Garcia: You know, as it relates to EVs or any other segment that would allow us to try to plug some affordability gaps, we're always paying very close attention to all those things. But as a general matter, things that are easy will get very quickly competed away. So if EV prices drop to a place where they're sufficiently desirable to many customers, they're solving the affordability problem; my expectation would be that many dealers will realize that and want to buy those EVs at the same time. I think we are probably a little bit better positioned because we've got a customer base that is more likely to desire an EV. But the hard thing that we can do is make the business better and more efficient.

Speaker #3: We're always paying very close attention to all those things. But as a general matter, things that are easy will get very quickly competed away.

Speaker #3: So, if EV prices drop to a place where they're sufficiently desirable to many customers that they're solving the affordability problem, my expectation at least would be that many dealers will realize that and want to buy those EVs at the same time.

Speaker #3: I think we are probably a little bit better positioned because we've got a customer base that is more likely to desire an EV. But the hard thing that we can do is make the business better and more efficient.

Speaker #3: And when the business is better and more efficient, we have money to share with our customers that other people don't have to share. And that makes us different.

Ernie Garcia: When the business is better and more efficient, we have money to share with our customers that other people don't have to share, and that makes us different, and so that's generally what we're focused on.

Speaker #3: And so, that's generally what we're focused on.

Joe Spak: Super, super helpful. Second question is really housekeeping. I want to apologize if I missed this in any of the prepared remarks, but can you just briefly touch on what happened with tax? It looks like there was some release, and now there's a deferred tax asset and a related tax receivable liability on the balance sheet.

Speaker #1: Super, super helpful. Second question is really a housekeeping one, and I apologize if I missed this in any of the prepared marks. But can you just briefly touch on what happened with tax?

Speaker #1: It looks like there was some release, and now there's a large deferred tax asset and a related tax receivable liability on the balance sheet.

Ernie Garcia: Sure, I can hit that, and then, there will be more details available on the IR, IR website as well, that, hopefully, will be helpful. But the key facts there are, we have an Up-C corporate structure. The Up-C corporate structure generates significant tax assets when LLC units are exchanged into common shares. And we've had those exchanges happening over a number of years, so we've generated very significant tax assets as a result of that. Up until Q4, we've had a full valuation allowance against those tax assets, but with the realization, you know, of, you know, sustained profitability, we've now released that valuation allowance, leading to the significant deferred tax benefit in Q4.

Speaker #3: Sure, I can hit that. And then there will be more details available on the IR website as well. Hopefully, it will be helpful. But the key facts there are we have an Upsee corporate structure.

Speaker #3: The Up-C structure generates significant tax assets. When LLC units are exchanged into common shares—and we've had those exchanges happening over a number of years—we've generated very significant tax assets as a result of that.

Speaker #3: Up until the fourth quarter, we've had a full valuation allowance against those tax assets. But with the realization of sustained profitability, we've now released that valuation allowance, leading to the significant deferred tax benefit in Q4.

Speaker #3: The other thing I should note is the tax benefits from the Up-C structure are shared between pre-IPO LLC unit holders and Carvana common shareholders.

Ernie Garcia: The other thing I should note is that the tax benefits from the Up-C structure are shared between pre-IPO LLC unit holders and, you know, Carvana common shareholders. So the tax liability release effectively reflects the portion of the tax benefit that are shared with LLC unit holders. The remainder of that benefit then flows through to Carvana common shareholders. That was more than $600 million. So a nice win for shareholders in Q4 with, you know, those tax assets now being reflected in net income.

Speaker #3: And so the tax liability release effectively reflects the portion of the tax benefit that is shared with LLC unit holders. The remainder of that benefit then flows through to Carvana common shareholders. That was more than $600 million.

Speaker #3: So, a nice win for shareholders in Q4, with those tax assets now being reflected in net income.

Speaker #1: Thank you. The next question will come from Chris Pierce with Needham. Please go ahead.

Joe Spak: Thank you.

Operator: The next question will come from Chris Pierce with Needham. Please go ahead.

Chris Pierce: Hey, sorry. Just, I hate to go back to this again because I know adjusted EBITDA per unit is sort of what really matters. But can you just walk through a non-vehicle cost in an IRC? Because I'm thinking maybe you're less efficient, car takes longer to get on the website, depreciates more, but then in my head, I think that's a vehicle cost. So, like, is there, like, an example you can give to sort of, kind of, talk about what might have happened here and how, kind of, what you're doing to move past it?

Speaker #4: Sorry. I hate to go back to this again, because I know I just leave it at per unit is sort of what really matters.

Speaker #4: But can you just walk through a non-vehicle cost in an IRC? Because I'm thinking maybe you're less efficient. A car takes longer to get on the website.

Speaker #4: Depreciates more. But then in my head, I think that's a vehicle cost. So is there an example you can give to sort of, kind of talk about what might have happened here and how, kind of, what you're doing to move past it?

Speaker #3: Sure. Yeah. Let me hit that. So by non-vehicle cost, we mean not the acquisition cost of the vehicle, which is the largest portion of cost of sales.

Ernie Garcia: Sure. Yeah. Let me hit that. So, by non-vehicle costs, we mean not the acquisition cost of the vehicle, which is, you know, the largest portion of cost of sales. But then there's, you know, a number of other non-vehicle costs, like reconditioning and inbound transport being, you know, two primary examples. And so then just, you know, just to go back, I think Uri hit this earlier in the call, but recon costs in Q4, you know, were elevated. We expect them to be elevated in Q1. I think a lot of that is driven by the success that we've had adding new locations.

Speaker #3: But then there’s a number of other non-vehicle costs, like reconditioning and inbound transport being two primary examples. And so then, just to go back, I think Ernie hit this earlier in the call.

Speaker #3: But recon costs in Q4 were elevated. We expected them to be elevated in Q1. I think a lot of that is driven by the success that we've had adding new locations.

Speaker #3: And Ernie touched on these points. But I think our reconditioning team had an exceptional year in 2025, growing locations more than 40%, growing total production more than 40%.

Ernie Garcia: Uri touched on these points, but, you know, I think our reconditioning team had an exceptional year in 2025, growing locations more than 40%, growing total production more than 40%. I think our total production growth in 2025 was one of the biggest years, I think, in the history of our industry in terms of increasing overall production. So I think that that team had an exceptional year this year. You know, in Q4, with the, you know, all the sites that we rolled out over the course of the year, costs were elevated.

Speaker #3: I think our total production growth in 2025 is one of the biggest years, I think, in the history of our industry in terms of increasing overall production.

Speaker #3: So, I think that that team had an exceptional year this year. In Q4, with all the sites that we've rolled out over the course of the year, costs were elevated.

Speaker #3: But we have a number of initiatives in place and are placing an increased focus on ensuring that as we continue to scale production capacity, at very high rates, we're doing so efficiently and using software and technology as effectively as possible to make that process of scaling as efficient as we possibly can.

Ernie Garcia: But we have a number of initiatives in place that are placing an increased focus on ensuring that as we continue to scale production capacity at very high rates, that we're doing so efficiently and using software and technology as effectively as possible to make that process of scaling as efficient as we possibly can.

Speaker #1: Okay, perfect. And then, I hate to call it 'topical' because it's something we haven't heard about for years, but it came up this morning.

Chris Pierce: Okay, perfect. And then, I hate to call it topical because it's something we haven't heard about for years, but it came up this morning. Can you just walk through title issues, different titling registrations across 48 states, maybe touch on the restart program? Sorta, I know that this, you know, affects a lot of deals, not just you guys, but maybe we hear about it more with you guys. I just kind of would like to hear about just broadly what you can do there and sort of what the restraints are, because, you know, you've got 48 states with 48 different systems.

Speaker #1: Can you just walk through title issues, different titling registrations across 48 states? Maybe touch on the Restart Program, sort of? I know that this affects a lot of dealers, not just you guys, but maybe we hear about it more with you guys.

Speaker #1: I just kind of would love to hear about, just broadly, what you can do there and sort of what you're at the restraints of, because you've got 48 states with 48 different systems.

Speaker #3: Sure, I'll try to hit on that briefly. And if you're listening out there, yesterday I passed a gentleman on the elevator that asked me to say 'Ratatouille.'

Ernie Garcia: Sure. I'll try to hit on that briefly. And, if you're listening out there, yesterday, I passed a gentleman on the elevator that asked me to say Ratatouille, so, so this is, I think, my shot. But, I think, we've made tremendous progress in title registration. I think the reality is, as a bigger automotive retailer with more attention, I think that, you know, in the post-COVID period, we probably got more negative attention for that than was warranted by the performance. I think our performance at that time was very similar to the performance of many other automotive retailers.

Speaker #3: So this is, I think, my shot. But I think we've made tremendous progress in title registration. I think the reality is, as a bigger automotive retailer with more attention, I think that in the post-COVID period, we probably got more negative attention for that than was warranted by the performance.

Speaker #3: I think our performance at that time was very similar to the performance of many other automotive retailers. But regardless, I think that was one of those moments where you kind of get slapped around with a concept a little bit.

Ernie Garcia: But regardless, I think that was one of those moments where, you know, you kinda get slapped around with, with a concept a little bit, and I think it made us much better. And I think today we're at a place where approximately 99% of our packets are completed by deadline, which means that we're in a spot to get customers their title registration work done, you know, quickly and on time. And from all accounts, unfortunately, there's not, like, super simple to find benchmarking data out there, but from all accounts, that, that makes us very likely best in class, despite the fact that we have a fundamentally harder problem because we're moving cars across state lines from many locations to give customers the selection that they benefit from on our website.

Speaker #3: And I think it made us much better. And I think today, we're at a place where approximately 99% of our packets are completed by deadline, which means that we're in a spot to get customers their title registration work done quickly and on time.

Speaker #3: And from all accounts, unfortunately, there's not super simple-to-find benchmarking data out there. But from all accounts, that makes us very likely best in class, despite the fact that we have a fundamentally harder problem—because we're moving cars across state lines from many locations to give customers the selection that they benefit from on our website.

Speaker #3: So I think this has turned from an area that I think was complex and was maybe a relative area of weakness because we were taking on a more complex problem, to an area that I think is now another area where we shine and outperform the market.

Ernie Garcia: So I think this has turned from, you know, an area that I think was complex and was maybe a relative area of weakness because we were taking on a more complex problem, to an area that I think is now another area where we shine and outperform the market. So I think that's something that we're proud of. I think the teams that have worked on that, you know, that just heard your project called out, I think you have a lot to be proud of, and we have a lot to be grateful for. So I think that's another kind of great bright spot in the Carvana story over the last couple of years.

Speaker #3: So, I think that's something that we're proud of. I think the teams that have worked on that, that just heard your project called out, I think you have a lot to be proud of.

Speaker #3: And we have a lot to be grateful for. So I think that's another kind of great, bright spot in the Carvana story over the last couple of years.

Speaker #1: All right. Thank you.

Chris Pierce: All right. Thank you.

Speaker #3: Thank you.

Ernie Garcia: Thank you.

Speaker #2: The next question will come from Ron Chosey with the city. Please go ahead.

Operator: The next question will come from Ron Josey with Citi. Please go ahead.

Speaker #4: Great, thanks for taking the question. Two-parter here. Maybe, Ernie, we’ll start bigger picture on conversion rates—and we’re seeing inventory grow, and we heard about passing on fundamental gains to customers with lower APRs and faster shipping, or delivery time down by a day.

Ron Josey: Great. Thanks for taking the question. Two-parter here. Maybe, Ernie, we'll start bigger picture on conversion rates. And, you know, we're seeing inventory grow, and we heard about passing on fundamental gains to customers with lower APRs and faster shipping or delivery time, down by a day. Talk to us about just how conversion rates are trending here, the progress as you're working. I know you answered earlier on affordability, but just as you balance affordability with units sold and margins. So first one's on conversion rates, and then maybe, Mark, on guidance overall. Wondering, when you think about Q4, I think we talked about at least 150,000 units. We came in high single digits, maybe 9% better.

Speaker #4: Talk to us about just how conversion rates are trending here—the progress as you're working. I know you answered earlier on affordability, but just as you balance affordability with units sold and margins.

Speaker #4: So first one's on conversion rates. And then maybe Mark on guidance overall. Wondering, when you think about Q4, I think we talked about at least 150,000 units—we came in in high single digits, maybe 9% better.

Speaker #4: Wondering what drove the upside in Q4 here as we think about Q1 and the demand with tax refunds and seasonality. Thank you.

Ron Josey: Wondering what drove the upside in Q4 here as we think about Q1 and the demand with, you know, factory bonds and seasonality. Thank you.

Speaker #3: Sure. I'll hit briefly on conversion. I think conversion rates are something that we'd have to kind of define—what's the top and the bottom of the funnel.

Ernie Garcia: Sure. I'll hit briefly on conversion. I think conversion rates are something that we definitely kind of define what's the top and the bottom of the funnel. But I think regardless of what we're talking about, I think that we've tended to see over a multi-year period just continual improvement there. I think we're at a place now where we have a lot of website traffic, if we use that at the, you know, very top of the funnel. If we want to go even higher than that, if we say, like, aided awareness, I think we're at a place where there's quite a bit of aided awareness. I think our opportunity remains in kind of understanding and trust.

Speaker #3: But I think, regardless of what we're talking about, we've tended to see, over a multi-year period, just continual improvement there. I think we're at a place now where we have a lot of website traffic, if we use that, at the very top of the funnel.

Speaker #3: If we want to go even higher than that—if we say aided awareness—I think we're at a place where there's quite a bit of aided awareness.

Speaker #3: I think our opportunity remains in kind of understanding and trust. And that's why I think we spoke about some of those anecdotes earlier. I think as we pass value back to customers, I think we have very clear understandings because we run very clear tests to make sure that we do understand those things.

Ernie Garcia: And that's why I think we, we spoke about some of those anecdotes, earlier. I, I think as we pass value back to customers, I, I think we have very clear understandings, 'cause we, you know, run very clear tests to make sure that we, we do understand those things. We know what speed means in terms of conversion. We know what, what price means or what rate means in terms of conversion. And so that's, that's math that we feel, you know, pretty good that we understand, and, and that does flow through instantly. I think a lot of the, the, the bigger opportunity, though, I, I think is more about just creating an offering that is different by more, that cause customers to tell one another about it, more dramatically.

Speaker #3: We know what speed means in terms of conversion. We know what price means, or what rate means, in terms of conversion. And so that's math that we feel pretty good that we understand.

Speaker #3: And that does flow through instantly. I think a lot of the bigger opportunity, though, is more about just creating an offering that is different by more, that causes customers to tell one another about it more dramatically.

Speaker #3: And I think that that's a payoff that's much, much harder to calculate. But I think part of the kind of math that sits underneath the idea that giving value back to customers makes sense is that you have a long tail that pays you off over a very long period of time by just having an offering that is superior to the outside market offering.

Ernie Garcia: And I think that's a payoff that's much, much harder to calculate. But I think, you know, part of the kind of math that sits underneath the idea that giving value back to customers makes sense is that, you know, you have a long tail that pays you off over a very long period of time by just having an offering that is superior to the outside market offering. And so I think we do all the math and try to make very smart decisions as it relates to elasticities and conversion. But I think we also sort of from a principle and from a brand perspective try to make sure that we're giving customers an offering that's clearly different.

Speaker #3: And so I think we do all the math and try to make very smart decisions as it relates to elasticities and conversion. But I think we also, sort of from a principle and from a brand perspective, try to make sure that we're giving customers an offering that's clearly different.

Speaker #2: Sure. Yeah. And then on the guidance front, our most important goal is significant growth in retail units sold and adjusted EBITDA in 2026. That's where we're going to be focused.

Mark Jenkins: Sure. Yeah, and then on the guidance front, you know, our most important goal is significant growth in retail units sold and Adjusted EBITDA in 2026. That's where we're gonna be focused. We talked a little bit in the letter about, hey, 2025 was a year where we had three key objectives.

Speaker #2: We talked a little bit in the letter about, hey, 2025 was a year where we had three key objectives: significant growth in units and adjusted EBITDA driving fundamental gains, and also developing foundational capabilities.

Ernie Garcia: ...significant growth in units and adjusted EBITDA, driving fundamental gains and also developing foundational capabilities. We plan to maintain those three key objectives in 2026, but to increase our weighting on, you know, really focusing on the things we need to do to continue to drive, you know, very strong growth in units and EBITDA. You know, I think we feel great about where the business is positioned today. You know, our year in 2025, you know, we think was exceptional. You know, we think we're, you know, our growth in 2025 is in the top couple percentage points of companies within the S&P 500, which is a stat we feel great about. I think we're, you know, starting to see now, you know, very strong returns, you know, on investments.

Mark Jenkins: ...significant growth in units and adjusted EBITDA, driving fundamental gains and also developing foundational capabilities. We plan to maintain those three key objectives in 2026, but to increase our weighting on, you know, really focusing on the things we need to do to continue to drive, you know, very strong growth in units and EBITDA. You know, I think we feel great about where the business is positioned today. You know, our year in 2025, you know, we think was exceptional. You know, we think we're, you know, our growth in 2025 is in the top couple percentage points of companies within the S&P 500, which is a stat we feel great about. I think we're, you know, starting to see now, you know, very strong returns, you know, on investments.

Speaker #2: We plan to maintain those three key objectives in 2026. But to increase our rating on really focusing on the things we need to do to continue to drive very strong growth in units and EBITDA, I think we feel great about where the business is positioned today.

Speaker #2: Our year in 2025, we think, was exceptional. We think our growth in 2025 is in the top couple percentage points of companies within the S&P 500, which is a stat we feel great about.

Speaker #2: I think we're starting to see now very strong returns on investments. For example, our operating ROA—operating income divided by operating assets—for the year in 2025 exceeded 20%, which we think puts us in line with very strong long-term compounders.

Ernie Garcia: You know, for example, our operating ROA, you know, operating income divided by operating assets, for the year in 2025 exceeded 20%, which we think puts us in line with, you know, very strong long-term compounders. And by the way, you know, those financial metrics are paired with the fact that we only have a 1.6% market share in our core market. And so, you know, I think we see, you know, a really big opportunity in front of us to build, you know, a very meaningful and significant company. And so we just wanna make sure that we're doing the things to continue to grow retail units sold and top line significantly, and then also continuing to grow on the bottom line as well.

Mark Jenkins: You know, for example, our operating ROA, you know, operating income divided by operating assets, for the year in 2025 exceeded 20%, which we think puts us in line with, you know, very strong long-term compounders. And by the way, you know, those financial metrics are paired with the fact that we only have a 1.6% market share in our core market. And so, you know, I think we see, you know, a really big opportunity in front of us to build, you know, a very meaningful and significant company. And so we just wanna make sure that we're doing the things to continue to grow retail units sold and top line significantly, and then also continuing to grow on the bottom line as well.

Speaker #2: And, by the way, those financial metrics are paired with the fact that we only have a 1.6% market share in our core market. And so, I think we see a really big opportunity in front of us to build a very meaningful and significant company.

Speaker #2: And so we just want to make sure that we're doing the things to continue to grow retail units sold and top line, significantly, and then also continue to grow on the bottom line as well.

Speaker #2: So that's where we're going to be focused in 2026.

Ernie Garcia: That's where we're gonna be focused in 2026.

Mark Jenkins: That's where we're gonna be focused in 2026.

Speaker #1: Thank you, Ernie. Thank you, Mark.

Lee Horowitz: Thank you, Ernie. Thank you, Mark.

Speaker #3: Thank you.

Ernie Garcia: Thank you.

Speaker #2: The next question will come from Marvin Fong with BTIG. Please go ahead.

Operator: The next question will come from Marvin Fong with BTIG. Please go ahead.

Marvin Fong: Great. Good evening, thanks for taking my questions. Two, if I may. You know, I think you referenced this slightly in the last answer, Ernie, but you know, the passing along the lower APR, about a percentage point you referenced. You know, in retrospect, you know, did that have the desired impact that you anticipated in terms of driving you know, unit growth? And longer term, you know, what's sort of the end state there? Do you have a goal of actually being sort of best in class and offering lowest APR to prime customers? And then my second question, just on advertising.

Speaker #5: Great. Good evening. Thanks for taking my questions. Two, if I may. I think you referenced it slightly in the last answer, Ernie, but the passing along, the lower APRs—about a percentage point you referenced—in retrospect, did that have the desired impact that you anticipated in terms of driving unit growth?

Speaker #5: And longer term, what sort of the end state there? Do you have a goal of actually being sort of best in class and offering lowest APRs to prime customers?

Speaker #5: And then my second question, just on advertising—I noted on a per-unit basis it was down. And I was just wondering, you're obviously investing elsewhere in the business to drive great word of mouth, which is arguably your best form of advertising.

Marvin Fong: I you know noted on a per unit basis it was down, and I was just wondering, you know, you're obviously investing also in the business to drive great word of mouth, which is arguably your best form of advertising. But just you know are we at a sort of a peak on a per unit basis with your with your formal advertising expense on a per unit basis? Or how would you kind of describe how we should how we how we should think about that? Thank you.

Speaker #5: So just, are we at a sort of a peak on a per-unit basis with your formal advertising expense on a per-unit basis? Or how would you kind of describe how we should think about that?

Speaker #5: Thank you.

Speaker #3: Sure. I mean, I think as it relates to kind of the immediate-term elasticity, as we were passing some of that rate back to customers over the last couple of quarters, I think, yeah, generally, we believe that we saw the impacts that we would have expected.

Ernie Garcia: Sure. I mean, I think, as it relates to kind of like the immediate term elasticity as we are passing, you know, some of that rate back to customers over the last couple of quarters, I think, yeah, generally we believe that we saw the impacts that we would have expected. And I think that's generally been true, you know, like I said, across time, we've shared value with customers, and we feel like we understand those elasticities pretty well. I think longer term, maybe I'll, you know, I'll answer that slightly differently.

Speaker #3: And I think that's generally been true, like I said, across time when we've shared value with customers. And we feel like we understand those elasticities pretty well.

Speaker #3: I think longer term—maybe I'll answer that slightly differently. I would say, in the period between now and hitting our 3,013.5% adjusted EBITDA margin goal, the goal is to make as much fundamental gain as we possibly can, of which we think there is lots of room.

Ernie Garcia: I would say in the period between now and hitting our 3 million, 13.5% Adjusted EBITDA margin goal, the goal is to make as much fundamental gain as we possibly can, of which we think there is lots of room. We think there's big opportunity in every GPU line item and every expense line item. And, you know, all the teams are focused on those things and trying to prioritize and figure out where they can get the biggest yield the fastest. And we want to go get that, and then we want to give value back to customers. The more fundamental gains we get, the more value we can give back to customers.

Speaker #3: We think there's a big opportunity in every GPU line item and every expense line item. And all the teams are focused on those things and trying to prioritize and figure out where they can get the biggest yield the fastest.

Speaker #3: And we want to go get that. And then we want to give value back to customers. The more fundamental gains we get, the more value we can give back to customers.

Speaker #3: And we think the path to 13.5% is very straightforward. It comes from scaling and kind of new markets acting more like old markets.

Ernie Garcia: And we think the path to 13.5% is very straightforward, and it comes from scaling and kind of, you know, old-new markets acting more like old markets and just the benefits of levering fixed costs. So it's a straightforward path. So I think that's kind of the 2030 to 2035 plan. And I think from there, we'll kind of, you know, reevaluate, and I'm sure along the way, you know, we'll be giving you updates as well. But I think that's what we're focused on, and so it's just about, you know, getting a little better all the time.

Speaker #3: And just the benefits of levering fixed costs, so it's a straightforward path. So I think that's kind of the 2030 to 2035 plan, and I think from there, we'll kind of reevaluate.

Speaker #3: And I'm sure along the way, we'll be giving you updates as well. But I think that's what we're focused on, and so it's just about getting a little better all the time.

Speaker #3: On ADX, I think we brought up over the last couple of quarters that, given the large contribution margins and the desire to lean into growth—and all of the obvious benefits that you get from growth because of the contribution margin, and then because of the feedback in the system, and because it creates more customers that can tell your story—that ADX is a good place for us to invest. We continue to believe that that is the case.

Ernie Garcia: On AdX, I think, you know, we brought up over the last couple of quarters that given the large contribution margins and given the desire to lean into growth and all of the, you know, obvious benefits that you get from growth because of the contribution margin, and then because of the feedback in the system, and because, you know, it creates more customers that can tell your story, that AdX is a good place for us to invest. We continue to believe that that is the case. And we've also made some other investments in other parts of the transaction, as we discussed. I think we will try to be efficient with those investments and thoughtful about where those investments go. There's obviously many different places where we can spend money with a similar goal there.

Speaker #3: And we've also made some other investments in other parts of the transaction, as we discussed. I think we will try to be efficient with those investments, and thoughtful about where those investments go.

Speaker #3: There are obviously many different places where we can spend money with a similar goal there, so we try to be thoughtful and optimize as best we can.

Ernie Garcia: So we try to be thoughtful and optimize as best we can, but I would say no major changes in any of our kind of general thoughts there.

Speaker #3: But I would say no major changes in any of our kind of general thoughts there.

Speaker #2: Got it. Thank you so much.

Marvin Fong: Got it. Thank you so much.

Speaker #3: Thank you.

Ernie Garcia: Thank you.

Speaker #2: The next question will come from Lee Horowitz with Deutsche Bank. Please go ahead.

Operator: The next question will come from Lee Horowitz with Deutsche Bank. Please go ahead.

Lee Horowitz: Great. Thanks for taking the question. I guess as we look out to 2026, the production growth algorithm looks quite strong as capacity comes online and throughput continues to improve. I guess, how are you thinking about how that supply growth may be met via demand? And do you see any reason why the relationship you have seen, in terms of selection growth and unit growth, you know, changing in any way relative to what you've seen historically?

Speaker #6: Great, thanks for taking the question. I guess as we look at '26, the production growth algorithm looks quite strong as capacity comes online.

Speaker #6: And throughput continues to improve. I guess, how are you thinking about how that supply growth may be met via demand? And do you see any reason why the relationship you have seen in terms of selection growth and unit growth would change in any way relative to what you've seen historically?

Speaker #3: I think we started the paradigm marks with something that we think is really useful, which is looking at the multi-year graphs and just trying to take away those big themes.

Ernie Garcia: I think, you know, we started the prepared remarks with, you know, something that we think is really useful is looking at the multiyear graphs, and just trying to take away those big themes. I think we could have a similar kind of conversation here, I think. If we look over the last 13 years of Carvana's life, I think as a general matter, the story has been that as long as we build the operational chain to support volume, you know, there's demand for that volume. And I think generally speaking, that's been a pretty predictive, simple reduction of what's going on. So I think we've got to keep building out that operational chain. It's a lot of work. Our foundation's good.

Speaker #3: I think we could have a similar kind of conversation here. I think if we look over the last 13 years of Carvana's life, I think, as a general matter, the story has been that as long as we build the operational chain to support volume, there's demand for that volume.

Speaker #3: And I think, generally speaking, that's been a pretty predictive, simple reduction of what's going on. So I think we've got to keep building out that operational chain.

Speaker #3: It's a lot of work. Our foundation's good. We've got the real estate. We've got the people. We've got the team. We've got the systems.

Ernie Garcia: We've got the real estate, we've got the people, we've got the team, we've got the systems. You know, we're making the investments now as we speak, and we're, we're building a system that scales better. But that's constant hard work, and I think that we would expect the future to look like the past on that, 'cause we still think we're a tiny portion of this market. Yeah, as discussed earlier, you know, we're 1.6% of the used car market and 1% of the car market overall. So, you know, effectively, we still have, you know, first order, the entire market to grow into.

Speaker #3: We're making the investments now as we speak, and we're building a system that scales better. But that's constant hard work, and I think that we would expect the future to look like the past on that, because we still think we're a tiny portion of this market.

Speaker #3: Yeah, as discussed earlier, we're 1.6% of the used car market and 1% of the car market overall. So, effectively, we still have first order the entire market to grow into.

Ernie Garcia: So, you know, we think it remains very early in the game, and we think that making sure that we execute well and build out the supply chain is central to predicting where our growth is gonna go.

Speaker #3: So we think it remains very early in the game, and we think that making sure that we execute well and build out the supply chain is central to predicting where our growth is going to go.

Speaker #6: Makes sense. And then I guess your competition is clearly talked about pushing on some price in the fourth quarter. Did the reaction to that in any way impact retail GPU?

Lee Horowitz: Makes sense. And then, I guess your competition has clearly talked about pushing on some price in the Q4. Did the reaction to that in any way impact retail GPU? I know you gave us the walk, but any color there, and maybe how are, are some of the actions taken by your competitors, changing, if at all, the way you think about price competitiveness, competitiveness in 2026?

Speaker #6: I know you give us the walk, but any color there? And maybe, how are some of the actions taken by your competitors changing, if at all, the way you think about price competitiveness in 2026?

Speaker #3: Yeah, I think we gave you the walk. I think the story in retail GPU, I think, really is about a transfer to customers of shipping costs, and then a little variation in depreciation that I think is going to happen quarter to quarter and is natural.

Ernie Garcia: I think we gave you the walk. I think the story in retail GPU really is about a transfer to customers of shipping costs, and then, you know, little variation in depreciation that I think is gonna happen quarter to quarter and is natural. And then I think most importantly and most controllably, it's about reconditioning costs. So I think, you know, that's the story there. I think we'll always pay attention to what's going on in the market. But as we've said before, I think, you know, one of the properties of this market that we think is very beneficial is that it's a market that is massively fragmented, that has literally tens of thousands of players in it, that share a cost structure and share a way of doing business.

Speaker #3: And then I think, most importantly and most controllably, it's about reconditioning costs. So I think that's the story there. I think we'll always pay attention to what's going on in the market.

Speaker #3: But as we've said before, I think one of the properties of this market that we think is very beneficial is that it's a market that is massively fragmented, that has literally tens of thousands of players in it that share a cost structure and share a way of doing business.

Speaker #3: And as a result, the way that that market reacts in aggregate is pretty predictable because they're highly constrained by what their costs are. And it makes the market very consistent and very predictable.

Ernie Garcia: And as a result, the way that market reacts in aggregate is pretty predictable because they're highly constrained by what their costs are. And it makes kind of the market very consistent and very predictable, and that's been true for our entire life, and we'd expect it to be true in the future. So with that being the case, we think that our focal point has to just be on us and delivering great customers and making our system more efficient. And if we do that, we think we'll keep getting better.

Speaker #3: And that's been true for our entire life. And we'd expect it to be true in the future. So, with that being the case, we think that our focal point has to just be on us and delivering great customers and making our system more efficient.

Speaker #3: And if we do that, we think we'll keep getting better.

Speaker #6: Helpful. Thank you.

Lee Horowitz: Helpful. Thank you.

Speaker #3: Thank you.

Ernie Garcia: Thank you.

Speaker #2: The final question today will come from John Babcock with Barclays. Please go ahead.

Operator: The final question today will come from John Babcock with Barclays. Please go ahead.

Speaker #5: Hey, good afternoon to Shavin. I guess my question is really revolving around volumes. I mean, you're guiding this sequential growth in Q1, which seems to imply at least 22% growth, maybe a little above that.

John Babcock: Hey, good afternoon, Dave Shavin. I guess my question is really revolving around volumes. I mean, you're guiding this sequential growth in Q1, which, you know, seems to imply at least 22% growth, maybe a little above that. You know, and generally, I think that's at least below where the street was. Just kind of curious, I mean, are you seeing anything in the markets that's giving you caution at this point in time? This also couples a little bit with your prior comment about shifting more to growth. Just want a little more clarity there in terms of how you're thinking about that.

Speaker #5: And generally, I think that's at least below where the Street was. Just kind of curious—I mean, are you seeing anything in the markets that's giving you caution at this point in time?

Speaker #5: And it also couples a little bit with your prior comment about shifting more to growth. So I just want a little more clarity there in terms of how you're thinking about that.

Ernie Garcia: No, I guess would be the simplest answer. I, I think, things look the same to us, and, and, we're gonna continue to run as fast as we can and, and, just try to get a little better every day. I don't think there's any changes to, to what we're seeing or feeling.

Speaker #3: No, I guess would be the simplest answer. I think things look the same to us, and we're going to continue to run as fast as we can.

Speaker #3: And just try to get a little better every day. I don't think there are any changes to what we're seeing or feeling.

Speaker #2: Okay, thanks. That's clear. And then, as far as—I mean, you're expanding to free at-home delivery, free pickup. Should we think about that, over time, as potentially impacting GPUs?

John Babcock: Okay, thanks. That's clear. And then as far as, you know, I mean, you're expanding to free at home delivery, free pickup. You know, should we think about that over time as, you know, potentially impacting GPUs? You know, I mean, we've clearly seen the impact this quarter at least of, you know, the shipping costs, you know, as more people are buying vehicles closer to where they're located. So just kind of curious if you might be able to, you know, go through that a little bit.

Speaker #2: I mean, we've clearly seen the impact this quarter—at least—of the shipping costs, as more people are buying vehicles closer to where they're located.

Speaker #2: So, just kind of curious if you might be able to go through that a little bit.

Ernie Garcia: I think ideally we're making fundamental gains at the same speed that we're passing them back, so that's the... Or faster, frankly. So I think that's the general goal. I think in things like shipping fees, I think as we get cars closer to customers, what we're doing today is we're passing that benefit to customers, and I think as we scale, that kind of naturally occurs. You know, we have many of these inventory pools that are relatively new, that have relatively small pools of cars in them. As those pools grow, that will bring our average car closer to our average customer and will naturally cause a little bit more of that same impact, which we think is net positive.

Speaker #3: I think, ideally, we're making fundamental gains at the same speed that we're passing them back, or faster, frankly. So I think that's the general goal.

Speaker #3: I think in things like shipping fees, as we get cars closer to customers, what we're doing today is we're passing that benefit to customers.

Speaker #3: And I think as we scale, that kind of naturally occurs. We have many of these inventory pools that are relatively new, that have relatively small pools of cars in them.

Speaker #3: As those pools grow, that will bring our average car closer to our average customer, and we'll naturally cause a little bit more of that same impact, which we think is net positive.

Speaker #3: I think that we've made some choices, like we discussed earlier in market ops, for example, to run at slightly lower utilization rates. And the benefit of that is that delivery times are faster for customers.

Ernie Garcia: I think that we've made some choices, like we discussed earlier, in market ops, for example, to run at slightly lower utilization rates. The benefit of that is that means the delivery times are faster for customers, and we think the math of that is very good. That would mean, you know, all else constant, that would give a little pressure on Carvana ops expense. We generally are making gains in other places that are offsetting that or more than offsetting that, and that remains the goal. I think we hope to continue passing value back to customers and to make gains that are of similar size, or better, so we're not moving backwards.

Speaker #3: And we think the math of that is very good. That would mean, all else constant, that there would be a little pressure on Carvana Ops expense.

Speaker #3: But we generally are making gains in other places that are offsetting that, or more than offsetting that. And so that remains the goal. So, I think we hope to continue passing value back to customers and to make gains that are of similar size.

Speaker #3: So, or better. So we're not moving backwards.

Speaker #2: All right. Sounds good. Thanks, Ken.

John Babcock: All right. Sounds good. Thanks, Ken.

Speaker #3: Thank you.

Ernie Garcia: Thank you.

Speaker #2: This concludes our question-and-answer session. I would like to turn the conference back over to Ernie Garcia for any closing remarks.

Operator: This concludes our question and answer session. I would like to turn the conference back over to Ernie Garcia for any closing remarks.

Speaker #3: Great. Well, thanks everyone for joining the call. Really appreciate it. Team Carvana, great job. Again, I think the year 2025 is a tremendous, tremendous year.

Ernie Garcia: Great. Well, thanks, everyone, for joining the call. Really appreciate it. Team Carvana, great job again. I think the year 2025 is a tremendous, tremendous year, and I think it's something that was very hard to foresee ahead of time and something that we should all be very proud of. I think Q4 is also an exceptional quarter. I think there were a couple little line items where we all know that we could have done a little bit better, and I think in many ways, that's great. That's a good reminder for us. Let's use that, and let's go do better tomorrow. But great job. We have a ton to be proud of, and we're gonna keep rolling down this hill. So, let's keep it up. Thanks, everyone.

Speaker #3: And I think it's something that was very hard to foresee ahead of time, and something that we should all be very proud of. I think Q4 is also an exceptional quarter.

Speaker #3: I think there were a couple of little line items where we all know that we could have done a little bit better. And I think, in many ways, that's great.

Speaker #3: That's a good reminder for us. Let's use that, and let's go do better tomorrow. But great job. We have a ton to be proud of.

Speaker #3: And we're going to keep rolling down this hill. So let's keep it up. Thanks, everyone.

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

Q4 2025 Carvana Co Earnings Call

Request a DemoDemo

CVNA

Carvana

Earnings