CNVA Stock | Carvana Co. Q1 2026 Earnings Call

Good afternoon and welcome to the Carvana first quarter 2026 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. 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, Investor Relations. Please go ahead.

Thank you, Gary. Good afternoon, ladies and gentlemen, and thank you for joining us on Carvana's first quarter 2026 earnings conference call. Please note that this call is being webcast and can be accessed along with our Q1 shareholder letter and supplemental financial tables on the investor relations section of the company's corporate website at investors.carvana.com. 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 this discussion contains forward-looking statements within the meaning of the federal securities laws, including but not limited to Carvana's market opportunities and future financial results that involve risks and uncertainties that may cause actual results to differ materially from those discussed here. A detailed discussion of these factors can be found in the risk factors section of Carvana's most recent form 10-K. These forward-looking statements are based on current expectations as of today, and Carvana assumes no obligation to update or revise them. Our commentary today will include non-GAAP financial metrics. GAAP reconciliations can be found in the shareholder letter posted on our IR website. And with that said, I'd like to turn the call over to Ernie Garcia.

Thank you, Ernie, and thank you all for joining us today. Unless otherwise noted, all comparisons will be on a year-over-year basis. Q1 was a strong quarter driven by our team's continued focus on profitable growth and strong execution. We set new company records for retail units sold, revenue, gross profit, SG&A expense per retail unit sold, GAAP operating income, and adjusted EBITDA. Retail units sold totaled 187,393 in Q1, an increase of 40% and a new company record. Revenue was $6.432 billion, an increase of 52%. Revenue growth exceeded retail unit 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 first quarter was driven by our three long-term drivers of growth: a continuously improving customer offering, increase in awareness, understanding, and trust, and increasing inventory selection and other benefits of scale. The first quarter marked our ninth consecutive quarter of industry-leading retail unit growth and margins. Non-GAAP retail GPU decreased by $58, primarily driven by higher non-vehicle costs and lower shipping fees. Looking ahead to Q2, we expect retail GPU to increase sequentially, but to decrease year-over-year due to approximately $100 of tariff related benefits last year, lower shipping fees, and higher non-vehicle costs this year, and approximately $100 to $200 of impact from narrower industry-wide wholesale to retail spreads this year. Non-GAAP wholesale GPU decreased by $83, primarily driven by increased wholesale vehicle volume and gross profit per unit that was more than offset by lower wholesale marketplace gross profit and growth in retail units that outpaced wholesale gross profit. Non-GAAP other GPU decreased by $88, primarily driven by our decision to give back to customers in the form of lower interest rates, partially offset by higher finance and VSC attach rates. It was another strong quarter for levering SG&A expenses. Our 40% growth in retail units sold led to a $170 reduction in non-GAAP SG&A expense per retail unit sold, including a $36 reduction in operations expenses and a $226 reduction in overhead expenses. Advertising expense increased by $92 per retail unit sold as we continue to invest in building awareness, understanding, and trust in our customer offering. With a nearly 2% market share in the US 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. We continue to see opportunities for significant SG&A expense leverage over time 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 $405 million in Q1, an increase of $32 million. Net income margin was 6.3%, a decrease from 8.8%. Adjusted EBITDA was $672 million, an increase of $184 million and a new company record. Adjusted EBITDA margin was 10.4%, a decrease from 11.5%, primarily driven by increased retail revenue per unit resulting from the traditional gross revenue treatment mentioned previously. GAAP operating income was $581 million, or 86% of adjusted EBITDA, an increase of $187 million and a new company record. As discussed in prior quarters, we continue to drive toward investment grade quality credit ratios over time. In Q1, we again reduced our net debt to trailing 12-month adjusted EBITDA ratio to 1.1 times, our strongest financial position ever. Q1 was a record quarter that again demonstrated the significant power of our business model. Looking toward Q2 and assuming the environment remained stable, we expect a sequential increase in both retail units sold and adjusted EBITDA, leading to all-time company records on both metrics. We remain on track to deliver significant growth in both retail units sold and adjusted EBITDA in full year 2026. In conclusion, our Q1 results were outstanding. Our team is intently focused on driving profitable growth and we remain excited about progressing toward our goals of becoming the largest and most profitable auto retailer and buying and selling millions of cars. Thank you for your attention. We'll now take questions.

We will now begin the question and answer session. To ask a question, you may press star then one on your telephone keypad. If you are using a speaker phone, please pick up your handset before pressing the keys. To withdraw your question, please press star then two. Please limit yourselves to one question and one follow-up. If you have additional questions, you may rejoin the queue. The first question today is from Chris Pierce with Needham. Please go ahead.

Oh, hey, good afternoon. Ernie, in your remarks, you said you talked about new tools at underperforming sites where there are new managers. I just want to understand, do these tools, these are brand new and these could help top performing sites further improve or these are to bring those underperforming sites in line with your top performing sites?

Okay, perfect. Thank you. And then just kind of a bigger picture question. You know, new vehicle prices, tariffs, gas prices, do you think there's some portion of people tapping out and dropping down to used and could we see when off supply and more supply comes back used go north of 40 million units for a couple years because of this? And if that did happen, would that affect other GPU as you guys tilt more prime versus subprime or I just would love to hear your thoughts on that.

Okay. Thank you and good luck.

The next question is from Daniela Higgins with Morgan Stanley. Please go ahead.

Hi Ernie and team. Thanks for taking the question. So my first one's on SG&A leverage. Most line items this quarter, including logistics, came in lower as a percentage of sales versus the run rate we've seen the last few quarters. How should we be thinking about operating leverage in fixed costs? Mark, you mentioned that. And then more near-term, how should investors think about logistics expense in a rising fuel cost environment?

Sure, I can hit that. So I think it's helpful to break that down into a couple different categories. So one, operations expense, that's the expenses associated with executing the transaction, providing customer service, fulfilling the transaction via our logistics network and last mile delivery network, and all of those sort of expenses that are more variable in nature. I think we had a strong quarter on that front with operations expenses down slightly year-over-year. I think in the longer term we definitely see an opportunity to march those down further on a per retail unit basis. In any given quarter, they can be impacted. You mentioned fuel prices, that would definitely have an impact because logistics is part of that operations expense. I wouldn't expect that impact to be particularly large, but there's some impact there. Then the second category of expenses is overhead expenses. That's an area where we've shown a lot of strong leverage. I think overhead expenses are expenses that are more fixed in nature. They can grow due to investments that we make, for example we're making some investments now in additional technology including AI related technology, that would be in that overhead expense number. So they can grow, but it's much more fixed in nature and we do expect to see significant leverage in that overhead line item over time. So those are two of the big categories. Just the third, we have been marching up advertising spend. We think given where we are in our company's life, we think there's still a lot we can do to continue to raise that understanding, awareness, and trust of our offering. We're in the relatively early days of online auto retail adoption. Obviously we're playing a big role in telling that story and we think there's a lot of value to us continuing to invest in advertising. So those would be the three big categories, and I've walked you through some of the dynamics.

Thanks, Mark. That's helpful. Second question, a bit longer term on capex long term. So, recognizing you're only 20% utilized on your current real estate capacity of 3 million, but at this rate of growth, you're going to need to think about builds beyond that over the next few years. And you had a helpful exhibit in last quarter's investor letter on eventually building out green field production. What would that look like? What's the team's philosophy on building in that capacity?

Sure. So, the way I think about our production growth plan, and I think a lot of our capital investment is really related to just growing production and production facilities. Right now, there's multiple ways that we're doing that. One is just adding staffing into existing facilities. That's no capex. A second is we're integrating Adesa locations, which basically means going into existing Adesa buildings that have already been constructed, implementing our Carli proprietary software system to do inventory and reconditioning management in those centers, adding some equipment, and that's a very capex light way to add production capacity. The third way is to actually start doing full buildouts of existing Adesa facilities. The way to think about that is, we've got the land, but we can expand the buildings and structure in order to add more production lines into those facilities. We did talk a little bit about that in our last letter. We think those are very high quality investments to be making and expect to start making those investments over the course of this year. And then last is Greenfield IRCs. That's not a priority at this time. I think our bigger priority is executing those first three types of production expansion. Up to this point we've been really focused on the first two, ramping capacity in existing facilities and integrations. This year is the year where we'll start doing some of those full buildouts which we think make a lot of sense.

Great. Thank you.

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

Great, thanks for taking the question and congrats on the execution around the reconditioning cost. Had a question on the wholesale retail spread comment that Mark made in the prepared remarks. Is that impact that you're already feeling in the month of April based on how retail prices are tracking or is that more of an expectation around May and June or baking in some sort of slowdown in demand because of gas prices and sentiment tied to the war? Any more color around that $100 to $200 wholesale retail spread headwind would be helpful. I have a quick follow-up.

Sure. Yeah. So, what we're seeing on spreads and what we've seen year to date really starts with a very hot wholesale market in Q1. So wholesale prices really appreciated in Q1. And that appreciation can happen in any given year as a lead-up to tax season, but the appreciation in wholesale prices that we saw early this year started earlier and was of a larger magnitude than we've typically seen in past Q1s. And so a strong wholesale market did benefit us. We had one of our highest quarters ever on wholesale vehicle gross profit per wholesale unit sold in Q1, commensurate with that hot wholesale market. But what we're seeing is that that wholesale appreciation wasn't fully passed on into retail prices, and that's causing a little bit of that wholesale to retail spread compression that we're pointing to.

Got it. That's clear. And just to follow up on the previous question around SG&A, the sequential pickup in the overhead expenses, it's the highest we've seen in a while, particularly since the turnaround. You mentioned some investments around AI and stuff. Could you double click on that, give us a little more detail around what's going on? Are there any one-timers? Maybe some of the new car acquisitions? Just a little more granularity there would be helpful, and any color on overhead expenses for the year would be helpful. Thanks.

Yeah, sure. So, I think there are some seasonal or one-time components in there as well as some investments. So we typically see Q1 is a high quarter for payroll expense related to share-based compensation because we typically have large vesting of share-based compensation in Q1, larger than some other quarters. In addition, the weather events in Q1 actually did have some impact on overhead expenses where we spent much more than a typical winter quarter on snow plowing and removal. And so that is in that number. There are ongoing investments, things that I wouldn't think of as seasonal or one-time, including technology investments, some incremental investments in facilities, that I think will have us operating at a higher level on overhead expenses than we were in 2025. But I would not expect to see overhead expenses to increase at a rate like that. I think thinking of Q1 as something more like a new level is probably more appropriate.

Understood. Great. Thanks for all the caller and good luck.

Thanks.

The next question is from Sharon Zakaria with William Blair. Please go ahead.

Hi. And congratulations on getting wholesale ops back up and running. I guess it was running but more optimized. I guess with that it sounds like you might be positioned to hold retail GPU for the full year and I'm curious on your thoughts on that in terms of seeing improvement in the back half of the year again.

I think, secondarily, sorry, I'm losing my voice. For the OBB, there had been kind of a lot of talk about tax refunds and the benefit that you might see in your business. That happened right around the time the war broke out and obviously gas prices spiked. So I'm curious as you went throughout the quarter did you see any change in the complexion of your customers across income cohorts or does that look very similar to what you were seeing in 2025? Thanks.

Okay. Thank you.

The next question is from Brian Nagel with Oppenheimer. Please go ahead.

Hi. Good afternoon. Great quarter. Congratulations. Very nice. Thank you. The question I know that some of this has been asked before so I apologize for being repetitive but just with respect to gas prices, I mean clearly you had a very strong quarter and the commentary in Q2 has been very strong as well. But as you think about gas prices, the potential impacts to consumer, and then maybe you look over time over prior spikes in gas prices, how should we be thinking about that? Have you noticed over time that your consumer acts different when gas prices spike?

No that's very helpful. I appreciate that. But then my second question, with regard to the commentary on the narrowing spreads between retail and wholesale. So I guess I want to understand that as you look at this and what's happened here, is this more of a short-term phenomena where it started a couple quarters ago and now is correcting or do you think there's actually some type of longer term or multi-quarter shift happening within the marketplace?

That's very helpful. I appreciate the coloring. Thanks.

The next question is from Jeff Lick with Stevens, Inc. Please go ahead.

Good afternoon. Thanks for taking my question, guys. I was wondering if we could unpack a little bit deeper. As you guys become bigger, you become a bigger part of the entire used ecosystem, not just retail, but wholesale. Looking at your wholesale numbers, you wholesaled less as a percentage of your retail, down to 44.6 from 47.4. And then your marketplace units were actually down. And as Mark pointed out, your retail wholesale GPU was 1327. So I'm curious how that dynamic is playing out in terms of your ability to source and the decisions you're making. You would think if you could get that much money wholesaling, you might have wholesaled more, but it appears you retailed more. So maybe talk a little bit more about the dynamics there.

Sure. I think we're extremely excited with how the business is operating overall. One of the central things we're always trying to balance is managing the business operationally as best we can while growing at these very high rates. The wholesale side does have operational impacts on the overall business, most notably in last mile logistics, which is an important part of our system that we've got to carefully manage to handle the growth. So we're always making trade-offs there, but in general, all the signs we see are very good and the teams are executing extremely well. The wholesale team continues to unlock fundamental gains and is doing great. You see that in wholesale vehicle results, and in wholesale marketplace, we're also building a lot of fundamental value. We made a comment in the letter that we feel like Adesa Clear, our digital auction platform, is now best-in-class, and we've got a lot of reasons for believing that. It's growing very quickly and adding value to the Adesa system and to the Carvana system as we buy cars wholesale and dispose of most of them through that platform. You saw in the letter we shared a number of speed stats that are fun reductions of the rate at which we can move cars through the system. The goal of building the Carvana system is to deliver incredible customer experiences on both sides of the transaction and to minimize the expense necessary to allow customers to trade cars with each other. In the fastest case, the entire process took place in just under five days, which is remarkable. It means a customer goes to our site, gets a value for their car, decides to sell it, goes through verification and title work, schedules a drop-off or pickup, we get the car, land it at our hub, put it on a multi-car hauler, drive it to an inspection center, inspect it, run it through reconditioning, photograph it, put it up on the site, price it automatically, another customer finds and buys it, schedules delivery, we deliver it, and it's theirs. That took 4.8 days. So the system overall is very tight, and we're getting a lot of fundamental value out of it that we think will unlock more over time.

That's an amazing anecdote. Thanks for sharing. Congrats and best of luck on Q2.

Thank you. Appreciate it.

The next question is from John Coloni with Jeff. Please go ahead.

Great, thanks for taking my question. Just want to ask about other GPU. Can you give us a sense if you see an opportunity to incrementally invest some of the financing GPU into growth, as you've done in recent quarters, or is that reinvestment largely behind you so that other GPU has more or less hit a run rate level at this point?

In the quarter, we are at 104% adjusted EBITDA margin. In the past, we've provided walks we think are straightforward to get to our goal of 13.5, which include leverage in fixed costs and getting to marketing dollar per unit spend similar to our more mature cohorts. That walk continues to be pretty straightforward and the math is approximately the same. Beyond that, we have room for any place where we make fundamental gains, whether in GPU line items or variable cost line items, and that gives us room to share value with customers. Where we share value will not necessarily always be in the exact places we unlock it, but we are seeking to unlock it in every part of the business. We have projects we're excited about in every single expense and revenue line item, all credible projects with real potential to make meaningful differences, but we haven't done them yet. So we need to unlock that value, and as we do, we plan to share it with customers. We think there will be significant value there, and even with doing that, we can hit our goals.

Okay, great. And I wanted to ask one about advertising. Mark, you talked about spending more. Just curious if you could give us a sense of which advertising channels you're seeing the best returns and how you think about advertising fitting into your broader growth strategy over time. Is there a near-term ramp in spend in a particular market, and then once you hit a level of mind share you can pull back? I just made that up, but curious to get your perspective.

Absolutely. Starting with the long-term growth strategy, we've talked about the three pillars. One is continuing to improve the product and customer experience, where we've made and hope to continue making significant gains. Second is building increased awareness, understanding, and trust, where advertising plays a role, but it's not the only component; great customer experiences, word of mouth, and repeat customers also matter. Third is increasing selection and other benefits of scale, including adding more inventory pools to put more cars closer to customers. On the advertising component, we still feel we're in the relatively early days of telling our story, so we see opportunities to continue advertising more. I would expect that advertising to be very broad-based across many different channels. In the near term, we haven't provided too much commentary on our advertising outlook, but if you look over the last two or three quarters, you'll see relatively consistent advertising expense per unit, and I think that's a reasonable way to think about where we are today.

All right, thanks so much.

Thank you.

The next question is from John Healey with North Coast Research. Please go ahead.

Thanks for taking the question. Just wanted to see if we could switch gears a little bit, Ernie, and talk about your priorities on the new car side. I think you guys are up to maybe six or seven Chrysler or Solana dealerships now. Any updated perspective on where you're seeing benefits? I know you've said in the past it's a learning process, but with the pace of these acquisitions continuing, I was hoping you could provide more context.

Understood. I guess I'll stick on the other businesses as well. We continue to see mobility and autonomous offerings rolling out in more cities. Obviously you have a really good asset and we've talked about capacity at the reconditioning centers. Have you game planned out anymore that you could talk to us about, maybe how you see yourself facilitating that business potentially as a service provider? Any updated thoughts on evolution of the business model?

Thanks.

Thank you.

The next question is from Marvin Pong with BTI. Please go ahead.

Great, thanks for taking my question and congratulations. This quarter you mentioned being the top used car dealer in the country. Question on inventory. I noticed it grew quite a bit less than sales. Was that partly a function of bringing operational efficiency up and getting recon in order? And secondarily, how should we think about having a pretty lean inventory relative to your sales growth rate in terms of your pricing power? It would seem you would have pretty good ability to exercise some pricing power with this low input.

Great. And if I could do a follow-up, how would you characterize the pricing environment? I think at least one competitor is out there discounting, and obviously it's a fragmented market, but what's your view on pricing discipline across the industry?

Got it. Thanks so much. Appreciate it.

Thank you.

The next question is from Andrew Boone with Citizens. Please go ahead.

Thanks so much for taking the question. Ernie, I wanted to go back to some of the tools you guys rolled out this quarter at IRCs, specifically centralized planning. Can you talk about moving some of your lower performing IRCs more towards best-in-class performance through more centralized planning? What's the unlock there? And then in the letter, you specifically called out Adesa Clear as a best-in-class digital auction. Can you speak to the longer term opportunity for Clear and the broader potential for that asset?

Great. Thank you.

Thank you.

The next question is from John Babcock with Barclays. Please go ahead.

Hey, thanks for taking my questions. I want to go back to the discussion on retail GPU. You gave a little bit of color for this upcoming quarter, which is helpful, but I also want to reconcile that with depreciation. Out of curiosity, how did Q1 end up relative to that, and what other factors might have impacted GPU? I know there was some strength on the used vehicle side. Did that contribute to performance there?

Retail GPU was down slightly, pretty close to flat on a year-over-year basis in Q1. A couple of key drivers are things we talked about in Q4 as well. One, we're having great success in our logistics network getting cars to customers faster and with shorter distances. That manifested in Q1 with an all-time low logistics expense per retail unit sold. As we brought down distances for outbound shipping, we also brought down our shipping revenue and just passed those gains on to customers. That was great for customers but had a negative impact on retail GPU in both Q4 and Q1. We've also talked a lot about elevated retail reconditioning costs, where we've made lots of progress as Ernie discussed. Those were a couple of the key drivers applied to both Q4 and Q1.

Okay. And did depreciation change much from Q4 to Q1?

Not that I recall. I don't think we feel we had major unusual seasonal patterns there.

Okay, thanks. And then back to reconditioning costs. You talked about centralizing that a bit. Are you comfortable doing that? Do you think there will be any added bureaucracy? Are you maintaining good flexibility at the reconditioning center level to make decisions quickly?

It's really important to strike a balance. The teams on the ground are there every day and are hands-on with the dynamics and cars flowing through. So it's important to have a lot of on-the-ground input into how the reconditioning centers function. At the same time, there are many quantitative decisions that can help them run better. For example, if you have a given number of people with a given distribution of skill sets on any day, what's the optimal way to distribute them across the stations? You can do that manually, but it's also a problem that can be solved with algorithms and data. Pairing a very strong quantitative focus via software with the teams on the ground is where we think the special sauce is. We've been investing in reconditioning technology over several years, but we haven't solved that problem yet. That's a place we've been focusing.

All right. Thank you.

The next question is from Michael McGovern with Bank of America. Please go ahead.

Hey guys, thanks for taking my question. I was just curious on the labor hours per unit metric you gave. It seems like it's really efficient right now. So I'm curious how much more efficiency you can gain longer term. Which parts of the chain have decreased the most in terms of labor hours per unit, and how does that flow through into GPU longer term?

We've talked in the past about our expense per unit in recon. The number one driver of those expenses is labor; it's a big part of the direct cost and is highly correlated with the other costs. So when we're looking for operational metrics that move quickly so we can manage and make quick decisions, that's one we tend to look at. It's clearly gotten better. The drift in costs we discussed in Q4 was driven largely by a drift in HPU, and we're back now to where we were last year in Q2, which was our all-time best. There's clearly room for additional improvement from here, both by improving the sum of all centers and by getting centers to operate more like our best centers. That opportunity can matter in meaningful dollars, but it takes time. We don't want to set expectations that it's coming in the next couple quarters. It will take time to unlock the full benefit, but it's there and exciting. It just has to be done while executing well enough to grow at very high rates, and the sum of those things is hard to do together, but I think the team is up to it.

Got it. Just a quick follow-up on that. To your point of how hard it is, it seems like your recon headcount growth is still pretty elevated. So from here, is there some shift in how efficiently you're able to train these new reconditioning hires and keep that growth elevated while also keeping new employees efficient?

Thank you.

Thank you.

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

Yes, good afternoon. Thanks for taking the question. I wanted to start on the diesel front. Could you help us understand any exposure you might have there? Obviously impressive improvement on the logistics side this quarter. We were thinking it might be like a low single-digit earnings headwind in isolation. Also, how should we think about Ernie's propensity to reinvest underlying gains in GPUs to further accelerate share versus passing some through?

I can take the first one. There is an impact of fuel prices on our operations. It takes a couple forms: a cost of sales impact for inbound transport and an SG&A expense impact in operations expense. I would expect to see some impact from higher fuel prices in Q2, but not one that's particularly large, within the normal range of quarter-to-quarter fluctuations.

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

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