Carvana Co. (CVNA) Q1 2021 Earnings Call Transcript

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Carvana Co. (CVNA 2.85%)
Q1 2021 Earnings Call
May 6, 2021, 5:30 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good afternoon, and welcome to the Carvana First Quarter 2021 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to Mike Levin, Vice President, Investor Relations. Please go ahead.

Michael Levin -- Vice President of Investor Relations

Thank you, Gary. Good afternoon, ladies and gentlemen, and thank you for joining us on Carvana's First Quarter 2021 Earnings Conference Call. Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website at investors.carvana.com. The first quarter shareholder letter is also posted on the IR website. Joining me on the call today are Ernie Garcia, Chief Executive Officer; and Mark Jenkins, Chief Financial Officer. Before we start, I would like to remind you that the following discussion contains forward-looking statements within the meaning of the federal securities laws, including, but not limited to, Carvana's market opportunities and future financial results that involve risks and uncertainties that may cause actual results to differ materially from those discussed here.

A detailed discussion of the material factors that cause actual results to differ from forward-looking statements can be found in the Risk Factors section of Carvana's most recent Form 10-K and Form 10-Q. The forward-looking statements and risks in this conference call are based on current expectations as of today, and Carvana assumes no obligation to update or revise them, whether as a result of new developments or otherwise. Unless otherwise noted on today's call, all comparisons are on a year-over-year basis. Our commentary today will include non-GAAP financial measures. Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our shareholder letter issued today, a copy of which can be found on our Investor Relations website.

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

Ernie Garcia, III -- President, Chief Executive Officer and Chairman

Thanks, Mike, and thank you all for joining the call. The first quarter was another great quarter across the board. In our shareholder letters, we always lay out our financial priorities of rapidly scaling the business, of growing GPU and of demonstrating operating leverage. In the first quarter, we made tremendous progress across each of these priorities. We grew units and revenue by 76% and 104%, respectively. We grew GPU by over $1,000 year-over-year and almost $300 quarter-over-quarter. And we levered EBITDA margin by over 10% year-over-year and 2.5% quarter-over-quarter. Even more impressively, these results were achieved despite meaningful operational constraints across the business and the significant investments we've been making to alleviate them. In the first quarter, our average weekly production was up 26% versus the fourth quarter.

As a result of the relatively low inventory levels we are carrying throughout the quarter, unit volumes closely tracked production up 28% sequentially. Importantly, the investments we have made in ramping up our ops capacity in general and our inspection center capacity in particular are starting to pay off. As a result of ongoing focus, weekly production levels have been up closer to 50% above the fourth quarter more recently, which positions us well to begin growing inventory and increasing selection for our customers again for the first time since the pandemic struck over a year ago. Getting to this point is a result of a lot of careful planning and hard work across our real estate, inspection center, logistics, market ops and advocate teams who all put in tremendous efforts to catch up to demand and to fight off the pandemic-driven ops constraints of the last year.

Great job, and thank you to those teams. These efforts and the ongoing execution of our plan have positioned us well for a great 2021 and 2022, and the foundation is continuing to be laid to enable us to continue scaling rapidly in the years beyond. Eight years ago, we had a dream to change the way people buy cars, and we've made a lot of progress. When we look back at what got us here, it's just the list of simple ideas that are easy to say and very hard to actually put into action. It all started by imagining a new way to buy a car that was better for our customers in every important way. The excitement of that dream enabled us to attract incredible people who made our dream their own. From there, it has just been ambition, hard work, perseverance and constant learning. And with a critical mass of enthusiastic, customer-focused, ambitious people, we've built a self-reinforcing culture.

Those simple ideas have taken us a long way. In 2013, our first year, we had $4 million of revenue. Today, we're over 1,000 times larger. Looking forward, we're just as excited as we were then. We're delivering to customers the best experiences available in buying or selling a car. The quality of the unit economics that emerge from the investments we have made over time are showing up in our results. The scalability of our model is apparent, and our business gets better as it gets bigger. And we're still dreaming. The ambition that underlies our dreams burns as brightly today as it did at the beginning. And with every step we take, we can see further down the field. While we're extremely proud of what we've built and the team that got us here, we're nowhere near where we ultimately want to be in either scale or scope. We're still at the beginning.

To get from where we are to where we want to be, we'll maintain our customer focus. We'll keep surrounding ourselves with exceptional people. We'll remain ambitious. We will stay disciplined in prioritizing our efforts. We'll keep working a little harder than those around us and we'll have fun along the way. In short, we'll traverse the path in front of us the same way we have traversed the path behind us. We know what to do. We just have to keep doing it. Mark?

Mark Jenkins -- Chief Financial Officer

Thank you, Ernie, and thank you all for joining us today. Q1 was a strong quarter for Carvana across all key financial metrics, and our financial results demonstrate significant progress toward our long-term goals. Retail units sold in Q1 totaled 92,457, an increase of 76%. Total revenue was $2.245 billion, an increase of 104%. Revenue growth outpaced retail unit growth due to higher retail average selling prices and wholesale and other revenue. We expect revenue growth to outpace retail unit growth again in Q2, and then we expect revenue growth to be similar to retail unit growth in the back half of the year. Total GPU was $3,656 in Q1, an increase of $1,016 year-over-year and $277 sequentially. Since Q1 2020 was impacted by the onset of COVID-19 in March, I will focus my commentary on sequential changes.

Retail GPU declined slightly to $1,211 from $1,265 in Q4, reflecting a continuation of approximately $200 per unit of transitory costs, primarily driven by rapidly ramping our reconditioning capacity in the midst of COVID-19. We do not expect the majority of these transitory costs to impact Q2. Wholesale GPU increased to $227 from $108 in Q4, primarily driven by strong industrywide wholesale prices in the latter part of Q1. Other GPU increased to $2,218 from $2,006 in Q4, primarily driven by completing two public securitizations for the first time in Q1, paired with an increase in ancillary product attachment rates that offset a onetime benefit in Q4. EBITDA margin was negative 1.3% in Q1, a 2.6 percentage point improvement from negative 3.9% in Q4, driven by both GPU gains and SG&A leverage. We ended the quarter with more than $2 billion in total liquidity resources, giving us significant flexibility to execute our plan.

We had another strong quarter of buying cars from customers in Q1, buying approximately as many cars from customers as we sold to them and achieving a customer source ratio over 60%. Our success over the last two years has made the strength of our offering of buying cars from customers clear, and we no longer expect to provide detailed statistics on buying cars from customers each quarter. So far in Q2, we are seeing outstanding performance. And in April, we set a new company record for cars bought from customers both on an absolute basis and relative to retail units sold. We are as excited as ever about the opportunities ahead. We continue to focus on scaling our production capacity to meet demand. In Q1, we opened our 12th IRC near Birmingham, Alabama, bringing our total annual production capacity to approximately 680,000 units at full utilization.

We remain on track to open one additional IRC in Q2 and eight in 2022, bringing our total capacity at full utilization to over 1.25 million units by the end of 2022. So far in Q1, we have opened 22 new markets, bringing our total to 288 and increasing our population coverage to more than 77% of the U.S. population. In May, we also launched our first five markets in the Pacific Northwest, adding the last major region to our nationwide footprint. After Q2, we expect our path to 95% population coverage to primarily consist of opening smaller fill-in markets. In our Q4 2020 shareholder letter, we outlined our expectations for the year 2021, including accelerated retail units sold growth, revenue growth in line with retail unit growth, total GPU in the mid-3,000s and a small EBITDA margin loss while investing for growth and continuing our progress on demonstrating leverage.

We remain on track to meet or exceed these expectations, and we continue to be excited about 2021 as a significant step toward our long-term goals. Thanks for your attention. We will now take questions.

Questions and Answers:

Operator

[Operator Instructions] Our first question comes from Sharon Zackfia with William Blair. Please go ahead.

Sharon Zackfia -- William Blair -- Analyst

Hi, Good afternoon. I did not expect to be first. I guess congratulations on a great first quarter. And I'm trying to kind of think about your improvements that you've been making in productivity and how we should think about that for the rest of the year. And I think, Ernie, you mentioned that soon you'll have available inventory ahead of the year-ago period. I guess I'm wondering, when will you be back to kind of prepandemic levels? What's your line of sight on that?

And then I know you mentioned the $200 in transitory costs on GPU. Obviously, the year-over-year contraction was a little bit more than that on the car itself. What else was pressuring that? Are you finding that it's more competitive to get inventory? You're having to pay a little bit more than would be ideal? Just any thoughts there would be great.

Ernie Garcia, III -- President, Chief Executive Officer and Chairman

Sure. So let's start with production. I think, as you know, basically since the second quarter of last year, we've been pretty constrained in production given the pullback that we made then and then all the demand that we've seen and just trying to catch up. So I think in the first quarter, we kept pace. Basically, our sales grew sequentially at effectively the same rate as our production grew and so I think that, that kind of suggests that those constraints were still in place.

But then post the end of the first quarter, we've made a lot of progress, and we've continued to see our production growing. So we now expect to be able to grow inventory. Basically, what we're saying there is we've kind of gotten to a place where we expect production to be a little bit more than sales. And we don't want to kind of specify exactly the rates which we expect inventory to grow, but that's a mile marker to kind of now be in a place we expect to grow inventory, and we're pretty excited about that.

Obviously, growing inventory helps with conversion across the site and so that's an important milestone that we've hit, but we're not going to quantify it from there. We'll keep working hard, trying to grow that as quickly as we can. As we grow into the production capacity, we expect to be around $1.25 million by the end of 2022. And then, Mark, do you want to hit number two?

Mark Jenkins -- Chief Financial Officer

Sure. Yes, then I'll hit the question on retail GPU. So Q1 retail GPU was largely in line with our expectations when taking into account the transitory costs that we talked about in Q4. I think when you look on a year-over-year basis, in addition to those transitory costs, last year, we talked some about the impact of some of the early phases of iteration on buying cars from customers that positively impacted GPU last Q1. So I think there's some base effect from those early phases of iteration that's impacting the year-over-year comparison.

I think when we look at where we're headed from here, we did call out that we expect the majority of those transitory costs that impacted Q4 and Q1 this year to be gone by Q2. And so that's a tailwind to retail GPU as we move toward 2Q, other things being equal. Obviously, overall, we feel really good about our progress there, had a solid quarter in light of those transitory costs and expect to step up in Q2.

Operator

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

Zach Fadem -- Wells Fargo -- Analyst

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

Ernie Garcia, III -- President, Chief Executive Officer and Chairman

Sure. So obviously, we're excited about launching the Pacific Northwest. That was kind of the last region in our footprint that we weren't yet in. So I think opening that up is exciting because it basically means from here to roughly our 95% population coverage goal, in the long run, we basically have markets to fill in. So that's very exciting. Also, as we grow demand in general in the existing markets and in new markets, that just puts us in a position where we can economically carry a larger and larger inventory.

And so that's great news for conversion across the country. As inventory gets larger and larger, you certainly have some duplication of inventory that is optimal, where you want to take some of that duplicative inventory and put it in different places around the country that are closer to customers to minimize delivery times, which is also an input into to conversion. So there is some of what you're talking about that kind of automatically happens with scale, where shipping distances should drop and conversion rates should go up.

We have all kinds of tests all the time where we're getting a good handle on how inventory size impacts conversion, how delivery times impact conversion and kind of what the right thing is to do internally. But I don't think that we're going to give more concrete guidance on the precise expectations that we have around those different numbers.

Zach Fadem -- Wells Fargo -- Analyst

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

Ernie Garcia, III -- President, Chief Executive Officer and Chairman

Sure. So I think a way to look at that is to look at our past. We provided in our shareholder letter in Q4 2020, you can kind of see our production capacity -- our facility production capacity in each of our previous years. And then you can get a sense of how long it took for us to unlock that facility capacity with actual production by just looking at kind of sales rates in the future periods. So that will at least give you a sense of how quickly we can unlock that.

Something we've been working on internally is being able to unlock that production capacity more quickly. We've spoken before about there are many different operational parts of the business, and all those different parts of the business have different lag times associated with how quickly you can alleviate constraints if you find yourself constrained. And definitely, production is the area with the longest lead times. It's the hardest to kind of grow capacity very quickly there.

We've seen that over the last year. So we definitely put a lot of focus on catching up and on making ourselves even more flexible. And so you can see the results of that progress in kind of our sales growth over the last several quarters and in the fact that we're now expecting to grow inventory. So that's been a huge focal point. It's something that we think we are continuing to get better at.

Operator

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

Nick Jones -- Citi -- Analyst

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

Ernie Garcia, III -- President, Chief Executive Officer and Chairman

Sure. So I think, first, the used market is fairly different than the new market. It's not totally independent. It's impacted in many ways. But the used market, all those cars are already on the road today. There's around 270 million cars on the road. And basically, these transactions are just customers trading with one another. So it's not fundamentally impacted by underlying production levels in the way that the new market is. The new market is impacting the used market to a degree today because the kind of decrease in available supply and new then kind of flows over in excess demand to late model used and that kind of flows down through all the other used kind of year levels as well.

So there are some impacts there, but wouldn't expect them to be super pronounced. I don't think that's like a first order driver of what's going to happen to the used market over the next six months or a year. Even more importantly than that, I think production capacity is an investment in kind of our long-term future. When we open these facilities and we unlock that capacity by hiring and training the people in those inspection centers, that means that we have the capacity to kind of build those cars over and over again that powers our growth to two million cars and beyond and to becoming the largest, most profitable automotive retailer.

So those are big investments in our future that are kind of being made with a much longer lens than the current chip shortages that we're seeing today. And then as it relates to competitors, I mean, I think there was probably no reasonable expectation of our path from kind of where we started to where we wanted to be, but there wouldn't be competition along the way. I think we've been fortunate enough to have a fair amount of success. And with success, there's always competition. So we expect the competition.

I think we should continue to expect competition. We should probably expect competition to continue to show up as we continue to have more success in the future. That said, I do think if you kind of step back and evaluate the competitive environment, this market, the used car market, does have a lot of really nice properties. First of all, it's a 40 million unit market. And so the largest player has on the order of 2% market share. We're now the second largest player in just eight years, but it's highly, highly fragmented.

And so even some of these big goals that are being put out by others in the industry, they still are very, very small compared to the market itself. And then by some measures, the market may be considered fairly competitive in the sense that there's tens of thousands of players in it. But those tens of thousands of players that work hard are providing customers with a very similar experience to one another. And when you start to look at kind of differentiated experiences, there's very, very few players that really have the capacity to make the investments in time, energy and money that are necessary to build an e-commerce platform, and we're way, way ahead there.

So we're really excited about our position. We think that the market that we operate in has really nice competitive dynamics, all else constant. And then we also think that the most important thing that we can do is stay focused on our customers and on ourselves. It gets really easy for two competitors to look at each other and kind of chase each other in circles. And we instead want to make sure that we're focusing on our customers, that we're building out the solutions that they really need and then that we're focusing on ourselves.

The last year has taught us that when you see a lot of demand that you're trying to grow really rapidly, that comes accompanied with a bunch of operational challenges that aren't trivial to solve. And so we need to stay really focused on ourselves and our execution. And we think if we do that, we're going to achieve our goals.

Operator

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

Chris Bottiglieri -- Exane BNP Paribas -- Analyst

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

Mark Jenkins -- Chief Financial Officer

Sure. So I think there are always many dynamics that are going into retail GPU. I think this quarter, we certainly started to see appreciation -- rapid appreciation in the wholesale market that's appearing to some degree in the retail market. That really came on more toward the end of the quarter. So I think I'm not sure that, that was a particularly large effect on our Q1 number. So I think the main effects on Q1 were the ones I called out, namely these transitory costs on the order of $200, roughly the same as what we experienced in Q4.

That was probably the biggest unusual impact on retail GPU in Q1. And as I mentioned, we expect the majority of those transitory costs to have disappeared by Q2. And so we think the removal of those transitory impacts will be a tailwind, other things equal, as we move toward Q2.

Chris Bottiglieri -- Exane BNP Paribas -- Analyst

Got it. Good luck thank you.

Mark Jenkins -- Chief Financial Officer

Thanks.

Operator

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

Rajat Gupta -- JPMorgan -- Analyst

Hi. Good afternoon, good evening thanks for taking my question. I just had a question on -- just a follow-up to one of the previous questions. As you open up more IRC and the production capacity is increasing and like, thus, the inventory selection increases, how does like the advertising leverage start to look once that happens? Like do we start to see a meaningful pickup in the leverage? Or just how should we think about that as that capacity ramps up? And I have a quick follow-up.

Ernie Garcia, III -- President, Chief Executive Officer and Chairman

Sure. So I think there's probably a lot of ways to think about that. So certainly, as we grow inventory, all else constant, we would expect conversion rates to go up. As we kind of decrease delivery time, we'd expect conversion rates to go up. The relationship from conversion rates to customer acquisition cost is very clear. As conversion rates go up, you would expect to see leverage in customer acquisition cost. So I think that those relationships would be as expected.

I also think if you take a look at kind of the cohort data that we provided over the last several Q4s, you can kind of take a look at what our customer acquisition cost looks like in some of our older cohorts. I think our oldest cohort last Q4 was approaching on the order of $500, give or take, versus a company level of around $1,100, I think, in Q1. So I think we've kind of demonstrated what we can do with customer acquisition cost in those older markets.

Obviously, in those older markets, we expect it to continue to go down over time as we grow inventory and decrease delivery times and further build the brand. So hopefully that gives you a sense of where we think that can go. And then between here and there, I think it's just a function of how many markets we open, what we decide to do with our marketing budget, how quickly we can grow our inventory, how quickly we can decrease our delivery times, how well we execute.

And in general, we still feel like we're very early in brand building. We measure that in lots of different ways. But virtually, any measure of customer awareness is still at low levels relative to where we want to be. And so we're not being shy about continuing to invest in our brand, and we'll do that as long as we think that that's a smart thing to do.

Rajat Gupta -- JPMorgan -- Analyst

Got it. That's helpful. And just on the finance GPU. I know it wasn't broken out separately this quarter. But like just based on like my math, it points to somewhere around like $1,600, $1,700 or so. Firstly, like is that close or accurate? And then just looking at versus the targets at the Analyst Day like two and a half years back. Obviously, rates are much lower. But what other factors have driven this uptake? Is this kind of like a sustainable level that you would expect in the near term or maybe even higher? Just curious as to how to think about that and like what a more normalized finance GPU number should look like going forward.

Ernie Garcia, III -- President, Chief Executive Officer and Chairman

Sure. So first of all, we didn't provide that breakout so we're -- we don't intend to provide it here. I think that you at least understand our rationale there. Going back in time to our Analyst Day that you referenced, at that time, we were selling on the order of 1/4 as many cars as we're selling today. Our GPU is on the order of half, maybe even less than what it is today. And I think our EBITDA margin is probably 10 or 15 points worse. And so at that time, we were trying to provide pretty detailed walks for our investors so they could understand how those buildups would occur over time.

I think as we've matured and as we've seen a lot of progress in many of those different line items, and I think the market in general has a much better understanding of how those things progress, we're just kind of simplifying our reporting and kind of aligning more closely with industry standard. And so we don't intend to kind of break it out at that level of detail going forward. That said, I think it's not hard to infer the general area that it's in, as you pointed to.

And that general area is very exciting, and it's very strong compared to what we initially outlined at that Analyst Day in 2018. So I think there's a couple of reasons for that. Some of them are fundamental and sustainable. I think we've really -- we have done a pretty good job with that business, and we made a lot of fundamental progress in terms of the way that we're able to assess credit risk and price credit risk and the way that we're able to monetize our finance platform.

So I think there's a lot of things that we've done there that we're proud of, and we think that there's probably some additional fundamental value that we can unlock. I think we're also in something of a unique environment. Early in the pandemic, we tightened credit pretty dramatically. We've held credit tighter than probably would be the norm, all else constant. We've generally over kind of the last several quarters been in a very low interest rate environment. So that's helpful.

So there's a couple of things that aren't necessarily persistent across time, but we still think that there's progress we made there. And then in the rest of other, we think that there's progress to be made in our other existing items, and we think that there's progress to be made by adding additional items as well over time. So we think that that's one of several success stories relative to our long-term model that we put out in 2018, and we think that gives us a lot of flexibility going forward.

Operator

The next question is from Colin Sebastian with Baird. Please go ahead.

Colin Sebastian -- Baird -- Analyst

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

Ernie Garcia, III -- President, Chief Executive Officer and Chairman

Sure. So I apologize, I think I'm going to give you kind of boring answers to those questions. So we don't plan to kind of break out our attach rates for our other products and services. We definitely do believe that there is room to continue to improve there. We've made a lot of improvement over the last several years, but we think there's clearly room to go from here and so we'll work to do that. As far as Google testing their different ad products, we obviously use Google as one of our many customer acquisition channels.

We use them in search marketing and then we use them in several other ways as well. So I think we'll view that as a marketing channel. We'll evaluate it like we evaluate all of our other marketing channels. And to the extent it gives us a high-quality return, then we would expect to utilize that as well.

Operator

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

Michael Montani -- Evercore ISI -- Analyst

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

Ernie Garcia, III -- President, Chief Executive Officer and Chairman

Sure. So I -- go ahead, Mark.

Mark Jenkins -- Chief Financial Officer

Yes, sure. Yes, I can take that one. So I think it varies quarter to quarter, but a reasonable way to think about the benefit of sourcing from customers is to look at it in the context of our wholesale GPU. So basically, what wholesale GPU captures is the difference between our acquisition cost of a car from a customer and the wholesale market trading price of that car. And so that's a good way to think about the cost benefit of customer sourcing. And so that just gives you a sense -- and to give you a sense of that, it varies quarter to quarter.

This quarter, we were around $800 or so on wholesale GPU. And so I think that's -- it does vary quarter to quarter, but that's a reasonable way to sort of keep track of the relative cost benefit of customer sourcing.

Michael Montani -- Evercore ISI -- Analyst

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

Mark Jenkins -- Chief Financial Officer

Yes, sure. So a rough way to think about the capital investment related to one of these 67,000 unit IRCs is on the order of $50 million per IRC, maybe a little bit more than that, but on that order of magnitude. And then, of course, the way we think about that from a financing perspective is we've historically sale-leasebacked our IRCs. We think that there's lots of very efficient ways and a great market for financing those IRC investments so that they're not actually net outlays for the business, but they're financed outlays.

And so that's to give you a rough order of magnitude of how much they cost. And I think we feel really good about the desirability of those assets from a financing perspective.

Operator

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

Nat Schindler -- Bank of America -- Analyst

Yea. Great. Thank you guys. And I think the GPU question has been done to death, so I thought I'd try something a little different. Could you walk through maybe on what you saw probably more on a weekly or daily basis prior to stimulus checks going out and then after them going out and how much impact that had on the quarter? Secondly, on a related note, with the tax filing date pushed out to May 15, does that have any impact on the seasonality that is usually more Q1 weighted as people get their tax returns? Finally -- well, let's just stop there. I'm not going to add more.

Ernie Garcia, III -- President, Chief Executive Officer and Chairman

Sure. So nice multi-part question there. Let's try to break it down. So I think let me try to combine basically the first two concepts. I think both tax refunds and stimulus basically take the form of government depositing relatively large checks in the bank accounts of many, many people at once. And so I think that didn't look materially different than it's looked in years past. Generally, what happens is people start to get notifications through email or whatever else that kind of money has hit their account.

You'll see kind of the evening before, we'll see a lot of traffic and activity happening on the site. And then the next day, you'll start to see demand show up. I think that, that was undoubtedly material this year. As it relates to us, I think a key statistic to keep in mind is we did grow sales sequentially 28%. We also grew production sequentially 26%. We undoubtedly saw increased demand kind of on the day after stimulus was dropped. But then the form that, that takes that just further compressed your inventory, therefore, reducing conversion rates for everyone afterwards.

And so I think if we had to try to imagine kind of what would have happened to our sales absent stimulus, I think, first of all, that's very hard to do. But just directionally, we clearly would have been less kind of on the days and weeks immediately after stimulus. And our expectations would have been more in the weeks -- kind of a couple of weeks after the stimulus drop. So I don't know how big the impact was, but I think it was smaller for us this year than it would have been in previous years because in previous years, we're carrying enough inventory heading into that kind of an event to be able to handle that big onslaught of demand and then still have sufficient inventory for our customers afterwards.

So I do think it was a little bit different. And then the tax returns being pushed out a little bit, I do think that, that had an impact. But I think that impact is largely behind us. The vast majority of that impact is behind us. So I don't think that's too meaningful for the future.

Nat Schindler -- Bank of America -- Analyst

So you don't expect the normal Q1 tax refund, call it, seasonality is going to be drawn out into Q2? It was pretty much still all taken up in Q1 despite being pushed out a week -- a month?

Ernie Garcia, III -- President, Chief Executive Officer and Chairman

So the tax filing date was pushed out a month from what I believe is April 15 to May 15, but the date at which most customers get money in their accounts has historically been sometime in February. If you go back maybe 10 years, it was even kind of late January. But it's been slowly kind of moving out and more recently has been the end of February. That, this year, might have been a week later than normal and then probably had kind of a normal spread from there in terms of when you see the demand impact. But that didn't move as much as just the filing date itself moved. And the filing date itself is far less powerful than the day that the tax refunds are kind of released to the masses.

Operator

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

Naved Khan -- Truist Securities -- Analyst

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

Ernie Garcia, III -- President, Chief Executive Officer and Chairman

Sure. So we want to stay away, I think, from giving too much detailed kind of intra-period color, but we provided an outlook in the shareholder letter and I think that, that captures our expectations. Demand has been very strong for really the last year for our offering. And we've continually been carrying a lower inventory than we wish that we were carrying. We're excited now to kind of be at a place where we believe that we'll be able to start growing inventory, which we think is helpful, all else constant.

So I would say things continue to look great from our perspective. There's nothing notable to call out that would go in any other direction, and kind of those expectations are what we have in our outlook.

Naved Khan -- Truist Securities -- Analyst

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

Ernie Garcia, III -- President, Chief Executive Officer and Chairman

So I think across the entire business, there's many, many different things that we can focus on. Obviously, we have a very complicated business from vehicle acquisition, transporting it to the inspection centers, running the inspection centers, merchandising it for customers, pricing for customers, building the finance business, running our warranty product. There's so much that we can work on. So we have -- across the business, we have on the order of 70 different product teams that are working on all these various road maps at different points in time, and we do our best to prioritize all those different projects as intelligently as we can.

Generally speaking, we won't kind of comment on what that underlying prioritization looks like, but there's no doubt that there's opportunity in the future to add additional products and that, that could be potentially exciting.

Operator

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

Ron Josey -- JMP Securities -- Analyst

Great. Thanks. I wanted to ask two questions, please. I think just a follow-up on an earlier question on the expansion in the Pacific Northwest. Can you just help, Ernie, talk about the distribution and the time to deliver and how you can flex your just -- your supply chain into those five new markets in that overall region which is new? And then the second question is just on brand awareness. And with 95% population coverage now in sight, and I think still pretty low brand awareness, as we've talked about, $100 million in marketing spend in the quarter is pretty interesting.

Just wanted to get your sense on how we should think about marketing spend going forward, how you all are putting those dollars to work around brand awareness, educational spend and performance. Thank you.

Ernie Garcia, III -- President, Chief Executive Officer and Chairman

Sure. So the Pacific Northwest is obviously something that we've been looking at for a long time, but it's a relatively isolated population center way up in the Northwest. And so it took us a long time to get to a place where we thought it was sensible to kind of add that to our logistics network. Over the last month or two, we've added that. And we also added the Salt Lake City area in Utah, which kind of gives us a midpoint that allows us to connect up there. We can also connect through California.

So we thought it was a natural time. Obviously, our long-term aspirations are to get to approximately 95% population coverage and to be a national brand and so that was something that we needed to do at some point. We've been holding off as we've been so constrained in inventory. But given our expectation we're going to grow inventory and our visibility into where we're headed over the next couple of years as well as our knowledge of our historical lag times and ramping up volumes in new markets, we thought now was a good time.

So we went ahead and pulled the trigger on that, and we're excited to kind of fill out the rest of our regional footprint. On brand awareness, I do think that we remain very low in brand awareness. We -- our dollar spend is starting to approach pretty sizable numbers that are meaningful compared to the marketing budgets of lots of companies. But we have to also keep in mind that kind of our accumulated dollar spend is still very low compared to a lot of more mature companies that have been around for a long time.

And so we do think that it's still early. We're spending a lot in brand. We definitely spend a lot in kind of education. I think for a customer to buy a car from Carvana, they have to first know that you exist. They have to next understand what you do and kind of how it's different from buying a car in a traditional way. And so we have a lot of different value props that we have to educate them about. And then they have to trust that you're real and your return policy is real and that they can kind of trust the quality of the car that comes their way.

And all those things just take time to build up in consumer minds. So we're testing a lot. We're learning a lot as we go. I think we're very excited about the position that we're in with customer acquisition costs given the knowledge that we've accumulated over time by just looking at how we've levered our older cohorts. So we're confident that we know how to lever customer acquisition pretty significantly, but we also believe that we're very early in brand building.

And so as long as we find different channels that we think are hitting a different audience and educating them in a different way, like I said before, we're not going to be shy about spending that money and building our brand. We think that's a good investment in the long term.

Operator

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

Alex Potter -- Piper Sandler -- Analyst

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

Ernie Garcia, III -- President, Chief Executive Officer and Chairman

Sure. So I think there's maybe a couple of ways to approach that problem. So first of all, every car that we sell is certified. It's Carvana certified. And our certification process was patterned off of some of the luxury manufacturers' certification processes. And so the cars that we deliver to customers are of that kind of -- that quality. The specific brand certified preowned is generally reserved for the combination of kind of franchise dealers and oftentimes kind of the branded OEM warranty that gets associated with that sale, although that's not always necessarily a condition of the brand of certified preowned.

So I think that we do believe that we're breaking into that market by building a brand of delivering very high-quality cars and by building a logistics network and infrastructure of reconditioning centers that are able to certify cars to that same quality. So that's our goal. But the particular brand is generally protected by -- or for franchise dealers.

Alex Potter -- Piper Sandler -- Analyst

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

Ernie Garcia, III -- President, Chief Executive Officer and Chairman

Sure. Well, so at a very high level, the market for selling cars is around 40 million possible units. Generally speaking, a customer who's getting a car is also getting rid of another car and so the market for us buying cars is kind of theoretically at least very similar in size. And if you look at Q1's sales of 92,000 and the number of cars bought from customers in a similar ballpark, you're basically looking at something like 1% of the market. So I think that we're very, very small compared to both of those markets.

I do think they are connected in certain ways through brand, particularly our brand, and the speed at which we can build our brand and generate awareness across all customers that we both buy and sell cars. But they're also fairly disconnected in the sense that only a subset of those transactions happen simultaneously when a customer is simultaneously buying a car and trading another car. A lot of them are kind of separated in time, where a customer will buy a car then maybe sell a car later, sell a car and then buy a car later.

So I think they can grow independently. We've undoubtedly seen a tremendous, tremendous amount of progress in that business over the last couple of years, and we're extremely excited about it. And I think now basically, the retail business and the business of buying cars for customers are going to race each other to the unseeable finish line somewhere out in the great blue yonder.

Operator

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

Seth Basham -- Wedbush Securities -- Analyst

Thanks a lot and good afternoon. My question's back on the topic of finance GPU. It seems like you hit a high watermark there with this quarter's results. And I'm trying to understand if you think that is a high watermark for 2021 and where you think that can go longer term.

Ernie Garcia, III -- President, Chief Executive Officer and Chairman

Sure. So we -- yes. I think for other GPU in general, we have definitely hit kind of our highest level ever. As described earlier, I do think that there are fundamental gains that we can continue to make in every line item of other GPU, and there are other opportunities for different products that we can add over time. So I think that that's exciting. I also do think that it's hard to size the kind of beneficial impacts that exist in this environment where, one, we're doing something that we have control over but is likely leading to slightly higher other GPU, which is running with tighter credit; and then, two, we benefited from very low interest rates.

So those are likely to unwind. I think the balance of those things is hard to precisely predict. But we're clearly in great shape versus the long-term model that we outlined a couple of years ago. And I think it's too early, and we're in too unique of an environment to update that model. So we think, in general, that's probably roughly the right way to continue to think about it. And obviously, we've done very well against that model over the last several quarters.

Seth Basham -- Wedbush Securities -- Analyst

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

Ernie Garcia, III -- President, Chief Executive Officer and Chairman

Sure. So I think in the past, we've talked about -- we have run various tests to try to see what are the various ways that we can ramp up our production capacity across the business. That has included utilizing some third-party recon. We are continuing to utilize some third-party recon today. It remains a significant minority of the cars we produce overall, and that's our expectation for the future as well. But it is something that we are utilizing and continuing to test today.

Operator

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

John Colantuoni -- Jefferies -- Analyst

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

Mark Jenkins -- Chief Financial Officer

Sure. So I can take that one. So I mean, I think our number one channel for sourcing inventory has now become sourcing cars directly from customers, which has several advantages that we've talked about historically. I think we're certainly going to continue to focus on that. That's a business that we want to build and continue to grow over the long term. And so I think that's our number one area of focus and would be the -- sort of the first answer to that question.

I think in terms of the wholesale market dynamics, we're still certainly buying cars out on the wholesale market. I think we're buying cars. We're making money on those cars when we retail them. I think we feel very comfortable in the current environment. And our -- from a sourcing perspective, our main area of focus is going to be continue to grow the business of buying cars from customers.

John Colantuoni -- Jefferies -- Analyst

Great. Thanks so much.

Mark Jenkins -- Chief Financial Officer

Thank you.

Operator

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

Edward Yruma -- KeyBanc -- Analyst

Hey. Thanks for excusing me in. Just two quick ones for me. I guess first on interest rates, have you seen any significant movement in the interest rate you're offering to consumers? Has there been an impact? And then a broader question. One of your competitors, I guess, as they've scaled, has had kind of customer service and closed difficulties. Obviously, your numbers have been phenomenal. But how would you score kind of your customer service levels, particularly as you continue to ramp your business? Thanks.

Ernie Garcia, III -- President, Chief Executive Officer and Chairman

Sure. So I think on interest rates, they've come down obviously since prepandemic pretty dramatically, and then it kind of bounced around a little bit from there. There's been some upward movement over the last quarter or so, but nothing material. And so I don't think that there's -- the story there is that they're low. I don't think that recent movements are super material. In terms of customer service levels, our focus from day one has been to build a business from the ground up that delivers great customer experiences and to build all the things that are required to really enable those great experiences to be differentiated in a fundamental way, and that's always been our focus.

And I think when we look at kind of all of our scores for what customer experience looks like, there's a lot of different things that drive that. I think first and foremost is the way that we've designed the business and the way that we've designed the customer experience. And then I think from there, you've got your technology and your processes and the quality of those and kind of how good an experience those are capable of delivering. I think very importantly, the next layer is your cultural layer.

How much do all the people that talk to your customers -- that takes your customers' cars, that deliver the car to the customers, how much do they care about the customers and care about what we're doing together and empathize with the exciting moments that the customer is having when they are getting a car which is the second largest purchase they make in their life? And I think that we would like to think that we've done a pretty good job building a culture there that really cares about delivering great customer experiences.

And I think the last layer is, do you have sufficient capacity across your operations groups to deliver to customers great experiences? And I think over time, we've been constrained many, many times in our eight-year life. Obviously, throughout the pandemic, you've heard of various constraints. If we go back to 2019, we have logistics and market ops constraints. Prior to that, we had constraints in the call center and in different places. So we've had constraints across the business at various points in time.

Those constraints generally do lead, all else constant, to our measures of customer experience going down a little bit. Now when they go down, they've traditionally gone down by relatively small amounts, and they remain at levels that are far above industry standard. And then importantly, when we continue to kind of staff up and get our feet underneath us and alleviate those constraints, we see them go right back to where they were, which means that we're in a great place in the kind of foundational elements that matter the most, which is business design, technology processes and culture.

And so really, we're really happy about the way that we've been able to manage customer experience, which is our primary goal through all of this growth that has driven us to be a 1,000 times larger company today than we were in the first year that we launched in 2013. But undoubtedly, there are impacts from very high levels of growth, and those impacts are the directions that you would expect. But I think we've done a good job managing them historically.

Edward Yruma -- KeyBanc -- Analyst

Thank you.

Operator

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

Ernie Garcia, III -- President, Chief Executive Officer and Chairman

Perfect. Thanks, everyone, for joining the call. And to the entire Carvana team, thank you. Great quarter. Great job. To all the operations teams, this has been a long slog. You've done an incredible job coming in every day and delivering great customer experiences, and we really appreciate it. I hope that you hear the sincerity of that appreciation, doesn't just sound like something that we say every call. To the inspection center team, in particular, this has been an absolute battle.

Great job to all of you. I know that you've taken the last couple of calls and pinned those up on your locker for inspiration. Clearly, it did inspire. You guys have done a great job. We really appreciate it. Please keep going. We've still got a lot of ground to cover, but thanks to all. Have a good one.

Operator

[Operator Closing Remarks]

Duration: 53 minutes

Call participants:

Michael Levin -- Vice President of Investor Relations

Ernie Garcia, III -- President, Chief Executive Officer and Chairman

Mark Jenkins -- Chief Financial Officer

Sharon Zackfia -- William Blair -- Analyst

Zach Fadem -- Wells Fargo -- Analyst

Nick Jones -- Citi -- Analyst

Chris Bottiglieri -- Exane BNP Paribas -- Analyst

Rajat Gupta -- JPMorgan -- Analyst

Colin Sebastian -- Baird -- Analyst

Michael Montani -- Evercore ISI -- Analyst

Nat Schindler -- Bank of America -- Analyst

Naved Khan -- Truist Securities -- Analyst

Ron Josey -- JMP Securities -- Analyst

Alex Potter -- Piper Sandler -- Analyst

Seth Basham -- Wedbush Securities -- Analyst

John Colantuoni -- Jefferies -- Analyst

Edward Yruma -- KeyBanc -- Analyst

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