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Date

April 29, 2026, 5:30 p.m. ET

Call participants

  • Chairman & Chief Executive Officer — Ernest C. Garcia III
  • Chief Financial Officer — Mark W. Jenkins

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Takeaways

  • Retail units sold -- 187,393 vehicles, establishing a new company record and increasing 40%.
  • Revenue -- $6.432 billion, rising 52%, with the gain exceeding retail unit growth due to gross revenue recognition for vehicles from a large marketplace partner.
  • Net income -- $405 million, up $32 million; net income margin declined to 6.3% from 8.8%.
  • Adjusted EBITDA -- $672 million, a company record and an increase of $184 million; adjusted EBITDA margin decreased to 10.4% from 11.5%, mainly from the revenue recognition change.
  • GAAP operating income -- $581 million, or 86% of adjusted EBITDA, increasing $187 million to a company record.
  • Non-GAAP retail GPU -- Decreased by $58, driven by higher non-vehicle costs and lower shipping fees.
  • Non-GAAP wholesale GPU -- Fell by $83; increased wholesale volume and lower marketplace gross profit offset gains in per-vehicle gross profit.
  • Non-GAAP other GPU -- Declined by $88, primarily from offering customers lower interest rates, partially balanced by increased finance and VSC attach rates.
  • SG&A expense per retail unit -- Reduced by $170, incorporating a $36 operations reduction and $226 in lower overhead per unit, while advertising expense per unit rose by $92.
  • Market share -- Now nearly 2% of the U.S. used vehicle retail market, with management highlighting opportunity from non-automotive e-commerce adoption at approximately 20%.
  • Net debt to trailing twelve-month adjusted EBITDA -- Improved to 1.1x, described as the company’s strongest position to date.
  • April labor efficiency -- Management cited operations "just shy of our all-time best" in labor efficiency for April.
  • Q2 guidance -- Management expects a sequential increase in retail units sold and adjusted EBITDA, predicting new all-time highs on both metrics.
  • Operational tools rollout -- New centralized planning and productivity tools for reconditioning were introduced at underperforming sites, with national rollout underway.
  • Wholesale vehicle gross profit per unit -- Achieved one of the highest quarters in this metric, credited to a "very hot wholesale market" in Q1.
  • Inventory growth -- Inventory rose over 30%, below sales growth, leading to faster turns and attributed to seasonal factors post-tax season.

Summary

Management indicated a six-quarter streak of 40% growth, supported by record results across key financial and operational measures. Executives described rapid, targeted operational improvements in reconditioning driven by new data-driven tools, which they reported are not yet implemented in most facilities. Expansion of advertising spend was framed as strategic, with executives emphasizing a belief that current industry e-commerce adoption rates leave significant market share growth potential for Carvana (CVNA 2.42%). The company raised expectations for further operational leverage in both variable and fixed expenses, specifically through ongoing technology integration and increased capacity utilization. Funding and capacity expansion were described as largely achievable via internal productivity and light capital investments, with full greenfield development deprioritized in the near term.

  • Executives outlined a long-term target of selling 3 million vehicles annually at a 13.5% adjusted EBITDA margin between 2030 and 2035.
  • Jenkins reported, "Q1 is typically a high quarter for payroll expense related to share-based compensation," indicating seasonal cost impact.
  • Management stated, Regarding the wholesale-retail spread question, our view is that this is transitory. The spread generally follows a clear seasonal pattern and can bounce around quarter to quarter. This year heading into tax season, wholesale was really strong. Normally, retail catches up on a 30 to 60 day lag. It seems like retail is catching up, but on a slightly longer lag. There is room for it to normalize relatively quickly or hold where it is. Either way, we do not think it will be central to the story. Today, wholesale is ahead of retail, which led to the callout.
  • Garcia observed that recent increases in fuel prices and geopolitical events had only minor effects on overall demand and vehicle mix.
  • Investment in proprietary technology, especially centralized planning and analytics at reconditioning centers, was highlighted as expected to "collapsing the distribution of performance" across locations.
  • Executives noted accelerated inventory turn post-tax season, but confirmed no major change in pricing strategy or customer mix.
  • Advertising expense was characterized as consistent per unit over recent quarters, with broad-based deployment across channels to build awareness and trust.
  • Overhead increases in Q1 were attributed to one-time weather costs, share-based comp, and ongoing tech investment, with Jenkins cautioning future quarters should not show similar sequential increases.

Industry glossary

  • Retail GPU: Gross profit per unit sold through retail channels, excluding certain non-vehicle and shipping impacts as defined in company disclosures.
  • Wholesale GPU: Gross profit per unit on wholesale vehicle sales, reflecting marketplace and direct wholesale performance.
  • ADESA Clear: Carvana’s proprietary digital vehicle auction platform, used to transact wholesale vehicles primarily for external dealers and internal inventory disposition.
  • IRC: Inspection and Reconditioning Center—a facility where Carvana inspects, refurbishes, and prepares vehicles for sale.
  • Carly System: The company’s proprietary software suite deployed to optimize operations at ADESA and inspection centers.
  • VSC: Vehicle Service Contract, an add-on protection plan sold alongside vehicle sales.

Full Conference Call Transcript

Ernie Garcia: Thanks, Meg, and thanks, everyone, for joining the call. The first quarter was another outstanding quarter for Carvana Co. It was another quarter full of records, including a record 187 thousand cars sold in a single quarter, a record GAAP operating income of $581 million, and record adjusted EBITDA of $672 million. It was our ninth straight quarter of being the most profitable and fastest growing automotive retailer, as well as our sixth straight quarter of 40% year-over-year growth.

The quality of our customer offering, the fact that it naturally gets better as we get bigger, and our experience over the last thirteen years lead us to believe that demand is available at the speed that we are able to scale the business effectively. As it has been since the beginning, we expect our execution will be the biggest determinant of the speed and degree of our success. Execution in a complex operational scale business like Carvana Co. that is growing at 40% is an inherently difficult problem. While the best case scenario in a vacuum is to avoid bumps in the road, those bumps are a reality of building ambitiously.

This means success requires building a better system with better scaling properties, and assembling a team and building a culture that drives intensity, focus, accountability, and resilience. With the right team and culture, the bumps in the road create pressure that makes us better. In the fourth quarter, we hit a bump in recon that gave us another chance to prove that we assembled just such a team. The recon team is using that pressure to make us better.

When we realized we were off track a bit, the first thing the team did was turn up the operational intensity across the network, setting higher expectations for each facility and leaning into the operational structures we have built over the last several years. This allowed us to make rapid progress nationwide. In addition, they quickly assessed the underlying cause of the variation in facility performance, most notably newer managers who could use more detailed direction and more powerful tools to help them execute at the level we were aiming for, and adjusted their roadmap to prioritize building the tools that mattered most immediately.

Over the last couple months, they built additional data integrations, developed tools to help managers make faster, higher quality decisions in how they staff their lines and how they optimize flow through their paint lines, and implemented a productivity tracker to ensure feedback reaches the right groups quickly. To accomplish all this and to ensure the tools address real world operational needs, the product team spent weeks on the ground in the facilities that needed it most, rolling out, testing, and iterating with the operators until they were making a real measurable difference. We will continue to iterate on these tools, and we will roll them out to the rest of the facilities over the coming months.

The result is that so far in April, we are operating just shy of our all-time best in labor efficiency throughout the network. This will take a little time to flow through to the financials as cars carry the cost of reconditioning at the time they were produced, not at the time they were sold. We still have a ton of work to do across reconditioning and other operational and technology teams, but every time a team reacts that quickly to a problem, it excites us.

Once again, the people on Team Carvana have proven that they are exceptional, that they are resilient, and that they are up to the challenges we will inevitably face as we scale Carvana Co. to millions of transactions per year. We remain firmly on the path of achieving our mission of changing the way people buy and sell cars, and to selling 3 million cars per year at a 13.5% adjusted EBITDA margin by 2030 to 2035. The march continues. I will now turn the call over to Mark Jenkins for the financial results.

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. 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 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 first quarter was driven by our three long-term drivers of growth: a continuously improving customer offering; increased 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 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. Q1 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 U.S. 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 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 $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 twelve-month adjusted EBITDA ratio to 1.1x, 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 remains 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 will now open the call for questions.

Operator: We will now open the call for questions. The first question today is from Christopher Alan Pierce with Needham. Please go ahead.

Christopher Alan Pierce: Hey, good afternoon. Ernie, in your remarks, you talked about new tools at underperforming sites where there are new managers. I want to understand whether these tools are brand new and could help top-performing sites further improve, or if these are primarily to bring the underperforming sites in line with your top-performing sites. And then a bigger picture question: with new vehicle prices, tariffs, and gas prices, do you think there is some portion of people tapping out and dropping down to used? Could we see used go north of 40 million units for a couple of years as supply normalizes? If that did happen, would that affect other GPU as you tilt more prime versus subprime?

Ernie Garcia: Sure. First, I want to give gratitude and credit to the reconditioning team. They took it very hard when we did not have a perfect fourth quarter, and they reacted extremely well, which is why I wanted to make sure I spent some time giving them credit. I am extremely impressed and proud of how quickly they made a difference. The new tools that were discussed are net new tools. We hope they will drive additional fundamental gains over time. That will take time, and we will see how powerful they end up being, but they are fundamentally value-added tools that are not in the vast majority of our facilities yet, so we will roll those out over time.

We are scaling a big, operationally complex business very quickly. We will inevitably run into bumps in the road. Every time we do, it is a chance to reevaluate and get a little better. The team dug in, reevaluated the roadmap, found potentially bigger opportunities, and focused to make a huge difference quickly. We think the tooling we are building is exciting and creates more room for fundamental gains over time. I would not set expectations too high beyond that we think we are very much back on track. On your second question, car prices are high. Roughly speaking, general consumer goods are up about 25% since pre-pandemic, and cars are up 35% to 40%.

That has to be impacting people. At the aggregate level, elasticities are not super high—people need cars to live their lives, and they get tired of the car they own—so aggregate transactions tend to be relatively stable. The factors you pointed to are probably directional positives for overall market size over time, but the scale of those positives relative to the scale of our growth is very small. Most market movements will impact us proportionately, but what we are doing is dramatically more powerful, so we stay focused on building fundamental tools, delivering great customer experiences, and doing the hard operational work to scale effectively.

On mix between prime and non-prime, our balance is pretty similar to the market overall, and profitability per retail unit sold for prime versus non-prime is not different enough to move other GPU meaningfully. Macro effects can move things around by tens of dollars, but the most important thing is that we keep delivering great experiences and stay focused on us.

Operator: The next question is from Analyst with Morgan Stanley. Please go ahead.

Analyst: Hi, Ernie and team. Thanks for taking the question. First, on SG&A leverage: most line items this quarter, including logistics, came in lower as a percentage of sales versus the run rate we have seen the last few quarters. How should we think about operating leverage in fixed costs? And near term, how should investors think about logistics expense in a rising fuel cost environment? Second, on CapEx: recognizing you are only 20% utilized on your current real estate capacity of 3 million, but at this rate of growth, you will need to think about builds beyond that over the next few years. You had a helpful exhibit last quarter on eventually building out greenfield production.

What would that look like, and what is your philosophy on building that capacity?

Mark Jenkins: It is helpful to break SG&A into a few categories. First, operations expense—expenses associated with executing a transaction, providing customer service, fulfilling via our logistics and last-mile delivery networks, and other more variable costs—had a strong quarter and were down slightly year over year on a per-unit basis. Longer term, we see an opportunity to march those down further per retail unit. In any given quarter they can be impacted by things like fuel prices, which would have some effect because logistics is part of operations expense, but I would not expect that impact to be particularly large. Second, overhead expenses are more fixed in nature.

They can grow due to investments we make—for example, additional technology including AI-related technology—but we expect to see significant leverage in that line item over time. Third, advertising: we have been marching up advertising spend as we build awareness, understanding, and trust. Given where we are in our company’s life and that online auto retail adoption is still early, we see value in continuing to invest in advertising. On CapEx and production growth: there are multiple ways we are adding capacity. One is adding staffing into existing facilities—no CapEx. Second is integrating ADESA locations by implementing our Carly proprietary software system and adding some equipment—very CapEx light.

Third is full build-outs of existing ADESA facilities—expanding buildings and structure to add more lines. We think those are high-quality investments and expect to start making those investments over the course of this year. Last is greenfield IRCs, which is not a priority at this time. Our bigger priority is executing the first three types of production expansion.

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

Rajat Gupta: Thanks for taking the question, and congrats on the execution around the reconditioning cost. On the wholesale-retail spread comment you made in the prepared remarks, is that impact already showing in April based on how retail prices are tracking, or is that more of an expectation around May and June? Are you baking in some 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. And as a follow-up on SG&A, the sequential pickup in overhead expenses looks the highest we have seen in a while, particularly since the turnaround. You mentioned some investments around AI.

Are there any one-timers, such as weather, and any color on overhead expenses for the year?

Mark Jenkins: What we are seeing year to date on spreads starts with a very hot wholesale market in Q1. Wholesale prices appreciated materially in Q1. That can happen as a lead-up to tax season, but this year the appreciation started earlier and was of a larger magnitude than we typically see. A strong wholesale market benefited us—we had one of our highest quarters ever on wholesale vehicle gross profit per wholesale unit in Q1—but the wholesale appreciation was not fully passed on into retail prices on the usual 30 to 60 day lag, which is causing some wholesale-to-retail spread compression. On overhead, there are seasonal or one-time components as well as investments.

Q1 is typically a high quarter for payroll expense related to share-based compensation due to large vesting in Q1. In addition, weather events increased snow plowing and removal expense versus a typical winter. We also have ongoing investments, including technology and some incremental facilities investments, that will have us operating at a higher overhead level than in 2025. I would not expect overhead expenses to increase at the Q1 rate; thinking of Q1 as more like a new level is more appropriate.

Operator: The next question is from Sharon Zackfia with William Blair. Please go ahead.

Sharon Zackfia: Hi, and congratulations on getting wholesale ops more optimized. With that, it sounds like you might be positioned to hold retail GPU for the full year, and I am curious on your thoughts on that in terms of seeing improvement in the back half of the year. Second, there had been talk about tax refunds and the benefit you might see. That happened around the time the war broke out and gas prices spiked. Did you see any change in the complexion of your customers across income cohorts, or does it look similar to 2025?

Ernie Garcia: We try to stay away from being too precise there, but the general things we have said in the past still apply. There is some seasonality, and there are fundamental gains we are going to continue to seek. Across the sum of the GPU line items plus expenses, we feel like we have clear visibility to a 13.5% adjusted EBITDA margin, which is our goal. There are always a couple of interesting stories that pop up—gas prices, geopolitical impacts, recon expense—but generally we think we are in an environment that looks similar, and we are going to keep chugging forward. On tax season, we grew 40% in the quarter, and we are extremely happy with performance.

It is hard to disentangle the effects. There was an expectation that tax dollars would be larger, and data suggests that is true, which could lead to additional vehicle demand. That coincided closely with the Iran situation. Our view is that it was probably not as strong as expectations in terms of converting to vehicle demand and was probably more similar or a touch softer than years past. Overall, not a huge event for the quarter and hard to separate tax season from gas prices. Since then, things feel like they are operating the way we would expect across volume, seasonality, and customer distribution.

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

Brian William Nagel: Hi, good afternoon. Great quarter, congratulations. With respect to gas prices and potential impacts to the consumer: over prior spikes in gas prices, have you noticed that your consumer acts differently when gas prices spike?

Ernie Garcia: There are two potential impacts: aggregate sales and mix of sales. Historically, the impact to aggregate sales is usually small and over any reasonable period of time largely washes out. In terms of mix, we do see some movement. Over the last couple of months, large SUVs decreased as a percentage of sales a bit, and EVs increased as a percent of sales. In the last several weeks, those trends have moved closer to baseline. We manage this by building a system that is adaptive, showing customers a broad selection, and adjusting our buying every day based on demand signals. Given our quick turn times, the system adapts very quickly.

We expect impacts to be directionally as expected, but not central to the story unless impacts become much larger. Regarding the wholesale-retail spread question, our view is that this is transitory. The spread generally follows a clear seasonal pattern and can bounce around quarter to quarter. This year heading into tax season, wholesale was really strong. Normally, retail catches up on a 30 to 60 day lag. It seems like retail is catching up, but on a slightly longer lag. There is room for it to normalize relatively quickly or hold where it is. Either way, we do not think it will be central to the story. Today, wholesale is ahead of retail, which led to the callout.

Operator: The next question is from Jeffrey Francis Lick with Stephens Inc. Please go ahead.

Jeffrey Francis Lick: Thanks for taking my question. As you become a bigger part of the used ecosystem—retail and wholesale—your wholesale numbers showed wholesaled less as a percentage of retail, marketplace units were down, and wholesale GPU was $1,327. If wholesale is that profitable, why not wholesale more? How is this dynamic playing out in terms of sourcing and decisions to retail versus wholesale?

Ernie Garcia: We are extremely excited with how the business is operating overall. One of the central things we balance is managing the business well while growing at very high rates. The wholesale side has operational impacts, notably in last-mile logistics, which is an important part of our system that we have to manage carefully to handle growth. We are always making tradeoffs there. The signs we see are very good, and the teams are executing extremely well. The wholesale team continues to unlock fundamental gains, which you see in wholesale vehicle results. In wholesale marketplace, we are building fundamental value and believe ADESA Clear, our digital auction platform, is best-in-class.

We are adding value to the ADESA system and the Carvana Co. system as we buy cars wholesale and dispose of most of them through that platform. We shared speed stats—cars can move through our entire system in just under five days in the fastest case, from consumer sale to us, through reconditioning and listing, to delivery to another customer. That tight system delivers customer experience, minimizes expense, and unlocks value over time. We are very excited by overall performance.

Operator: The next question is from John Colantuoni with Jefferies. Please go ahead.

John Colantuoni: Thanks for taking my question. On other GPU, do you see an opportunity to incrementally invest some of the financing GPU into growth as you have done in recent quarters, or is that reinvestment largely behind you so that other GPU is more or less at a run-rate level? And on advertising, where are you seeing the best returns and how does advertising fit into your broader growth strategy over time?

Ernie Garcia: In the quarter, we were at a 10.4% adjusted EBITDA margin. In the past, we have provided bridges to our 13.5% goal that are relatively straightforward: leverage in fixed costs and getting to a marketing dollar-per-unit level similar to our more mature cohorts. That path continues to be straightforward. From there, anywhere we make fundamental gains—any GPU line item or variable cost line item—gives us room to share value with customers. We are seeking to unlock value across every revenue and expense line item with credible projects that can have meaningful impact, but we have to execute. As we unlock value, we plan to share it with customers, potentially significantly, while still hitting our goals.

Mark Jenkins: On advertising, it ties to our three growth pillars: improve product and customer experience; build awareness, understanding, and trust; and increase selection and other benefits of scale. Advertising supports the second pillar, alongside great customer experiences, word-of-mouth, and repeat. We are still in the relatively early days of telling our story, so we see opportunities to continue advertising more. Expect it to be broad-based across many channels to reach different audiences. In the very near term, if you look over the last two to three quarters, advertising expense per unit has been relatively consistent, which is a reasonable way to think about where we are today.

Operator: The next question is from Analyst with Northcoast Research. Please go ahead.

Analyst: Thanks for taking the question. Can you talk about your priorities on the new car side? You are up to several Chrysler dealerships now. Any updated perspective on benefits? And as a follow-up, with mobility and autonomous offerings rolling out, have you game-planned how you might facilitate those businesses as a service provider given your IRC capacity? Any updated thoughts on the evolution of the business model?

Ernie Garcia: It is still early. Stay tuned; we will share more when it is time. On mobility and autonomous, we always pay attention to opportunities given the assets we have built, but we balance that with focus. We clearly have an opportunity to continue to grow a lot very quickly, which takes operational discipline and effort, so that will remain our primary focus for the foreseeable future.

Operator: The next question is from Marvin Milton Fong with BTIG. Please go ahead.

Marvin Milton Fong: Congratulations. On inventory, it looks like it grew quite a bit less than sales. Was that partly a function of bringing operational efficiency up and getting recon in order? Should we think about a pretty lean inventory relative to your sales growth rate, and how does that affect pricing power?

Ernie Garcia: Last quarter, inventory was up approximately 40% year over year; this quarter, a little over 30%. That implies faster turns, which can be a not-surprising seasonal move coming out of tax season when sales rates jump and you quickly eat through inventory built up prior. There is no question that if we could press a button and have tens of thousands more cars, we likely would, and that would result in additional sales as long as we managed recon and operational complexity. Building the machine—more inventory, more selection, better conversion—is the flywheel we continue to work on. On pricing environment, nothing notable to call out. The wholesale-retail spread discussion implicitly captures industry pricing.

We noted mild differences versus average due to recent market evolution, not specific pricing actions.

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

Andrew M. Boone: Thanks. On the tools rolled out at IRCs, specifically centralized planning, can you talk about moving lower-performing IRCs toward best-in-class performance through more centralized planning? How do you create a more uniform system across all IRCs? And you called out ADESA Clear as a best-in-class digital auction. What is the longer-term opportunity for Clear and the broader potential for that asset?

Ernie Garcia: We are extremely excited about how the recon team executed and the tools they built. The centralized planning tools are exciting in concept; early signs are good. We will roll them out over the next several months and then better quantify benefits. One benefit is collapsing the distribution of performance across locations, driven by execution differences and scale differences. Last quarter, there was a couple-hundred-dollar spread between top and bottom quartiles, and despite improving the overall number this quarter, the spread remains about the same—so the opportunity is there. Getting fundamentally better across facilities is also there. Unlocking it takes time and is hard while growing at 40%.

With ADESA Clear, we focused on building a best-in-class platform by prioritizing the buy side, simplifying the problem by using ourselves as the primary seller, and differentiating for buyers. We believe that has positively contributed to wholesale vehicle gross profit per wholesale unit. In aggregate, combining Clear with our resale platform and physical wholesale capabilities makes us the most economic buyer for sellers with pools of cars. There is a long roadmap to make all tools fit together and reduce to simple offerings for customers, but the foundations are being laid, and it is an exciting capability for our system.

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

John Babcock: Going back to retail GPU, you gave color for the upcoming quarter, but how did Q1 end up relative to the Q4 headwinds from reconditioning costs and depreciation? What other factors might have impacted GPU? And on reconditioning centralization, are you comfortable doing that without adding unnecessary bureaucracy or cycle time? How do you maintain flexibility at the center level?

Mark Jenkins: Retail GPU was down slightly year over year in Q1—pretty close to flat. Key drivers were similar to Q4. We had great success in logistics, getting cars to customers faster and with shorter distances, which drove an all-time low logistics expense per retail unit sold. As we brought down outbound distances, we also brought down shipping revenue and passed those gains to customers, which is great for customers but a headwind to retail GPU. We also had elevated retail reconditioning costs, where we have made lots of progress as Ernie discussed. On depreciation, we did not see major unusual seasonal patterns. Regarding centralization, it is important to strike a balance. On-the-ground teams have hands-on knowledge and input is critical.

At the same time, there are quantitative decisions—like optimal staffing distribution across stations given skill sets—that lend themselves to algorithms and data. Pairing strong quantitative software and data with the teams on the ground is where we think the special sauce is. We have been investing in reconditioning technology for several years. We have not solved it yet, and that is a place we are focusing.

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

Michael Peter McGovern: Thanks. On labor hours per unit, it seems really efficient right now. How much more efficiency can you gain longer term? Which parts of the chain have decreased the most in labor hours per unit, and how does that flow through to GPU longer term? And as a follow-up, recon headcount growth is elevated—are you improving how efficiently you train new recon hires to keep growth elevated while maintaining efficiency?

Ernie Garcia: We have talked in the past about expense per unit in recon, where labor is the number one driver and highly correlated with other costs. For operational metrics that move quickly, we look at HPU. It has clearly gotten better. The cost drift in Q4 was largely driven by a drift in HPU. We are back now to where we were last year in Q2—our all-time best—and we see room for additional improvement from here, both by improving all centers and getting more centers to operate like our best centers. It is meaningful dollars, but it takes time to unlock while growing at high rates.

On training and efficiency, centralization and automation reduce complexity and the learning curve in many positions. Our centers are built so focused skill sets can do specific tasks repeatedly, then grow skills and move across the line, giving us access to a broader talent pool. As we build out Carly systems to make operators more efficient and manager tools to simplify decision-making, training becomes easier. We are also investing in tools to hire and ramp people more quickly. We have made gains over many years, and there is still a lot of room to continue improving.

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

Michael Montani: Good afternoon. On diesel, can you help us understand any exposure there? We were thinking about it as potentially a low-single-digit earnings headwind in isolation. And strategically, as you continue to have underlying gains in GPUs, how should we think about your propensity to reinvest those gains to further accelerate share versus passing some of that through?

Mark Jenkins: There is an impact of fuel prices on our operations. There is a cost of sales impact for inbound transport and an SG&A impact within operations expense. I would expect some impact from higher fuel prices in Q2, but not one that is particularly large—within the normal range of quarter-to-quarter fluctuations.

Ernie Garcia: On reinvestment, we think the path from where we are to 13.5% adjusted EBITDA margin is straightforward through leverage and advertising expense. We expect to share additional gains with customers over time—hopefully meaningfully—while still marching toward our goal. Execution will determine the pace and size.

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

Ernie Garcia: Thanks, everyone, for joining the call. Carvana Co. team, awesome job—another great quarter. You have a lot to be proud of. Recon team in particular, awesome job. Thank you for reacting the way that you did. To everyone across the business, when we hit a bump, let us react the way Recon did. No one can stop us but us. Let us keep marching. Thanks, everyone.

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