Online used car retailer Carvana (CVNA 2.88%) made progress in the first quarter, bringing down inventory levels, boosting gross profit per vehicle sold, and inching toward profitability. There's no denying that.

But the company's Q2 outlook, and the headlines surrounding it, need to be put into context. "Carvana expects to record core profit in second quarter; shares jump" reads a headline at a major news outlet. "Carvana expects to achieve adjusted profit sooner than expected amid restructuring; shares surge" reads another.

One would think, based on these headlines, that Carvana is mostly out of the woods. But the "core" profit and "adjusted" profit that are being talked about is adjusted EBITDA, and no one should take that seriously.

Hello, adjusted EBITDA, my old friend

Carvana expects to produce positive adjusted earnings before interest, taxes, depreciation, and amortization, or EBITDA, in Q2. Let's unpack that.

Adjusted EBITDA starts with earnings, or net income. In Q1, Carvana reported a net loss of $286 million on $1.83 billion of revenue. When someone talks about profit, net income is the thing they should generally be talking about. Being an accounting figure, it's not perfect, so some adjustments are usually reasonable.

Unfortunately, adjusted EBITDA takes those adjustments too far. For Carvana, the biggest item that's added back to net income in this calculation is interest. Yes, this "profit" figure conveniently ignores the enormous interest payments that the company must make on its excessive debt load. In Q1, interest payments totaled $159 million.

The next-biggest item is depreciation, which I'll remind you, is a very real expense. "Not thinking of depreciation as an expense is crazy," said Warren Buffett in 2003. "Any management that doesn't regard depreciation as an expense is living in a dream world," Buffett continued.

Carvana's adjusted EBITDA calculation for Q1 added back $83 million in depreciation. The rest of the items were smaller, but it's worth pointing out that stock-based compensation expense is also added back in. Here's Buffett again: "If options aren't a form of compensation, what are they? If compensation isn't an expense, what is it?"

After all these adjustments, Carvana reported an adjusted EBITDA loss of $24 million in Q1. Carvana's adjusted EBITDA loss was more than 10 times smaller than its net-income loss. Getting adjusted EBITDA into positive territory is, on its own, entirely meaningless.

Improvements but still far from profitable

There's no doubt that Carvana is moving in the right direction. Gross profit was up in Q1 despite a steep 25% revenue decline, and operating expenses were greatly reduced. That net loss of $286 million was much better than a net loss of $506 million in the prior-year period.

But Carvana is not even in the ballpark of turning a real profit, and it still won't be in Q2. Even with the improvements in margins, interest payments ate up 47% of gross profit. And even with operating expenses down 35% year over year, gross profit remains too small to support this level of spending.

Carvana's balance sheet includes total debt of $8.5 billion. Based on Q1, the company will pay over $600 million in interest on that debt this year. Any profitability metric that ignores interest is not a profitability metric at all. If Carvana can't cover interest, it's not profitable. Full stop.

While Carvana is successfully boosting gross profit per vehicle and bringing costs down, making the math work is going to be difficult thanks to the debt weighing the company down. Carvana won't be profitable in Q2, and I have my doubts that it will ever manage to turn a real profit.