Good day, and welcome to the Carvana Q3 2024 earnings call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by 0. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then 1 on your touch-tone phone. To withdraw your question, please press star and then 2. Also, please limit yourself to one question and one follow-up re-queue to ask additional questions. Please note this event is being recorded. I would now like to turn the conference over to Meg Kehan, Investor Relations. Please go ahead. Thank you, Dave. Good afternoon, ladies and gentlemen, and thank you for joining us on Carvana's Q3 2024 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 Q3 shareholder letter is also posted on the IR website. Additionally, we post a set of supplemental financial tables for Q3, which can be found on the Events and Presentations page of our IR website. Joining me on the call today are Ernie Garcia, Chief Executive Officer, and Mark Jenkins, Chief Financial Officer. Before we start, I would like to remind you that the following discussion contains forward-looking statements within the meanings 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 Forms 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. Our commentary today will include non-GAAP financial metrics. Unless otherwise specified, all references to GPU and SG&A will be to the non-GAAP metrics, and all references to EBITDA will be to adjusted EBITDA. 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 IR website. And with that said, I'd like to turn the call over to Ernie Garcia. Ernie. Thanks, Meg, and thanks everyone for joining the call. The Q3 was another exceptional quarter for Carvana. We had record performance in virtually every key financial measure. Our net income in the Q3 was $148 million. Our operating income was $337 million, and our Adjusted EBITDA was $429 million for an Adjusted EBITDA margin of 11.7%. Excitingly, when putting those numbers into broader context, in the Q3, we also broke last quarter's record for the most profitable quarter among automotive public retailers ever. And this is being achieved in what most are describing as a challenging environment in the industry. Over the last 11 years and $10 billion, we laid the foundations of a highly differentiated model that delivers highly differentiated customer experiences at scale. Over the last two and a half years, we have learned hard-fought lessons that led to rapidly driving operational and financial efficiencies across the business. Over the last nine months, we have paired our highly differentiated customer experiences and highly differentiated financial model to simultaneously become the fastest-growing and most profitable automotive retailer. A simple way to think about this is the gap between Carvana and our competitors in growth and financial performance is equal to the gap between Carvana and our competitors in customer experience and business model quality. If you take a moment to reflect on that framework, what does it imply for our ultimate market share? We find our answer to that question to be very exciting, especially because we aren't done digging our moat. We continue to see significant opportunities for further improvement in every part of the business. With the creativity and ambition of our team, we don't expect this to end anytime soon. In addition, we have already invested in and built the most difficult-to-obtain and expensive infrastructure required to enable scaling, and that infrastructure unlocks efficient growth to a significant multiple of our current size. We currently have built-out reconditioning infrastructure to support over one million retail units per year. Beyond that, we have enough physical real estate to support over three million retail units per year. Our path to unlocking it is being illuminated as we have built and executed our integration playbook at five of the 56 ADESA sites already. Underscoring the value of these investments, as well as the efficiency of our operations, completing each of these integrations required minimal CapEx and approximately 90 days of lead time. In the past, building reconditioning centers was generally a 1 to 3 year process requiring significant CapEx. Continuing this rollout over time will drive positive feedback in our business by reconditioning more cars closer to our customers. This will improve unit economics through more efficient access to large pools of inventory, as well as lower inbound and outbound shipping distances and costs, and will provide customer experiences that are even better through greater selection and faster delivery. All of this is happening in the context of an industry with 40 million used vehicle transactions per year. The opportunity is very big and largely untapped. As a 1% market shareholder, the opportunity in front of us is still 99% as large as it was on day one. Accordingly, we are continuing to apply day-one intensity to tackling our opportunity. Building Carvana was always going to be hard. Our business is complex, demands many different functional capabilities, and is capital-intensive. Doing hard and valuable things is the ultimate competitive moat, and we have done many hard things over the last 11 years. As a result, we are in a stronger competitive position than we have ever been. From here, the degree of our success will be driven by our ability to maintain our intensity, our ambition, and our focus, and will be governed by the quality of our execution. These are all things we are in control of, and that's an exciting place to be. We are energized and remain firmly on the path to buying and selling millions of cars, to becoming the largest, most profitable automotive retailer, and to fulfilling our mission of changing the way people buy and sell cars. The Mark continues. Mark. Thank you, Ernie, and thank you all for joining us today. The Q3 was an extraordinary quarter for Carvana that was enabled by our team's continued focus on driving operational excellence by identifying further fundamental gains and operating efficiencies while also pursuing growth. For the third consecutive quarter, we earned positive net income, and we again set new company records for Adjusted EBITDA, Adjusted EBITDA margin, GAAP operating income, and GAAP operating margin. Our Adjusted EBITDA margin of 11.7% surpassed the midpoint of our long-term financial model EBITDA margin range of 8%-13.5%, and we continue to see meaningful opportunities for fundamental gains to continue driving toward the higher end of that range over time. Moving to our Q3 results, unless otherwise noted, all comparisons will be on a year-over-year basis. Q3 again demonstrated the strength of our differentiated business model and our ability to achieve both strong unit growth and profitability. The strong demand experienced in the first half of the year continued into the Q3. Retail units sold totaled 108,651 in Q3, an increase of 34%. Revenue was $3.655 billion, an increase of 32%. Our strong results in the Q3 and expectation of accelerating year-over-year growth in the Q4 is being driven by our three long-term growth drivers. One, continuously improving our customer offering. While we continue to focus our people, process, and product efforts on driving fundamental gains in unit economics, these efforts are also leading to meaningful improvements in the customer experience through more seamless shopping, transaction, and delivery experiences. Two, increasing awareness, understanding, and trust. Our growth through the first three quarters of the year has benefited from increasing brand awareness and consumer shifts toward e-commerce on approximately flat advertising spend. In Q4, along with our accelerating growth, we expect to invest between $5 and $10 million more in advertising compared to Q3 to further raise awareness of our offering. Three, increasing inventory selection and other benefits of scale. Inventory selection and more inventory pools in more locations are two key sources of positive feedback in our business model, leading to better selection and faster delivery times. Throughout the year, our inventory teams have been focused on increasing production output to better match demand, and we made progress doing so in the Q3. However, we still remain below our target available website inventory levels, and returning to more optimal levels remains a key near-term focus. Our strong profitability results in Q3 were again driven by sustained and fundamental improvements across all GPU components and operations expenses, as well as levering our overhead expenses. Non-GAAP retail GPU was $3,617, an increase of $740, marking our sequential quarter with a new company record. Strength in retail GPU continues to be driven by fundamental gains and consistent performance across several areas, including non-vehicle cost of sales, customer sourcing, inventory turn times, and revenues from additional services. Year-over-year changes were also driven by higher spreads between wholesale and retail market prices and lower retail depreciation rates. Looking ahead to Q4, we expect seasonality in retail GPU to be more similar to our average seasonality in 2018 through 2021 than our seasonality in 2022 and 2023, with the latter two years both impacted by unique internal factors. Non-GAAP wholesale GPU was $1,123, an increase of $172. Year-over-year changes were primarily driven by growth in both wholesale vehicle and wholesale marketplace gross profit. Looking ahead to Q4, we expect seasonality in wholesale gross profit dollars to be similar to our average seasonality in 2018 through 2023. Non-GAAP other GPU was $2,945, an increase of $377. The increase in other GPU was primarily driven by higher spreads between origination interest rates and benchmark rates, partially offset by the impacts of hedging benchmark rate interest rate changes and selling a smaller amount of loans relative to originations in Q3 2024 compared to Q3 2023. We estimate that selling a greater volume of loans than we originated generated approximately $150 per unit of incremental other GPU in Q3, and that a decline in benchmark interest rates between loan origination and sale generated approximately $100 per unit of incremental other GPU in Q3, other things being equal. Non-GAAP SG&A expense was $406 million, an increase of 10%. Q3 was another strong quarter for demonstrating the power of our model to lever SG&A expenses. Our 34% growth in retail units sold led to an $832 reduction in non-GAAP SG&A expense per retail unit sold. The Carvana operations portion of SG&A expense totaled $1,731 per retail unit sold, a decrease of $220, primarily driven by our operational efficiency initiatives. The overhead portion of SG&A expense totaled $147 million in Q3, an increase of $6 million, primarily driven by $4 million of non-recurring benefits in Q3 last year, leading to a reduction of $388 per retail unit sold. 2024 has been an incredible year for Carvana. To say thank you to our team members that helped make this a reality, we have announced a thank you cash bonus to thousands of employees across Carvana that will impact Adjusted EBITDA by approximately $10 million in Q4. 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. Adjusted EBITDA was $429 million in Q3, an increase of $281 million and a new company record. Adjusted EBITDA margin was 11.7% in Q3, a 6.4 percentage point increase and a new company record. It is worth noting that our Adjusted EBITDA is very high quality compared to many rapidly growing companies due to relatively low non-cash expenses. Our GAAP operating income was $337 million in Q3, leading to GAAP operating margin of 9.2%, leading the public auto retail industry. As previously noted, we are currently carrying many expenses for over one million retail unit sales capacity and expect our GAAP operating income to grow faster than Adjusted EBITDA over time. As discussed in prior quarters, we believe that pairing our strong financial results with the measured actions we have taken thus far positions us well to continue delivering our balance sheet over time. In the Q3, we repurchased an additional $100 million of our 2028 senior secured notes, which, when coupled with our Adjusted EBITDA generation and our strong liquidity position, further improves our leverage ratios. Our results through Q3 position us well for a strong finish to 2024. Looking toward the Q4, we expect the following as long as the environment remains stable. First, a sequential increase in our year-over-year growth rate of retail units sold, and second, Adjusted EBITDA significantly above the high end of our previously communicated range of $1.0-$1.2 billion for the full year 2024. Looking forward, as we generate profit, we expect an effective cash tax rate, including income tax and tax receivable agreement payments of approximately 22% in the near term and approximately 25% in the longer term on Carvana Co.'s income, assuming current U.S. corporate income tax rates. In conclusion, Q3 was an exceptional quarter for Carvana. We remain very excited about progressing in our long-term phase of driving profitable growth and pursuing our goal of becoming the largest and most profitable auto retailer and buying and selling millions of cars. Thank you for your attention. We'll now take questions. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been address and you would like to withdraw your question, please press star and then 2. Also, please limit yourself to one question and one follow-up requeue to ask additional questions. Our first question comes from Sharon Zackfia with William Blair. Please go ahead. Hi, good afternoon. I wanted to talk about the ADESA integration because I remember when you bought ADESA, I think the CapEx for integrating IRCs was roughly a little under $20 million per site. It sounds like maybe that's coming in less than that. And then as a corollary, I know you guys have been excited about same-day delivery kind of growing to address a greater part of the population. What% of your sales right now are same-day delivery? And could you kind of contrast that maybe relative to a year ago? Thanks. Yeah, perfect, so I think we're extremely excited about these integrations. They've been going very well. The integrations basically means that we unlock Carvana reconditioning capabilities at ADESA sites. It means that we use our systems and our processes to recondition cars, and that's been going exceptionally well. We've seen gains kind of across the board by making those conversions, and then I think what we're generally doing today is we're doing kind of a lighter CapEx version of it to unlock a portion of the ultimate capacity that can be unlocked at each of those sites. That allows us to get many of the benefits in a very capital-light and quick way. We can have inventory closer to customers. We can get delivery times down. We can get more routes. We can have inbound costs drop. So there's a lot of benefits that we can get up to a certain scale. And then over time, we'll probably circle back around on these sites and do a little more CapEx to unlock additional lines. So that's how that will unfold. Right now, we're trying to make sure that we fill in our footprint and we maximize our capabilities. And importantly, I think make sure that we have the joint capability of reconditioning and auction at these sites. We think that that unlocks a number of important capabilities for us that we think are pretty exciting and a number of important capabilities for ADESA that we think are exciting for that business as well. As it relates to same-day delivery, it's still a small fraction of our sites. We're now up to 35% of the population of the U.S. Has access to or is in a market where they could get same-day delivery, but there are all kinds of limitations inside our system based on which cars can be same-day delivered, which customer credits can be same-day delivered, etc. So it's still a relatively small fraction. I think phase one is about rolling out the capability across all of our geographies, and then phase one will be or sorry, phase two will be diving into that and unlocking more cars and more customers and then ultimately more car customer combinations to have more same-day delivery available. So I think we're very early in unlocking that. That's obviously a very exciting consumer-facing capability that we think is incredibly hard to replicate, and we think reflects the value of vertical integration as much as any of our other capabilities. So we're extremely excited about unlocking that over time. Sharon, to reiterate the CapEx point, all of the integrations that we're discussing utilize ADESA land and buildings. It's a very limited amount of CapEx that's required for these integrations. We are using the existing infrastructure and structures at the ADESA sites. Okay, perfect. Thank you. The next question comes from Adam Jonas with Morgan Stanley. Please go ahead. I am going to break my rule and say congrats. It's outstanding execution. So. That means nothing to know. Well done to the team. Other than the reasons that you mentioned, including the employee bonuses and others, is there any other reason why EBITDA margin doesn't hold or grow from 3Q to 4Q? Because just calculating the contribution from 2Q to 3Q, it looked like over 60% contribution EBITDA margin. I know that can vary quarter by quarter, but just wanted to give you a chance to point anything out because your guidance of above 1.2 is kind of obvious. Thanks. Sure, I can hit that one. So I do think there's seasonality in our business and the industry as a whole. I think you're well aware with some of the dynamics there, but I think some of the fundamental drivers of seasonality are used car demand is typically lowest. In Q4, we did point to accelerating year-over-year growth. So I think that that's a positive trend. But in general, used car volume seasonality, it's lowest in Q4 when consumer demand for used cars is lowest. In addition, we typically see the highest depreciation rates in Q4, and so that has an impact on both retail and wholesale GPU. So I think there's some seasonal factors. We called out, or I called out in my prepared remarks, some of the ways that we're thinking about seasonality this year. I think in retail, 2022 and 2023 were a bit unusual. So at a high level, we're thinking seasonality that's more along the lines of what we saw in 2018 through 2021 on average. And then in wholesale gross profit, and there in terms of what we're seeing, we're seeing wholesale gross profit dollar seasonality that's more similar to the average of 2018 to 2023. So really pretty typical wholesale gross profit dollar seasonality. So those are a couple of things that I'd call out. In addition, I think we talked a little bit in the letter and in my prepared remarks. I think there were a couple of things that benefited other GPU in the third quarter. We did sell more loans than we originated. We sized that at approximately $150 other GPU impact in the third quarter. And in addition, we had a pretty rapid rate move in the third quarter where we did receive what we estimated about $100 per unit benefit from rates moving down between the time when we originated the loans and when we sold them. And we hedged a lot of that, and so we didn't get sort of a full benefit from that, but the net benefit that we estimated was about $100. So those are some things to keep in mind. This is a seasonal industry, and so those are some of the seasonal patterns that we're pointing to in Q4. But then obviously, we're very pleased with the progress and expect a strong Q4. Thanks, Mark. Just as a follow-up on the integration of the ADESA assets into the IRCs, you mentioned in the letter you're able to reduce the shipping distances by about 300 miles in the markets versus from before you had the IRC. How much does that save and what other savings would you call out like for like in the same market from pre to post IRC ADESA converted center would you highlight just to kind of gauge the pace of your productive capacity going forward? Sure. So I think those stats were in there to try to give very tangible examples of the benefits of getting inventory pools closer to customers. And I think that that's one of many. I think maybe to put some higher level full company stats on it, I think year over year, our average time to delivery is down about 25%, and we're simultaneously driving down costs while we do that. That's done partially by getting cars closer to customers and partially by just running our system materially more efficiently. And I think as we continue to unlock more of these ADESA sites and get cars closer to customers, I think that there's a lot of room for continued improvement in both time and cost. So I think we're excited about that. It requires a lot of work. We've got to keep turning the wheel, but the foundations are laid, and we'll continue to work hard to unlock it quickly. Thanks, Ernie. Thank you. The next question comes from Jeff Lick with Stephens Inc. Please go ahead. Good evening, guys. Congrats on a fantastic quarter. Thanks, Jeff. I was wondering, as we track the site, we can see that you've gone over the 40,000 units on the site. And I was just curious if you could comment as we start to get that marginal customer, maybe above, say, the 30,000 a month units per month customer. Is there any difference in the behavior of this incremental customer in terms of the offers, the pricing, and whatnot that you have to offer them to entice a sale? Or are we still at the part of the demand curve where things are similar? Let me start with this. I think we are beginning to grow inventory a little bit right now, which is driven by our reconditioning teams doing a great job scaling up their capabilities and doing it in a very cost-effective way, which is, it's hard to do both those things at the same time, but they're doing a great job. So I think we're extremely excited about that. We remain below our target inventory levels. We would like to be higher, but we think that that's exciting as well. We're working hard to get our inventory levels up so our customers have more selection, and that obviously bodes well for ultimate sales. And then I think as we continually grow to higher and higher scales, I think there will probably always be a little difference in the customers that we're seeing, but I don't think we see those differences expressed meaningfully in any demographics. I mean, I think we generally see very similar customers coming to us, and I think we put out a press release a couple of weeks back that we've now sold two million cars in sum total. We've now bought two million plus cars from customers. These are starting to be pretty big numbers, and I think that we are moving away from just kind of what people may have perceived as early adopters to what is kind of necessarily a big part of the consuming public. I think as we continue to deliver great customer experiences, we continue to make it more efficient, simpler, faster, with more selection, and more customers continue to hear from friends and family that they had a great experience and that this is the new way to buy a car. We think that we'll be able to continually penetrate deeper into different customer segments. So we think it's extremely early. This market's huge. We made the point that we're a 1% market share today. We think that that's extremely unique. It's unique to be lucky enough to be in an industry of this scale where there's 40 million used car transactions per year. It's approximately a trillion-dollar industry to build a business of the scale that we've been able to build over the last 11 years, but still just be at 1%. So we think our headroom is very, very large. We think the fundamentals that enable us to unlock that headroom are very, very clear. Those fundamentals are the growth that is basically customers demonstrating that they have a preference for our customer experiences. And I think the financial performance demonstrating that our business model is able to create real separation from the pack. We think that that just means the opportunity is big, and we're excited to go get it as fast as we can, but also as responsibly as we can. And we'll work hard to try to manage that balance as best we're able. Just a quick follow-up on operations per unit was 1,730, which was a little sequential uptick from Q2. I was just curious any read into that and how you feel about sequential or year-over-year movements down in any way in that metric. Sure, I can take that one. So I think operations expense per unit, which is the more variable component of our cost structure, was down just over $200 year-over-year. And that's a reflection of all the efficiency initiatives that we've taken on. It ticked up, as you said, by $30 or so sequentially quarter over quarter. Nothing really to call out there, just a number of small items. I think most importantly, we still see opportunity to drive that number down over time. I think all the teams that are focused on that operational metric, they've made great gains over the past couple of years, but we all see opportunities to continue to move that down over time. Awesome. Well, congrats and congrats to the team on the cash bonus as well. That's pretty fantastic. Thank you. And the next question comes from Chris Bottiglieri with BNP Paribas. Please go ahead. Hey everybody, thanks for taking the question. Of course. It's been a couple of years since I've asked this topic. 3P Marketplace seems like you're really turning the corner there. So just had kind of two questions related to it. I guess one is the accounting. Is the fee income showing in used revenue in GPU or other? It would It would be the first clear question. And then second, can you just kind of elaborate? I think you're probably doing maybe single digits today. Penetration of units. It sounds like you expected the step up in Q4. Just curious, kind of is this expanding with Hertz or other partners? Are you expanding to other large partners, or is it a combination of smaller partners? What can you tell us about this growing 3P Marketplace? Yeah, sure. I can take that one. So the retail marketplace offering is an offering where we sell cars on behalf of commercial sellers on the site. And then I think there's first and foremost, the way we view it is as another acquisition source. It's very similar to acquiring a car at auction or via another wholesale channel. But there are some revenue recognition differences. And in particular, when we have a retail marketplace transaction, we don't record the gross sales price of the car as revenue. And so I think that's the most notable thing about that acquisition channel is it does have an impact on revenue because we don't record the gross sales price. In terms of your other sort of reporting question, most of the fee revenue, to the extent we earn fee revenue from commercial sellers there shows up in retail revenue. There's a small portion in other, but most of it's in retail revenue. And then I think, yeah, in terms of the scaling of that program, it's been a relatively small share of sales historically. It's something we've had active for at least three years now, and it's tended to be a pretty small overall share of sales. We do expect it to increase in Q4, as we called out in the shareholder letter. And I think some of the genesis of that is we are making really great progress incorporating Carvana Reconditioning into ADESA centers. We're also making really great progress making our inspection and reconditioning centers highly efficient at reconditioning. And I think that has opened up opportunities to make more opportunities available to commercial sellers to have access to both a wholesale platform and a retail platform simultaneously. So I think that's something that, yeah, we expect to grow in Q4. I think some of the gains that come from that and the reason that we're doing it, we think there's opportunities for fundamental gains by deepening our connections with commercial sellers of cars. We think there's opportunities to cut a lot of speed or improve speed significantly in the process, as well as lower intermediation and other costs associated with auctions and vehicle transport and things like that. So those are some of the mechanics. Like I said, it's historically been a pretty small percentage of total units, but we expect it to increase in Q4. Thanks, Mark. Really helpful. And the next question comes from Michael McGovern with Bank of America. Please go ahead. Hey, guys. Thanks for taking my question. Congrats on the quarter. I was just wondering if we could get your thoughts on kind of where inventory selection stands today in your view, and what impact does that have on your marketing strategy or willingness to spend marketing dollars if inventory is where you want it to be or it isn't? Thank you. Sure. So we are starting to grow inventory just a bit. We would like for it to be higher. We think that marketing or inventory growth is you can think of as similar to marketing, and it's a very efficient channel for marketing because it basically has the effect of making your marketing dollars more efficient by driving additional conversion as customers are more likely to see the car they're looking for. So we think that that's a great place for investment. It's an investment that requires scaling the entire operational chain. So it's an investment that takes a little bit of time, but the team's been doing a great job keeping up with our growth in sales. We've obviously begun growing sales starting in Q1 of this year, and that's accelerated a bit, and we expect it to accelerate a bit in Q4. But despite that, the reconditioning team's been able to also get us to a spot where we're building inventory a little bit right now. So we think that that's exciting, and we would like to be carrying a bigger inventory than we are today. We're working hard to get there fast. Thank you. Thank you. And the next question comes from Chris Pierce with Needham. Please go ahead. Hey, good afternoon, everyone. On other GPU, it's $2,945, and then you call it $250 in tailwinds this quarter. $2,700, that's on a regular. I guess I just want to get the sense of how to model this line going forward because that would be well above kind of where you kind of guys were multiple years ago. I just want to get a sense of has something changed here or what's happening besides the one-time benefits you guys call out? Sure. I can take a swing at that one. So I do think that's one of the areas of the business, not unlike the other areas of the business, like retail GPU or the wholesale GPU line items or anything else, where we are constantly working to make fundamental gains. And I think those fundamental gains in the finance platform take the form of just more streamlined customer experiences, better data, better scoring, all kinds of whether it's data algorithms, technology for customer experience, all sorts of places to make gains in driving other GPU, which includes financing and ancillary products. And so I think that's an area where we've made good progress. We'll continue to look to make progress over time and do see opportunities for more fundamental gains over time from here. But that would be my high-level commentary on it. Okay, perfect. And then on the marketplace, in the past, I believe you guys had other dealers in the marketplace selling cars as well or listing inventory. Can you remind me, was that a thing that an avenue you went down, or is that an avenue you would go down again in the future? That was an avenue that we went down briefly. That is not our focus today. Today, our focus is on large commercial sellers where we think it's easier to scale and where it benefits more from the combination of Carvana and ADESA capabilities together, and where both Carvana and ADESA can benefit from those relationships. So we think that that's more efficient. It's simpler. Every partnership requires some special specific integrations and capabilities. And so the more we can have kind of larger relationships and fewer of them, the more quickly we can move. And then very importantly, I believe Mark said this earlier, but we are reconditioning the majority of these cars that are flowing through retail marketplace as well. And that's also different than it was in the past, especially with dealers. Okay, perfect. Thank you. Thank you. The next question comes from Seth Basham with Wedbush Securities. Please go ahead. Thanks a lot. Good afternoon, and my congrats as well. My first question is just on your advertising comment. Planning on increasing advertising in the fourth quarter despite the fact that demand is still exceeding supply. Just help us think through why it's the right time to lean into advertising despite that fact. Sure. I think, first of all, the business is performing incredibly well. And I think it's time that we start to get a nice practical understanding of the various levers that we've got to drive growth. The investments that we plan to make in advertising are relatively small, especially on a per-unit basis. And it's at a time when traditionally there's a little bit less demand overall in the fourth quarter. And so we think it's also a natural time to do it and start to flex that and kind of understand what the sensitivity is to those different channels. We've also got some fun and interesting and potentially powerful advertising investments that we've made. We're bringing back Dax and Kristen again this year, which we're excited about. So we'll be playing that ad, and we'll see how that does. But we think it's a good time for us to start to understand exactly how powerful those levers are. And we think the fourth quarter is a uniquely good time for us to make some of those investments because of the fact that it is traditionally a time when sales slow. And so it's operationally simpler to understand the power of those levers in a time like this. So we'll be doing a little testing around the edges. I think we're optimistic about what we're going to see. I think there's no doubt that given where the contribution margins are of incremental sales relative to customer acquisition costs through various customer acquisition channels, whether it's things like inventory growth that we discussed earlier or marketing, there's likely meaningful gaps there. The thing that's standing between us and unlocking that benefit is just expanding the operational chain and continuing to execute. As we've said over and over in this call, I think we've got a good plan, and we just got to keep marching. That's helpful color, and then as it relates to inventory sourcing, can you remind us where you are from a self-sufficiency standpoint, and is one of your key objectives with the retail marketplace to be able to source more vehicles and support growth in the business when it's getting more difficult to do that by sourcing directly from retail customers? Yeah. So I would say we're still at a place where the significant, significant majority of our acquisitions are coming from customers, which we think is great. We think that that's a deep fundamental capability. It's very hard to replicate. That just kind of reverses our entire retail capability. And so basically to do that and offer the same customer experience that we do, you'd have to build out everything we've built for the retail side of the business. So it's something that benefits from very large moats. So that's definitely an area of focus. I think undoubtedly that is probably a relatively stronger channel in times when vehicles are appreciating. It's probably a relatively weaker channel in times when cars are depreciating. I think the great news on that is we've been in an, on average, depreciating environment for the last year and a half, two years, give or take, and also cars are probably now at a spot where they're very, very similar kind of vehicle CPIs at a very similar place to other goods CPI, so I think it's less obvious which direction depreciation will go versus just normal seasonal depreciation from here, but we think it's important to have access to all the various channels, and then I think Mark made the point that retail marketplace can be thought of as a substitute for auction purchase, I think that is the right way to think about it, and then I think that he also made the point that the place where we are most focused is benefiting from the joint capabilities of us plus ADESA. I think in much the same way that in years past we talked about the reason that or one of the reasons why we think that we're a differentiated buyer for consumers is that we've got a great retail disposition channel and we've got a great wholesale disposition channel, and consumers don't really know if their car is retail or wholesale by our standards, and it's important that we're able to put a great bid in front of them regardless. I think in similar ways, I think big commercial sellers have a mix of cars that we will deem wholesale and that we will deem retail. When we're able to absorb more of those cars in a very seamless way that minimizes the movement of those cars and the cost associated with getting those cars to a place where they can be disposed of and does it more quickly, we generate fundamental gains that can be split up between us and our partners. We think that that's exciting. We think that that's going forward in order to unlock the kinds of market share that we want to unlock in the long run, we need to continue to deliver great differentiated customer experiences and drive demand, and we need to continue to have highly differentiated sources of supply so we can get a lot of supply to satisfy that demand. I think these programs are ways that we're looking to leverage the advantages inherent in the machine that we've built to be even better on the supply side. Thank you very much, Ernie. Thank you. The next question comes from Brian Nagel with Oppenheimer. Please go ahead. Hi, good evening. Great quarter. Congratulations. Thank you. So I've got a couple of questions. First, as we look at the business, it's clearly ramping nicely here. You talked in the prepared comments about the significantly underutilized capacity you have as far as reconditioning centers. But as the business continues to ramp, are there other expenses from a labor standpoint or elsewhere that are going to come in to support that growth? Yeah, I can take that. So I think the easiest way to think about labor expenses, there's some in cost of sales associated with reconditioning. There's some in that operations expense line item. And then there's some in that our overhead expense line item as well. Those are sort of the big categories. And I think what we've seen is even at today's growth rates, we're seeing those come down. We continue to make progress in reconditioning and inbound transport costs. We continue to make progress in operations expenses. We had a very small tick up this quarter sequentially, but overall, that's on a meaningful downward trend. And then our overhead expenses have been very, very steady with very little movement over the past many quarters despite very significant growth. So I think the simple answer there is we've actually been improving across some of our labor efficiency metrics while growing. And as I alluded to in a previous answer, we still see opportunities to continue to improve efficiency. Obviously, operational expenses grow in dollar terms, but our goal is to continue to drive them down in per-unit terms. Thanks, Mark. That's very helpful. And then I guess the second question I have, just with regard to the kind of retail GPU, again, it continues to climb nicely. But what are the, as you look at it, sort of, say, building blocks from here to drive it higher? I think that there are many, but I think the goal of our entire machine in many ways, used car transaction is basically some consumer that has a car somewhere that's going to trade with some consumer somewhere else, and it's about building a system that kind of minimizes the costs associated with moving that car from one customer to another, reconditioning that car so it's ready for the new customer, and then providing an experience to a customer that they love that is very efficient. I think that's like the goal of the entire system, so I think getting smarter about which cars we bid on at which point in time from which location is important. I think minimizing the costs associated with moving those cars around is important. Building out additional reconditioning centers so that we have more efficient access to more consumer and commercial-facing cars with lower costs to get them to our reconditioning centers is important. Being intelligent about merchandising our cars really well so we get credit for the interesting features that various cars have is important. Being intelligent about pricing different cars differently so it reflects customers' understanding and willingness to pay on those various cars is important. I think it can feel like it's simpler. You're just buying a car for a price, and then you're selling it for a price. But there are tens of thousands of SKUs, and those tens of thousands of SKUs distributed across enormous geography, enormous distance, I think creates a lot of opportunities to get better. So we've got various teams that touches multiple teams. That touches our fulfillment teams and touches our inventory teams that have very specific projects with ambitious goals that are very credible, in our opinion, that suggests that there's additional room for improvement. But like anything, I think sizing an opportunity is one exercise, and then going and collapsing the distance between what you're doing today and what you want to do tomorrow is another activity. And so we've been executing very well for the last seven quarters, and I think it would have been very hard to foresee where retail GPU is today while still giving our customers a great deal. I think it would have been hard to see that from seven quarters ago, but it's been unlocked by the same sorts of projects that we still have in the hopper. And so I think we got to keep executing at that same level, and we think that there's still opportunity. Good. Well, I appreciate all the color. Thank you. Thank you. The next question comes from Rajat Gupta with JPMorgan. Please go ahead. Great. Thanks for taking the question. I had a follow-up question on the marketplace economics. I understand the accounting around the revenue reporting, but just curious, is the retail GPU, the other GPU, like SG&A per unit, how should we think about the different buckets of the economics for a marketplace sale versus the traditional retail sale? I know you mentioned these are similar to auction- sourced units. So in the past, I think you've said those are lower GPUs than consumer- sourced units. So I'm just curious how those trickle through the different line items, and would you be calling that out going forward? And I have a follow-up. Thanks. Yeah, sure. I think thinking about it as a substitute for auction purchases is probably the best way to think about it. And then it obviously has different accounting, but I think the way that we're thinking about it is we're still aiming for the same per-vehicle dollar economics across the sum of all transactions as we would have been without this. We think that fundamentally what is occurring, the operations are the same. Well, let me start with the seller. The seller is the same. The cars are the same. The operations to get the cars between us and the seller are the same. The operations to get cars to customers are the same. They're merchandised in the same way. Everything the customer sees is the same. The difference is the transaction that we wrap around that on a subset of cars. The reasons that these different structures are interesting is because if we do them in bulk and take advantage of the combination of capabilities we have at these ADESA sites in particular as we roll out reconditioning capabilities there, we think that we can move cars more quickly with fewer moves and kind of just in general be more efficient between us and those sellers. So I think this structure is a structure that is one of many possible structures that you could kind of wrap around those fundamentals. We think various structures don't really change the underlying economics of the transaction. So we think that probably the best way to think about it, we've put out this long-term financial model. We think the best way to think about it is still think about our goals as being the same as they were through long-term financial model if all units were accounted for as if they were normal core retail units, and then the major change here is for whatever portion of units we have that are marketplace units. We will have less revenue because that's how the accounting kind of works. Got it. Got it. That's helpful. And just in terms of the impact this has on the standalone ADESA business, is it essentially like using just sourcing from those customers directly or are there new customers? I know you've talked about Hertz in the past. I'm trying to understand what this means for just the ADESA standalone EBITDA. I know it's pretty small in context of your overall EBITDA today, but just curious how that interplay would work between the supply base at ADESA, which is what you're using for your marketplace business. Thanks. I think a bit of an abstract, but I think hopefully a helpful conceptual way to think about it. A lot of the costs that exist in the market between commercial sellers and ultimate dealers that are going to sell those to consumers exist because the dealers have a subset of cars that they're interested in, and the sellers want to maximize proceeds across a varied group of cars that they're trying to sell. The goals of these structures are to make that simpler because we are a scaled retailer and a scaled wholesaler. And so we can kind of fundamentally reduce costs that exist in discovering which car is which because it's less important to our scaled system. We need to make sure that we get the average right, and then at our locations, we sort them properly. But we need to get the average right, not every individual car right. And that unlocks speed and cost reductions. And so that's fundamentally what we're seeking to do with some of these new structures. Got it. Got it. That makes complete sense. Thanks. Thank you. The next question comes from John Healy with North Coast Research. Please go ahead. Thank you. Ernie, I wanted to get your kind of thoughts, big picture. Obviously, the growth this year has been amazing. The turnaround has been just even more amazing than the growth. But as you look at the growth rate of the business, what do you want to allow this business to grow? Because I feel like there's an interplay here, obviously, with the value you offer the consumer, how you source inventory, how much inventory you have. So as you look at the model, is a growth rate like we saw this year, can you replicate that in another year or two, or do you look at it in terms of the amount of units you want to add kind of on a year-over-year basis? So I was just really hoping you could help us thinking about how you're going to govern growth in the business. Then ultimately, next year too, just put your economist hat on, and let's just say interest rates are 100 basis points or lower year-over-year next year. How much does that actually help the business and your performance next year? Thanks. Sure. I think those are big questions. I think importantly, we think that we're very small compared to the scale that we will ultimately be capable of reaching. I think that we would like to get to much bigger scales quickly. We think the entire business gets better. There's positive feedback, as we've discussed, ad nauseam. And I think it helps every part of the business and helps customer experiences as well. So it just makes us a better, stronger business. And then I think that the ability of any group of people to do work is limited. You can only focus on so many things. I think what this last year has been about kind of exploring different rates of growth, understanding how much focus that requires, and then understanding how much focus is left to make sure that we go take advantage of the big fundamental gains that still exist in the business. I think that we're continuing to try to find that balance today because we do think that we're very small compared to what we can be, and we do think that there are very significant fundamental gains. I think what we're seeing right now in many different forms is the fundamental gains that we've unlocked over the last couple of years. They're showing up clearly in our financials. You see them in our EBITDA margin and our operating income and net income and everywhere else. But they're also showing up in terms of the ease with which we've been able to scale. And so that makes fundamental gains sort of doubly valuable, right? They show up in the bottom line, and they make it easier to go get more top line. And so I think we've got to find balance between those things. We're a very ambitious group. I think the struggle that we have internally is trying to narrow our focus, trying to keep it at the right level to where we don't have too many things on our plate and we don't get as much done as we should. And so I think we're trying to find that balance today. That's in active discovery as we speak. And then you asked about our economist hat. We think our economist hats are broken. So we would suggest you go check other people's. I think rates being lower, all else constant, is helpful. I think it's helpful in kind of a second-order way. First order, what matters is our offering relative to the offering of others that we compete with, and we both benefit from rates, so I think first order, it's not really a huge change. Second order, it means that cars are more affordable, and that can bring more people into the market, and so we think that that's beneficial, but we wouldn't call it like a central driver of our performance. Thank you, guys. Thank you. The next question comes from Nick Jones with Citizens JMP. Please go ahead. Great. Thanks for taking the questions. I guess I'd like to ask a little bit more about the growth algorithm, maybe a little bit differently. I mean, the average age of cars on the road is higher. The industry still hasn't quite normalized. Carvana is gaining share, outperforming large competitors. I guess the question becomes, if things do start normalizing at potentially a rapid pace, maybe as rates come down, is the business prepared to kind of handle the volume that could come? And then I guess that's the first question. And the second question is, you're going to do some advertising testing and seeing how you can maybe drive growth further. I guess how much is the business potentially a coiled spring over the next few years to the extent that things normalize and you've been able to perform quite well in a tough backdrop? Thanks. Love the coiled spring analogy. That carries a lot of deep meaning for a lot of people inside Carvana that were here for Catapult. But I think that it seems that that is likely the case. We certainly hope it's the case, and we're going to work hard to demonstrate the results that prove out that that's the case. I think we're more efficient than we've ever been. That means growth is easier than it's ever been. I think the sum of the way the customers are responding to our offering and the quality of our financial performance means that we've got a big spread versus the competition. I think that creates one, that just suggests that I think very large market shares are attainable, and I think it creates a lot of flexibility. We think that there's significant fundamental gains yet to be had. We feel like we have visibility to better financial performance than we've been able to deliver so far. We have this enormous latent opportunity of unlocking additional capacity at these ADESA sites and ramping up reconditioning centers that we already have, that we think the sum of that can get us up to 3 million units per year, which is approximately eight times our current run rate. So I mean, I think it's all very exciting. And what's missing from that is just that it's an enormous market, right? I mean, that eight times our current scale can sound daunting, and then it's worth remembering that that would be 7.5% market share, which feels very achievable for a leader in a space. And so I think we're excited. I think our team is executing unbelievably well. I think our team learned a completely new gear of execution and a new set of tricks and a new level of discipline that we're going to work hard to maintain. And I think that the results of the last year and a half, two years are a result of us learning those new lessons. And so I think we just got to keep the pedal down and stay focused because the opportunity is big and we're excited. And I think we don't want to be too specific in our promises along the way, but I promise you our eyes are big. Thanks, Ernie. Thank you. This concludes our question and answer session. I would like to turn the conference back over to Ernie Garcia for any closing remarks. Great. Well, thanks, everyone. We really appreciate you joining the call. Team Carvana, another just incredible job. This is now the people on this call that are listening to it, outside of you, are very smart people whose entire job it is to figure out how we're going to perform, and for seven quarters in a row, you've outperformed what they could have reasonably expected, and that's just because you've absolutely been crushing it. Thank you so much for all that work. Please be forever proud of it, but never let it go to your head, and let's keep going because we still got a lot of work to do and a lot of fun to have. Thanks, everyone. The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.