Good afternoon and welcome to the Carvana First Quarter 2020 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mike Levin, Vice President of Investor Relations. Please go ahead.

Thank you, Gary. Good afternoon ladies and gentlemen and thank you for joining us on Carvana's first quarter 2021 earnings conference call. Please note that this call will be simultaneously webcast on the Investor Relations section of the company's corporate website at investors.carvana.com. The first quarter shareholder letter is also posted on the IR website. Joining me on the call today are Ernie Garcia, Chief Executive Officer; and Mark Jenkins, Chief Financial Officer. Before we start, I would like to remind you that the following discussion contains forward-looking statements within the meaning of the Federal Securities laws including, but not limited to, Carvana's market opportunities and future financial results that involve risks and uncertainties that may cause actual results to differ materially from those discussed here. A detailed discussion of the material factors that cause actual results to differ from forward-looking statements can be found in the Risk Factors section of Carvana's most recent Form 10-K and Form 10-Q. The forward-looking statements and risks in this conference call are based on current expectations as of today, and Carvana assumes no obligation to update or revise them whether as a result of new developments or otherwise. Unless otherwise noted on today's call, all comparisons are on a year-over-year basis. Our commentary today will include non-GAAP financial measures. Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our shareholder letter issued today, a copy of which can be found on our Investor Relations website. And now, with that said, I'd like to turn the call over to Ernie Garcia. Ernie?

Thanks Mike. And thanks all for joining the call. The first quarter was another great quarter across the board, in our shareholder letter; we always lay out our financial priorities of rapidly scaling the business of growing GPU and demonstrating operating leverage. In the first quarter, we made tremendous progress across each of these priorities. We grew units and revenue by 76% and 104%, respectively. We grew GPU by over $1,000 year-over-year and almost $300 quarter-over-quarter, and we leverage EBITDA margin by over 10% year-over-year and 2.5% quarter-over-quarter. Even more impressively, these results were achieved despite meaningful operational constraints across the business and the significant investments we've been making to alleviate them. In the first quarter, our average weekly production was up 26% versus the fourth quarter. As a result of the relatively low inventory levels we were carrying throughout the quarter unit volumes closely tracked production of 28% sequentially. Importantly, the investments we've made in ramping up our ops capacity in general and our inspection center capacity in particular are starting to pay off. As a result of ongoing focus, weekly production levels have been up closer to 50% above the fourth quarter more recently, which positions us well to begin growing inventory and increasing selection for our customers again for the first time since the pandemic struck over a year ago. Getting this point is the result of a lot of careful planning and hard work across our real estate inspection center, logistics, market opportunities and advocate teams who have all put in tremendous efforts to catch up to demand and to fight off the pandemic driven ops constrained through the last year. Great job and thank you, to those teams. These efforts and the ongoing execution of our plan, positions us well for a great 2021 and…

Thank you, Ernie. And thank you all for joining us today. Q1 was a strong quarter for Carvana across all key financial metrics, and our financial results demonstrate significant progress toward our long-term goals. Retail unit sold in Q1 totaled 92,457, an increase of 76%. Total Revenue was $2.245 billion and increase of 104%. Revenue Growth outpaced retail unit growth due to higher retail average selling prices, and wholesale and other revenue. We expect revenue growth to outpace retail unit growth again in Q2, and then we expect revenue growth to be similar to retail unit growth in the back half of the year. Total GPU was $3,656 in Q1, an increase of $1,016 year-over-year, and $277 sequentially. Since Q1 2020 was impacted by the onset of COVID-19. In March, I will focus my commentary on sequential changes. Retail GPU declined slightly to $1,211 from $1,265 in Q4, reflecting a continuation of approximately $200 per unit of transitory costs, primarily driven by rapidly ramping or reconditioning capacity in the midst of COVID-19. We do not expect the majority of these transitory costs to impact Q2. Wholesale GPU increase to $227 from $108 in Q4, primarily driven by strong industry wide wholesale prices in the latter part of Q1. Other GPU increased to $2,218 from $2,006 in Q4, primarily driven by completing two public securitizations for the first time in Q1, paired with an increase in ancillary product attach rates that offset a one-time benefit in Q4. EBITDA margin was negative 1.3% in Q1, a 2.6 percentage point improvement from negative 3.9% in Q4, driven by both GPU gains and SG&A leverage. We ended the quarter with more than $2 billion in total liquidity resources, giving us significant flexibility to execute our plan. We had another strong quarter of buying cars…

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

Hi, good afternoon, I did not expect to be first. I guess congratulations on a great first quarter. And I'm trying to kind of think about your improvements that you've been making and productivity and how we should think about that for the rest of the year. And I think Ernie, you mentioned that soon you'll have available inventory ahead of the year ago period. I guess I'm wondering, when will you be back to kind of pre pandemic levels? What's your line of sight on that? And then I know you mentioned the $200 and transitory costs on GPU, obviously, the year-over-year contraction was a little bit more than that on the car itself. What else was pressuring that, are you finding that it's more competitive to get inventory? You're having to pay a little bit more, and that would be ideal to city? Any thoughts there would be great.

Sure. So let's start with production of I think as you know, basically, since the second quarter of last year, we've been pretty constrained in production, given the pullback that we made, then, and then all the demand that we've seen and just trying to catch up. So I think in the first quarter, we kept pace; basically, our sales grew sequentially, at effectively the same rate, as our production grew. So, I think that kind of suggests that those constraints were still in place. But then post the end of the first quarter, we've made a lot of progress and we've continued to see our production growing. So we now expect to be able to grow inventory. Basically what we're saying there's we've kind of gotten to a place where we expect production to be a little bit more than sales. And we don't want to kind of specify exactly the rates which we expect inventory to grow. But that's a middle mile marker to kind of now be in a place we expect to grow inventory. And we're pretty excited about that. Obviously, growing inventory helps with conversion across the site. And so that's an important milestone that we've hit. But we're not going to quantify it from there. We'll keep working hard and trying to grow that as quickly as we can as we grow into the production capacity, we expect to be around $1.25 million by the end of 2022. And Mark, you want to hit number two.

Sure. Then I'll hit the question on retail GPUs. So Q1 retail GPU was largely aligned with our expectations when taking into account the transitory costs that we talked about in Q4. I think when you look on a year-over-year basis, in addition to those transitory costs, last year; we talked some about the impact of some of the early phases of iteration on buying cars from customers that positively impacted GPU last Q1. I think there are some base effects from those early phases of iteration that's impacting the year-over-year comparison. I think when we look at where we're headed from here, we did call out that we expect the majority of those transitory costs impacted Q4 and Q1, this year to be gone by Q2. And so that's a tailwind to the retail GPU as we move toward to 2Q, other things being equal. Obviously, overall, we feel really good about our progress there, had a solid quarter in light of those transitory costs and expect to step up in Q2.

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

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

Sure, so obviously, we're excited about launching Pacific Northwest that was kind of the last region our footprint that we weren't yet in. So I think opening that up is exciting. That basically means from here to roughly our 95% population coverage goal, in the long run, we basically have market fill in. So that's very exciting. Also, as we grow demand in general in the existing markets and in new markets that just puts us in a position where we can economically carry a larger, larger inventory. And so that's great news for conversion across the country. As inventory gets larger and larger, you certainly have some duplication of inventory that is optimal, where you want to take some duplicated inventory and put it in different places around the country that are closer to customers to minimize delivery times which is also an input into conversion. So there is some of what you're talking about the kind of automatically happens with scale, we're shipping distances should drop and conversion rates should go up. We have all kinds of tests all the time we're getting a good handle on, how inventory size impacts conversion, how delivery times impact conversion and kind of what the right thing is to do internally. But I don't think that we're going to give more concrete guidance on the precise expectations that we have around those different numbers.

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

Sure, so I think our way to look at that, is to look at our past. We provided in our shareholder letter in Q4 2020, you can kind of see our production capacity, our facility production capacity in each of our previous years. And then you can get a sense of how long it took for us to unlock that facility capacity with actual production, by just looking at kind of sales rates in the future periods. So that'll give you a sense of how quickly we can unlock that. Is something we've been working on internally is being able to unlock that production capacity more quickly. We've spoken before about the other many different operational parts of the business. And all those different parts of the business have different lag times associated with how quickly you can alleviate constraints if you find yourself constrained. And definitely production is the area with the longest lead times, it's hardest to kind of grow capacity very quickly there, we've seen that of last year. So we definitely put a lot of focus on catching up and on making ourselves even more flexible. And so you can see the results of that progress in kind of our sales growth for the last several quarters, and then the fact that we're now expecting to grow inventory. So that's been a huge focal point. It's something that we think we are continuing to get better at.

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

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

Sure. So I think first, the use market is fairly different than the new market. It's not totally independent; it's impacted in many ways. But the use market all those cars are already on the road today, there's around 270 million cars on the road. And basically use transaction is just customers trading with one another. So it's not fundamentally impacted by underlying production levels in the way that the new market is. The new market is impacting the use market to degree today, because the kind of decrease available supply and new then kind of flows over an excess demand to late model use that kind of flows down through all the other use kind of year levels as well. So there are some impacts there. But wouldn't expect them to be super pronounced, I don't think that's like a first order driver of what's going to happen to the use market over the next six months or a year. Even more importantly than that, I think production capacities and investment in kind of our long-term future, when we open these facilities, and we unlocked that capacity by hiring and training the people in those inspection centers, that then means that we have a capacity to kind of build those cars over and over again, that powers our growth to 2 million cars and beyond and to becoming the largest most profitable automotive retailer. So those are big investments in our future that are kind of being made with a much longer lens than the current chip shortages that we're seeing today. And then as it relates to competitors, I think there was probably no reasonable expectation of our path from kind of where we started to where we wanted to be, that there wouldn't be competition along the…

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

Hey guys, thanks for taking the question. I just wanted to focus on our retail GPU. Some of the movements in use car pricing I thought might have been a tailwind in Q1 versus a headwind in Q4. It was not the case did not see that. And then, be if it wasn't if use car pricing was more favorable this quarter. Were there any other headwinds that we should be thinking about as we model retail GPU that you incurred this quarter?

Sure. So I think there are always many dynamics that are going into retail GPU. I think this quarter we certainly started seeing appreciation, rapid appreciation in the wholesale market. That's appearing to some degree in the retail market that really came on more toward the end of the quarter. So, I think I'm not sure that was particularly large effects on our Q1 number. So I think the main effects on Q1, were the ones I called out, namely, these transitory costs on the order of $200, roughly the same as what we experienced in Q4. That was probably the biggest, unusual impact on retail GPU in Q1. And as I mentioned, we expect the majority of those transitory costs to have disappeared by Q2. And so as we think that the removal of those transitory impacts will be a tailwind. Other things equal as we move toward Q2.

Got it. Thank you.

Thanks.

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

Good afternoon. Good evening. Thanks for taking my questions. I just had a question on like use to follow-up to one of the previous question you guys view. You open up more IRC, as you know, as the production capacity is increasing, and like that's the main piece election increases? How does like the advertising leverage start to look, once that happens? Did you start to see a meaningful pickup in delivery, just how we should think about that as that capacity ramp up. And I had a follow-up.

Sure. So I think there's probably a lot of ways to think about that. So certainly, as we grow inventory almost constant, we would expect conversion rates to go up. As we kind of decrease delivery time, we would expect conversion rates to go up. The relationship from conversion rates to customer acquisition cost is very clear, as conversion rates go up, you would expect to see leverage and customer acquisition costs. So I think that those relationships would be as expected. I also think, if you take a look at kind of the cohort data that we've provided over the last several Q4, you can kind of take a look at what our customer acquisition cost looks like in some of our older cohorts. I think our oldest cohort, last Q4 was approaching on the order of $500, give or take, versus a company level of around $1100, I think in Q1. So, I think we've kind of demonstrated what we can do with customer acquisition costs in those older markets. Obviously, in the older markets, we expect it to continue to go down over time as we grow inventory and decrease delivery times and further build the brand. So hopefully, that gives you a sense of where we think that can go. And then between here and there, I think it's just a function of how many markets we opened, what we decide to do with our marketing budget, how quickly we can grow our inventory, how quickly we can decrease our delivery times how well we execute. And in general, we still feel like we're very early in brand building, we measure that in lots of different ways. But virtually any measure of customer awareness is still at low levels relative to where we want to be. And so we're not being shy about continue to invest in our brand and we'll do that as long as we think that that's a smart thing to do.

Got it. That's helpful. And I guess on the finance GPU. I know it wasn't broken out separately this quarter. But like just based on like, my math, points or somewhere around like 1700 bucks or so. Fortunately, like is that close or accurate? And then just looking at versus the targets at the Analysts day about like two and a half years back, obviously rates are much lower. But what are the factors have driven this uptick? Is this kind of like a sustainable level that you would expect, in the near general, medium and higher? Just curious as to how to think about that, and like, what are more normalized finance GPU number should look like, going forward? Thanks.

Sure, so first of all, we didn't try that breakout, so we don't tend to provide at here. I think it's easy to understand our rationale there. Going back in time to our analysts data, you reference, at that time, we were selling on the order of a core as many cars as we're selling today, our GPU was on the order of half, maybe even less than what it is today. And I think our EBITDA five 10, or 15 points worse. And so at that time, we were trying to provide pretty detailed walks for our investors, they could understand how those buildups would occur over time. I think, as we've matured, and as we've seen a lot of progress in many of those different line items. And I think, the market in general has a much better understanding of how the things progress, we're just kind of simplifying our reporting and kind of aligning more closely with industry standard. And so we don't tend to kind of break it out at that level of detail going forward. That said, I think it's not hard to infer the general areas that it's in, as you pointed to, and that general area is very exciting. And it's very strong compared to what we initially outlined at that analyst day, in 2018. So I think there's a couple reasons for that, some of them are fundamental and sustainable, I think we've really done a pretty good job with that business so we've made a lot of fundamental progress in terms of the way that we're able to assess credit risk and price, credit risk, and the way that we're able to monetize our finance platform. So there are a lot of things that we've done there that we're proud of. And we think that there's probably some additional fundamental value that we can unlock. I think we're also in something of a unique environment, you know, early in the pandemic, we tightened credit pretty dramatically, we've held credit tighter than probably would be the norm of almost constant. We've generally over kind of the last several quarters been in a very low interest rate environment. So that's helpful. So there are a couple things that aren't necessarily persistent across time. But we still think that there's progress to be made there. And then in the rest of other we think that there's progress to be made in our other existing items, we think there's progress to be made by adding additional items as well over time. So we think that that's, you'll want to have several success stories relative to our long-term model that we that we put out in 2018. And we think that gives us a lot of flexibility going forward.

The next question is from Collin Sebastian with Baird, please go ahead.

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

Sure, so I apologize. I think I'm not able to give you kind of boring answers to those questions. So we don't plan to kind of break out our tax rates for other products and services, we definitely do believe that there is room to continue to improve there. We've made a lot of improvement over the last several years, but we think there's clearly room to go from here. And so we'll work to do that. As far as, Google testing is a different ad product. We obviously use Google as one of our many customer acquisition channels. We use them in search marketing, and then we use them in several other ways as well. So I think we'll do that as a marketing channel. We'll evaluate it like we evaluate all of our other marketing channels. And to the extent it gives us a high quality return, and we would expect to utilize that as well.

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

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

Sure. Go ahead, Mark.

Yes, sure, I can take that one. So I think it varies quarter-to-quarter. But a reasonable way to think about the benefit of sourcing it from our customers is to look at it in the context of our wholesale GPU. So basically, the wholesale GPU captures is the difference between, our acquisition cost of a car from customer and the wholesale market trading price of that car. And so that's a good way to think about the cost benefit of customer sourcing. And so that just gives you a sense to give you a sense of that, it varies quarter-to-quarter, this quarter, we were around $800 or so on wholesale GPU. And so I think that's, it does vary quarter-to-quarter. But that's, that's a reasonable way to just sort of keep track of the relative cost benefit of customer sourcing.

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

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

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

Yes, great. Thank you, guys. And I think the GPU questions made under desk. So I thought I'd try something a little different. Could you walk through maybe what you saw, probably more on a weekly or daily basis prior to stimulus tax and then after them going up and in how much impact that had on the quarter? Secondly, on a related note, with the tax filing date pushed out to May 15. Does that have any impact on the seasonality that is usually more Q1 weighted as people get their tax returns? Finally, well, let's just stop it, I can add more.

So nice multi car questionnaire, let's try to break it down. So I think, let me try to combine basically, the first two concepts, I think both tax refunds and stimulus basically take the form of government depositing relatively large checks in the bank account of many, many people at once. And so I think that didn't look materially different than it looked in years past, generally what happens is people start to get notifications, through email or wherever else that they have money to hit their account. And you'll see, kind of the evening before, you'll you know, we'll see a lot of traffic activity happen on the site, and then the next day, you'll start to see man show up. I think that that was undoubtedly material this year. As it relates to us, I think a key statistic to keep in mind is, we did grow sales sequentially 28%, and we also grew production sequentially 26%. We undoubtedly saw increased demand kind of on the day after stimulus was dropped, but then the form that that takes that just further compressed your inventory, therefore reducing conversion rates for everyone afterwards. And so I think if we had to try to imagine kind of what would have happened to our sales absent stimulus, I think, first of all, that's very hard to do. But just directionally, we clearly would have been less kind of on the days and weeks immediately after stimulus. And our expectations would have been more in the weeks, kind of couple weeks after the stimulus drop. So I don't know how big the impact was, but I think it was smaller for us this year than it would have been in previous years, because in previous years, we're carrying enough inventory heading into that kind of an event to be able to handle that big onslaught of demand and then still have sufficient inventory for our customers afterwards. So I do think it was a little bit different. And then the tax returns being pushed out a little bit. I do think that had an impact, but I think that impact is largely behind us. The vast majority of that impact is behind us. I don't think that's too meaningful for the future.

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

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

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

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

Sure. So, we want to stay away, I think from giving too much detailed kind of intro period, color, but we provided an outlook in the shareholder letter and I think that captures our expectations. Demand has been very strong for really the last year for our offering. And we've continually been, carrying a lower inventory than we wish that we were carrying. We're excited now to kind of be at a place where we believe that we'll be able to start growing inventory, which we think is helpful, almost constant. So I would say things continue to look great from our perspective. There's nothing notable to call out that would go in any other direction. And kind of those expectations are what we have in our outlook.

Okay, thanks. And then maybe you guys mentioned that the opportunity for more ancillary products. Is there a near term potential for to introduce a new product on the platform or that's it still days away?

I think across the entire business, there's many, many different things that we can focus on, obviously we have a very complicated business for vehicle acquisition. Transporting it to the inspection centers running the inspection centers, merchandising it for customers, pricing for customers, building the finance business, running our warranty product, there's so much that we can work on. So we have across the business, we have on the order of 70 different product teams that are working on all these various roadmaps at different points in time. And we do our best to prioritize all the different projects as intelligently as we can. Generally speaking, we won't kind of comment on what that underlying prioritization looks like. But there's no doubt that there's opportunity in the future to add additional products, and that could be potentially exciting.

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

Great, thanks. I wanted to ask two questions, please. I think just a follow-up on an earlier question on the expansion of Pacific Northwest. Can you just help Ernie talk about the distribution in the time deliver and how you can flex your just your supply chain into those five new markets in that overall region, which is new? And then the second question is just on brand awareness, with 95% population coverage now insight, and I think still pretty low brand awareness, as we've talked about 100 million marketing spend the quarter is pretty interesting. Just wanted to get your sense on how we should think about marketing spend going forward, how you all are putting those dollars to work around brand awareness, educational spend, and performance. Thank you.

So Pacific Northwest is obviously something that we've been looking at for a long time. But it's a relatively isolated population center the way up in the Northwest. And so it took us a long time to get to a place where we thought it was sensible to kind of add that to our logistics network. Over the last month or two, we've added that and we also added the Salt Lake City area in Utah, which kind of gives us a midpoint that allows us to connect up there with we also connect through California. So we thought it was an absolute time, obviously our long-term aspirations are to get to approximately 95% population coverage and to be a national brand. And so that was something that we need to do at some point. We've been holding off as we've been so constrained in inventory. But given your expectation, we're going to grow inventory and our visibility into head over the next couple years as well as our knowledge of our historical lag times and ramping up volumes in new markets. We thought now's a good time. So we went ahead and pull the trigger on that. And we're excited to kind of fill out the rest of our regional footprint. On brand awareness, I do think that we remain very low in brand awareness, our dollar spend is starting to approach pretty sizable numbers that are meaningful compared to the marketing budgets of lots of companies. But we have to also keep in mind, that kind of our accumulated dollar spend is still very low compared to a lot of more mature companies that have been around for a long time. And so we do think that it's still early, we're spending a lot in brand, we definitely…

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

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

So I think there's maybe a couple ways to approach that problem. So first of all, every car that we sell is certified, its Carvana certified and our certification process was patterned off of some of the luxury manufacturers certification processes. And so the cars that we deliver to customers are of that kind of that quality. The specific brand certified pre owned, is generally reserved for the combination of kind of franchise dealers, and oftentimes, kind of the branded OEM warranty that gets associated with that sale, although, that's not always necessarily a condition of the brand of certified per owned. So, I think that we do believe that we're breaking into that market by building a brand of delivery, very high quality cars, and by building a logistics network and infrastructure of reconditioning centers that are able to certify cars to that same quality. So that's our goal. But the particular brand is generally protected by our four franchise dealers.

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

Sure, well, so at a very high level of the market for selling cars are around 40 million possible units. Generally speaking, a customer is getting a car is also getting rid of another car. And so the market for us buying cars is kind of theoretically at least very similar in size. And if you look at Q1 sales of 92,000, and number of cars bought from customers, in a similar ballpark, you're basically looking at something like 1% of the market. So I think that we're very, very small compared to both of those markets. I think they are connected in certain ways through brand, particularly our brand and the speed at which we can build our brand and generate awareness across all customers that we both buy and sell cars. But they're also fairly disconnected in the sense that only a subset of those transactions happens simultaneously when a customer is simultaneously buying a car and trading another car. A lot of them are kind of separated in time, where customer will buy a car and then maybe sell a car later, sell a car and buy a car later. So, I think they can grow independently. We've undoubtedly seen tremendous, tremendous amount of progress in that business over the last couple of years and we're extremely excited about it and I think you're now basically the retail business and the business of buying cars and customers are going to race each other to the useable finish line somewhere out in the great blue yonder.

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

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

I think for other GPU in general, we've definitely hit kind of our highest level ever. As described earlier, I do think that there are fundamental gains that we can continue to make in every line item of other GPU. And there are other opportunities for certain products that we can add over time. So I think that that's exciting. I also do think that it's hard to size, the kind of beneficial impacts that exists in this environment where, one, we're doing something that we have control over, but is likely leading to slightly higher, other GPU, which is running with tighter credit. And then two, we've benefited from very low interest rates. So those are likely to unwind. I think the balance of those things, is hard to precisely predict. But we're clearly in great shape versus the long-term model that we outlined a couple years ago. And I think it's too early, and we're in too unique of an environment to update that model. So we think in general, that's probably roughly the right way to continue to think about it. And obviously, we've done very well against that model in the last several quarters.

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

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

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

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

I can take that one. So I mean, I think, our number one channel for sourcing inventory, has now become sourcing cards directly from customers, which has several advantages that we've talked about historically, I think we're certainly going to continue to focus on that. That's a business that we want to build, and continue to grow over the long-term. And so I think that's our number one area of focus. And certainly the first answer to that question. I think in terms of the wholesale market dynamics, we're still certainly buying cars on the wholesale market, I think we're buying cars, we're making money on those cars, and we retail them. I think we feel very comfortable in the current environment. And from a sourcing perspective, our main area of focus is going to be continued to grow the business of buying cars from customers.

Great, thanks so much.

Thank you.

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

Hey, thanks for squeezing me in. Just two quick ones for me, I guess, first on interest rates. We've seen any significant movement in the industry to offer your consumers there has been an impact. And then a broader question. When your competitors, I guess, as they've scaled, has had kind of customer service and close difficulties. Obviously, your numbers have been phenomenal, but how would you score kind of your customer service levels, particularly as you continue to ramp your business? Thanks.

Sure. So I think on interest rates, they come down obviously, since pre pandemic pretty dramatically, and then they've kind of bounced around a little bit from there that there's been some upward movement over the last quarter or so but nothing material. And so I don't think that there's that the story there is that they're low. I don't think that recent movements are super material. In terms of customer service levels our focus from day one has been to build a business from the ground up that delivers great customer experiences and to build all the things that are required to really enable those great experiences to be differentiated in a fundamental way. And that's always been our focus. And I think when we look at kind of all of our scores for what customer experience looks like; there are a lot of different things that drive that. I think first and foremost is the way that we've designed the business the way that we've designed the customer experience. And then I think, from there, you've got your technology and your processes and the quality of those and kind of how good experiences are capable of delivering. I think very importantly, the next layer is your cultural layer. How much do all the people that talk to your customers that depicts your customers, cars that deliver the car to the customers. How much do they care about the customers and care about what we're doing together and emphasize with the exciting moments of customers having when they are getting a car, which is the second largest purchase they make in their life. And I think that we would like to think that we've done a pretty good job building a culture there that really cares about delivering great…

Thank you.

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

Thanks, everyone for joining the call. And to the entire Carvana team, thank you. Great quarter great job, to all the operations teams. This has been a long slog; you've done an incredible job coming in every day and delivering great customer experiences. And we really appreciate it I hope that you hear the sincerity of that appreciation doesn't just sound like something that we say every call. To the inspection center team in particular, this has been an absolute battle. Great job to all of you. I know that you've taken the last couple calls and pinned those up on your locker for inspiration. Clearly it did inspire, you had done a great job. We really appreciate it. Please keep going. We still got a lot of ground to cover, but thanks to all. Have a good one.

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