Good afternoon and welcome to the Carvana first quarter 2018 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 Austin. Good afternoon ladies and gentlemen and thank you for joining us on Carvana's first quarter 2018 financial results 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. The schedule of investor conferences we will be attending over the next several weeks can be found in the Events section of our IR site and we look forward to seeing all of you out on the road. 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 in future financial results that involves risk 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. And now with that said, I would like to turn the call over to Ernie Garcia. Ernie?

Thank you Mike and thanks everyone for joining our call. We are very proud of our strong first quarter which was a great start to the year. We exceeded our guidance across the board and are raising our estimates for the year. This outperformance was driven by strong demand for our offering and strong execution which allowed us to continue servicing that growing demand while delivering exceptional experiences to our customers. Q1 was the first time where our quarterly unit sales grew by over 10,000 units year-over-year. Our triple digit growth rate has been the fastest among the public auto retailers since we launched, but for the first time this quarter, we also had the fastest organic growth in absolute unit terms among all the public automotive retailers. This is a significant achievement that's speaks clearly to the quality of experience we have been delivering to our customers, to the level of demand that exists for those experiences, to the scalability of our business model and to the quality of our execution to-date. We are proud of this achievement and excited about what it suggests for the future. We had a strong quarter at GPU, comfortably surpassing our guidance. Mark will give more detail on what drove those gains but they are broad-based and has us feeling very confident about our mid-term goal of $3,000. We continued to show significant progress in EBITDA margin in the first quarter, driven by unit growth, improvement in total GPU and the leveraging expenses that is inherent in the business. That path to profitability is clear. Q1 was a great quarter for market building as well. We opened 12 markets in the quarter and increased our population coverage to just over 45%. We also opened a vending machine in Tampa and another this morning…

Thanks Ernie. Thanks everyone for joining us today. Unless otherwise noted, all comparisons and what follows will be on a year-over-year basis. Q1 was the strongest quarter of our company's history and we are excited about what this quarter means for our growth trajectory. Retail units sold totaled 18,464 in Q1, an increase of 122%. Total revenue was $360.4 million, an increase of 127%. Total gross profit in the quarter grew by 251% to $34.2 million and total GPU in Q1 was $1,854, an increase of $685. We continue to see broad-based improvements in GPU, including a reduction in days to sale to 70 days in Q1 from 93 days a year ago as well as gains in reconditioning, wholesale, financing and new products. EBITDA margin was negative 12.4% in Q1, an improvement of more than 300 basis points from the prior quarter and more than 900 basis points year-over-year. In addition to GPU gains, we are showing significant operating leverage while also rapidly expanding our geographic footprint. We opened 12 markets in Q1, our largest number ever and have opened six more so far this quarter. We now expect to open 35 to 40 markets in 2018, bringing our end of year total to 79 to 84 markets. There are more than 200 metropolitan areas in the U.S. with a population greater than 200,000 people and these markets collectively make up about 80% of the U.S. population. We believe our online sales model is well-suited to serving customers in markets of all sizes and that these statistics provide a useful framework for our expansion opportunities over time. For the full year, we are raising our outlook to 90,000 to 94,000 units and $1.75 billion to $1.85 billion in total revenue. We are also raising our GPU outlook for the…

[Operator Instructions]. Our first question comes from David Lim with Wells Fargo. Please go ahead.

Hi. Good afternoon everyone. The question that I have is, can you explain or can you dimensionalize, why was wholesale so strong from a GPU perspective? And then, can you bridge the retail GPU, the $902 versus the $555? How much of it came from the days turn, the inventory improvement versus reconditioning process and other efficiencies?

Sure David. So I am happy to hit that. So we had our strongest wholesale quarter in our company's history in Q1. I think we averaged $579 per wholesale unit sold. When you apply that to retail unit, it was approximately $73 per retail unit sold of wholesale gross profit. Those are the strongest numbers that we have to-date. I think there is a number of things that are driving that. So first, I think our wholesale team did a tremendous job executing and selling these units. I think we are starting to build up a brand in the wholesale market, much like we have done in the consumer side of the market where dealers know we are place that you can come to buy high quality wholesale cars. I think secondly, we talked about this before, but we acquire Carlypso in mid-2017 and placed of the Carlypso founders over the product side of buying cars from customers increasing our management focus on that area. And also have enhanced our technology for valuing cars that we buy from customers. Now having said all that, we still view ourselves in the very early innings building out a business of wholesaling cars or buying cars from customers. I think we are cautiously optimistic about how that business is going. But it's still very, very early and we are pleased with the results in the quarter and we will look to continue to build on those. But are in the early innings there. As it relates to retail gross profit, the second part of your question. So we stepped up by about $137 in retail gross profit quarter-over-quarter. The biggest contributor to that sequential gain was the absence of any promotional activity in Q1. As you may recall, in Q4 we do our annual Cyber Monday promotion, which has an impact on retail GPU. In this particular Q4, we also did some hurricane related promotion activity. And so that was the biggest driver of the sequential increase. I think as you may recall on the previous call, we thought Q1 retail GPU might be a little softer than we otherwise would have expected, given the patterns that we were seeing in the wholesale market and the associated depreciation rates at the end of Q4. We were generally pleased with the number that we put up. Just part of our GPU beat was exceeding our own expectations there on retail. We were generally pleased with that outcome, given what we were seeing in the wholesale market dynamics.

Hi David. This is Ernie. I would like to add. I think the path to $3,000 is clear than it's ever been. As we said in the prepared remarks, we expect to crossover $2,000 this quarter. We expect to be at a similar turn times to where we were in the first quarter. It gets really easy to extrapolate up that $3,000 number by just imagining we continue to push down that turn overtime. We continue to get the benefits of scale from better leveraging the logistics network and the inspection centers. From there, it's a hop, skip and a jump to $3,000 and we think we can get there with products that we are already offering to customers. So we are feeling really, really good about that path.

Just a follow-up on that $902 versus the $555. Was like half of that coming from essentially the inventory turnovers, the improvement in inventory turn? Or was it a little bit more significant than that?

Yes. Sorry David. To be clear, I was talking about sequential changes in retail GPU, just to be clear. On a year-over-year basis, you are certainly right. So we decreased average days to sale by 23 days year-over-year. That's a large part of the bridge between Q1 2017 retail GPU and Q1 2018. We also made gains in reconditioning and inventory management over that period. I think we talked about those over the course of our calls in 2017, some of the initiatives that we executed there. But average days to sale come down was the big driver and then gains on the cost side particularly as it relates to reconditioning was a secondary driver.

Okay. And then my final question is, can you also bridge the $879 and the $569? Is it just more add-ons? Or are you getting a little bit more on the Ally side? Thank you?

Sure. So adding GAP waiver coverage in mid-2017 was certainly part of that bridge year-over-year. Another part of that brief year-over-year was increases in our finance gross profit per unit. That came from, in part, a softer than normal quarter on finance gross profit in Q1 2017 as we were transitioning over to Ally for the first time. And so we made some gains there just by lapping that softer than usual quarter. We have also made gains overtime in optimizing our scoring and pricing technology and that has led to finance gross profit relative to a year earlier as well.

Great. Thank you and congratulations.

Thanks David.

And our next question comes from Alvin Concepcion with Citi. Please go ahead.

Hi. This is Nick, on for Alvin. I guess first question would be and I know it's probably still a little early, is there any update on repeat customers in your early markets? I know you commented on lapping your fifth anniversary in Atlanta? And then any additional color on progress in sourcing your own vehicles? Will you need to build out a larger team to improve on that and match what CarMax is doing?

Yes. So on the first question, I think to your point, we just crossed over our fifth year of operation in Atlanta. The average consumer purchase cycle for buying a car is about once every five years. So we are just kind of heading into the neat of repeat purchases for that cohort, which was on the order of 100 cars in that first year in Atlanta. So the data is still relatively thin. That said, we do have early data from customers that are buying a second car, a third car much more quickly than average. And I would say the early data there looks very strong and we are very excited about it. But it's will noisy enough and the accounts are small enough. So I don't think we are comfortable quantifying that. But I would say, we are optimistic about that and feel good. I think if you look at the cover of our shareholder letter, for example, there is a picture up there of a family that's bought six cars from us. And I think that's not exactly repeat customers. But it gives you a sense, when we touch someone in the family, we tend to sell cars to everyone in the family. So I think the early indications there are good but nothing to statistically nail that down just yet. As far as progress in sourcing our vehicles goes, I think I would go back to Mark's answer as it related to the wholesale gains. This was our record quarter in average wholesale margins. And every bit as importantly our record quarter in terms of cars that we bought from customers. I think we are making a lot of progress there which is really good. It is off a relatively small base, so I don't know that we are ready to give visibility into what our expectations are for the future there yet. But I would say, the last several months have been very encouraging. The team is doing a great job. They are testing a number of things and working on just improving conversion to the funnel and then also starting to test getting more people in the top of that funnel. And I think that looks good but it's early to quantify that as well.

Great. Thank you.

Thank you.

Your next question comes from Nat Schindler with Bank of America Merrill Lynch. Please go ahead.

Yes. Hi. Is there any way you can comment at all on the average credit score of your customers that you are sending on to Allied on your financing side? And also, are rising rates having an effect allowing for potentially more money to be from Allied for loans that you are passing them?

So on your first question, I think what I would say is, in every demographic dimension, credit, age, income, gender mix, et cetera, we have seen a pretty standard mix of buyers that are buying cars from us. So I don't think there is anything significant to call out there. And there hasn't been any meaningful migration in the kind of population that we are servicing. So I think that continues to play out as expected. As it relates to rising rates, I think rising rates do impact us and I would say the impact is moderately negative. When rates rise, it makes any given receivable that we originated worth less. We then can take those rising rates and put them into our pricing system and pass them on as long as that's what the rest of the market is doing. But the way that we actually implement that is instead of just passing those rates straight through, we basically watch to see what's happening to consumer and street price sensitivity to make sure that we can see in customer responses that the rest of the market is passing those through and then we will pass them through. And that kind of creates a little bit a natural lag there that creates something of a headwind. We don't think it's super meaningful, but it is a negative, all else considered.

Okay. And one more follow-up that's completely unrelated. The question, 1 was wondering about your GPU. Have you done any change to what you think your basic discounting is versus comparable used car sales?

No. That's been consistent. Nothing specific to call out there either.

Wonderful. Thank you.

Thank you.

And your next question comes from Colin Sebastian with Robert Baird. Please go ahead.

Great. Thanks and nice quarter, guys. Ernie, maybe just a couple for you to start. Could you perhaps expand on more details around the pinch points that you mention have emerged over the past several months? And then you also talked about improving conversion rates in the funnel on the website traffic. Is that something you have already seen even with the national ad campaign presumably bringing you more out of market traffic? Or is that more of an expectation you have as you add more functionality to the website?

Yes. Well, first of all, I think, Colin, you are the first one to ever give us credit for a good quarter at the beginning of your question. So we have got to thank you for that. So that's a moment for celebration. I think on your first question, I think we view this as a really high-class problem. So I think the first thing I would say is, for the year we are raising our estimates for total revenue and unit sold. And I think what kind of is driving this pinch point is, we saw roughly 50% jump in sales 45 days ago or roughly 45 days ago when tax refunds hit. And we obviously have a plan going into tax season and we are prepared for the expected volume increases. But 50% at this scale, that increases sales on a monthly run rate basis by something in the order of 2,500 units a month. That means like a $600 million of your business that shows up kind of nowhere. And whenever that volumes shows up that quickly, I think you always are going to find some holes in your plan. So I think it's going very well. But the form that those pinch points take is just we will see a little extra demand versus what we are ready to handle that strains certain logistics route. And so while most of the logistics system has that capacity, there are certainly routes inside the system that are overwhelmed right now and that are extending out delivery times and we tend to see those delivery times being extended out leading to decreased conversion rates. Similarly, we now have 62 markets open. When you have got 62 markets, sometimes your staffing kind of doesn't quite keep up with the pace of demand in some of those markets and that can also lead to pushing out delivery times which also can constrain demand a little bit. So I think those are what are driving it. Now as it relates to the demand that we are seeing, I would say, we are seeing very, very high quality demand and are extremely excited about it. Basically, it seems that all this year starting in January and pulling al the way through, we are definitely seeing much higher growth rates at the top of the funnel than we are able to convert into sales today because of these pinch points. But we are working very quickly to resolve them. And the demand is what has us feeling good about the year.

Okay. And then maybe Mark, regarding the advertising expense. I was wondering if you could break that out between the portions that are brand or national ad spend versus more direct response or local spend? And how you expect that to trend over time?

Sure. So at a high level, our marketing mix in terms of brand versus more direct has not seen too much. I think we have hung around 50% TV as a fraction of total spend for quite a while now. That's still roughly the case. Within that TV bucket, we are transitioning more toward national advertising as we expand our geographic footprint. That's one of the places where we see a lot of positive feedback in opening more markets. So one of the nice things about opening markets is the more markets we have, the more efficient it becomes for us to utilize national TV spend as opposed to more local brand channels and so that has good positive impact overall. I think the results that we are seeing early on from our marketing spend are positive. Our 2018 cohort has the lowest first quarter CAC that we have on record. So we are excited about that. I do think as we look forward over time, we will continue to expand our national TV advertising as a share of spend. And again that just comes with opening more markets and expanding our service to a wider set of customers nationwide.

All right. Thank you.

Thank you.

Your next question comes from Sharon Zackfia with William Blair. Please go ahead.

Hi. Good afternoon. I guess, Ernie, you were talking pretty quickly about those pinch points that you were in satisfying demand. Am I understanding correctly is that you don't have adequate amount of haulers to get the cars to people in the time that you would like to? Or could you go over that again? I guess I am asking that in relation to logistics costs because they kind of went up on a per car basis for the first time, I think, at least as far back as my model goes. So I am wondering if that's kind of tied together?

Yes. So first of all, just yes is the answer sort of, I would say. So as you think about, we have 62 markets now. There are many, many different logistics legs that are connecting all those markets together. We have got legs connecting to different inspection centers. We have got legs connecting out to all the other markets. When we are shipping cars to customers across the country, often times cars go through many different legs. So all you need is a pinch point in any of those legs and it can result in delivery times being extended out for some customers in markets that rely on those legs. And so that's the form that's taking. Now we also invested significantly in those logistics network in preparation for all this growth. And so that's a big part of what you are seeing. And across logistics network, in general, we have got excess capacity, but we certainly have legs that are constrained today.

And then Sharon, one other point that I would make there is, when we are growing at these very, very high rates, there is a bit of a lag between when we have to make expenditures on things like the logistics network and when we realize the large sales gains. So in a quarter like Q1, we are building out the logistics network, getting ready for that 50% jump in demand that Ernie described. We are doing that well ahead of time. And so that lag effect can give rise to some temporary fluctuations in something like logistics expense as well.

Okay. Thank you. And then a follow-up. Mark, could you give us an idea of what the range of CapEx might look like for 2018?

Sure. So we historically have not given CapEx guidance. Part of the reason is one of the more unpredictable pars of our business is predicting when exactly we are going to launch vending machines. And vending machines are far and away the largest CapEx component for us. I think as you think about the key drivers of CapEx, again we talked about it quite a bit, but it is those vending machine as well as our hauler network. Those together make up the meaningful majority of our total CapEx. So in terms of specific guidance, we haven't done that because of the uncertainty around when exactly and how many exactly vending machines we are going to open. But we have had a relatively consistent pattern over time. I wouldn't expect anything too crazily out of the ordinary.

Good. Thank you.

And your next question comes from Ron Josey with JMP Securities. Please go ahead.

Great. Thanks for taking the question, guys. And just maybe two quick ones. On days to sale outstanding, I just wanted to drill down a little bit further there just given the importance to gross profit. And 1Q's DSO is 70, the second quarter rolled in 70s and you know that's despite the inventory ramp into the 1Q seasonality. So Mark, is it fair to think basically going forward we are most likely to see DSOs continuing to come down rather than revisiting the 90 to 100 plus DSOs that we saw last year? And then Ernie, just as a follow-up to your comment on like the pinch points and there are certain legs that are constrained today, totally understand that. But when you are launching new markets, are you doing so to avoid those overstressed legs? And maybe bigger picture, can you just talk about that trade-off between perhaps slowing down market rollouts to basically get those legs up and running versus accelerating them as we are doing now? Thank you.

So Ron, to hit the point on average day to sale. So we have gone to make a tremendous amount of progress on bringing down average days to sale. We were at 97 days as recently as Q3 2017 and we pulled that down to 70 days in Q1. We do expect that to fall a bit further in Q2. And then given all the progress we made, we are looking for the rest of the year to keep that in a relatively stable and reasonable range from Q2 on the rest of the year. Part of that is driven by our inventory plan. I think when you think about our plans for inventory over the course of the rest of this year, we expect inventory to remain relatively flat within a range, up or down, for the next couple of quarters and then grow toward the end of the year as we have done in the past in order to satisfy first half 2019 demand.

Yes. And then just to get into your second question, I do think, so most stress in the system is basically moving cars out to the East where we have our oldest and most mature markets. And many of our store openings are in parts of the network where we are less stressed. So we do take that into account. But we also expect to fix these pinch points relatively quickly over a matter of months. So I wouldn't say it is a huge consideration. I would also say that the pinch points emerge less as a direct result, at least of market openings. It's more as a result of just the large continued growth that we see as we head into late February where we see tax refunds drop and there just a lot of demand which is up there. We do our best to plan for that demand ahead of time, but I would say, we only have 62 markets. When you are predicting demand at that level of granularity and then you have got many, many logistics routes, if you are off a little bit here or there, some pinch points are going to emerge and then we have got to work to quickly remedy that.

Great. Thanks guys. You have been helpful.

And our next question comes from Seth Basham with Wedbush securities. Please go ahead.

Thanks a lot and good afternoon.

Hi Seth.

My first question is on the cadence of the quarter. Clearly you guys did a great job beating your topline expectations. Could you describe what happens from a monthly cadence perspective? What drove the upside in March specifically?

Sure. We will give some color on that. So just what I would say is, I think on our last call we talked about the expected increase in demand that we would see in late February and we kind of called out being able to handle that operationally as probably the biggest variable on our guidance. I think we did a good job handling that in March. But we definitely believe that there was more demand in markets that we were able to convert. I think that's much less true of January and February because that kind of comes at a point when we are more at steady state and we are able to handle that level of sales. And then I think just the pinch points that emerged in March as you see those higher volume rolling over into April and May and we are expecting to resolve those relatively quickly which is why we feel so good about the full year.

Got it. That's helpful color. And then secondly, so thinking about your vehicle acquisitions, how are those turning from a cost standpoint? Are you guys making progress on lowering acquisition cost of vehicles you are acquiring from auctions? And what is that mix between vehicles acquired from auctions and other sources and how that trended?

Sure. So I think I would describe broadly our vehicle acquisitions from auctions as being approximately even or stable. I think we are constantly looking to make improvements there. We are constantly improving our technology. And so we really like what we are doing there overall. But well, it's been relatively stable over the last short time period. I think in terms of mix, I think that's been fairly stable as well. One thing that we have talked a lot about, particularly as it relates to wholesale on this call, is the opportunity in sourcing more cars directly from customers. I think we have seen some nice progress there in terms of the volume of cars that we are taking in from customers that's showing up to a degree in our wholesale volumes. We are also feeling good about the margins on those cars that we are taking in. So as I mentioned earlier, we are cautiously optimistic that our abilities to source more cars from customers. But we are in the very early innings of that today.

Okay. That's helpful. And then lastly from me is, thinking about one of your oldest markets, Atlanta. I know you don't like to talk about individual markets in too much detail. But how should we, as investors, think about the EBITDA margins you are earning right there as a proxy for the future when other markets mature?

Sure. So I think the most straightforward way to think about market contribution is to use that CAC data that we provided in our most recent 10-K. And then you see our results and our guidance on GPU. One key element when thinking about market economics is the fact that our company GPU was a pretty good proxy for the average market because we do have centralized inventory. We have a centralized transaction platform. And all markets are drawing upon that centralized inventory, using that centralized transaction platform. And so one easy way to think about contribution is, we had a $440 CAC in Atlanta in Q4. We had an $1,850 GPU this quarter. And so that's the starting point. Now there are other expenses in the market. We have to do last mile delivery. We have advocates in the market who are driving haulers out to the customer's door. We are spending some GAP to get those haulers out to the door. That's a relatively inexpensive cost compared to the cost of operating a brick-and-mortar dealership. And so those costs are relatively small but those are there as well in addition to the big line items that you have.

Yes. And then one just I think useful and interesting data point there as well is, in March we had, in terms of sales per market operations employee, nationwide we are up to 32 sales per market operations employee which was up 40% year-over-year. So you can see, there is a lot of leverage showing up in those additional line items as well.

Thank you guys.

Thank you.

Your next question will come from Steven Dyer with Craig-Hallum Capital Group. Please go ahead.

Good afternoon, guys. This is Ryan, on for Steve. Just one question for us. You guys have talked a lot about operating leverage. And when I look at your 2018 guidance for revenue and GPU, both went off implying better gross profit. However EBITDA margin guidance implies a bigger loss. Can you help me reconcile the higher gross profit and what appears to be even higher incremental OpEx? Thanks.

Sure. So I think we are obviously very pleased with the operating leverage that we have shown in the business. I think in Q1, we improved EBITDA margin loss by 300 basis points. That included a reduction of approximately $1,000 per unit in SG&A. That reduction in SG&A was split across two big buckets, compensation and benefits and then our overhead cost. And so we do expect to see future leverage there as well. As it relates to the rest of the year, I think we are feeling good about all of our guidance. I think we saw very strong results on GPU in Q1. We are feeling very good our above $2,000 GPU guidance for Q2. And so we are feeling good about the year generally.

And our next question comes from Sameet Sinha with B. Riley FBR. Please go ahead.

Yes. Thank you. So I guess staying on the topic of operating leverage, the ad spend per unit stayed pretty much flat year-over-year. And I guess Mark, to your point, you are talking about how you are prepping or investing in advance of your seasonally strong quarters. So can you touch on that? And also talk about ad spend and the kind of factors we use to decide on ad spend? Is it number of markets, population, number of expected units? Can you help us think about that especially as we try to model this out? And my second question for you, Ernie, you spoke about the pinch point. I guess one of the other pinch points I am thinking about is just in terms of people searching on your site and not finding the right inventory, can you quantify that? Is there a way to figure out how many people leave or do not purchase just because they couldn't get something in the right age or right mileage or configuration and just leave? And you use those data points to configure your future purchases? Thank you.

So Sameet, on advertising leverage, let me hit that first. I think the really important point to make there is we think about our advertising leverage first and foremost at the cohort level. And so we provided some data in the most recent 10-K that shows how advertising expense per unit evolves over time within a cohort, which you can also think about as within a market. And what we have seen there is very steep declines in advertising expense per unit as markets age. Ad ex per unit starts high when we first launch a market and begin our brand advertising and begin raising awareness. But then as that awareness grows, we see steep declines in advertising expense per unit with Atlanta being the most mature market all the way down to $440 per unit in Q4. So I think when you are then kind of stepping up to the company level, what you see at the company level is a mix of more mature markets that have gone through that steep decline in advertising expense per unit as they have aged paired with new markets that tends to start at a higher advertising expense per unit and it's that mix that generates the company overall number, which of course, when you are opening a lot of markets can be relatively stable based on mix effects. The other thing that I would add there is that although new markets are more expensive, from an advertising expense per unit than more mature market, we have seen very positive trends there in the first quarter advertising cost of new markets. 2017 was lower than any of the cohorts before it as we presented in the 10-K and then 2018 was lower still.

Yes. I would just add to that. I think national marketing is an exciting tool here because I think when you think about local marketing, if you double market, so you basically have to do you is you double your marketing spend and then you expect to see some more responses in the new markets what you saw in the old markets. When you move to national marketing, if you double markets, you then have this choice So I want a double marketing, which then kind of doubles marketing everywhere, or do I want to hold marketing flat when then will lead to the same level of exposure in all the new markets, but will decrease the overall spend per sale. And so that's sort of a network, it's not unlike in the inventory network effect that exists in our business as a result of our ability to access national markets. So I think that's exciting. I think that we will continue to watch that and look at the sensitivity to do national TV marketing over time and make the right decisions as we continue to learn more. That's the same choice that we have got in inventory and I think you asked this question about inventory, there is no doubt that having the car a customer wants absolutely is a primary driver of converting any given customer. And so having either a larger inventory or a more intelligently distributed inventory leads to more sales. And so I think as it relates to more intelligently distributed inventory, we are leveraging all kinds of data from many different data sources, some of them external data sources and then many of them data sources of just all out customers clicking around our website every single day that are informing which cars we want to buy, where we want to buy and how much we want to pay for them. And I think we do believe that we are exceptional at that. And then as it relates to the number of cars that we put on the site, that's this question of, at any given time, are you going to leverage growth to push down turn times by holding inventory flat or you are going to leverage growth to be a reason to grow inventory and increase conversion everywhere. And over the last 12 months for the most part, on average, we have roughly held inventory flatter and we pushed turn time down significantly. That's always a choice that we get to make and I think it won't be long until we get to a place where our turn times are inside the range that we want it and we will start to just grow inventory continuously with demand, which I think will be an exciting time for conversion.

And then Sameet, just to answer your second question very quickly. The biggest determinant of our marketing spend is the population that we are marketing to which is obviously also heavily correlated with a number of the markets that we are in. Operator And your next question comes from Gary Prestopino with Barrington Research. Please go ahead.

Hi. Most have been answered. But do you have the average monthly unique visitors for the quarter?

Yes. It was 1.6 million. And I think in the shareholder letter, we also said that we crossed over two million in April. And that was up from one million nine months prior.

Okay. And then, just in terms of inventory, Ernie, how much did you have to flex up your inventory here in Q1 to get into the spring selling season? Or did you keep flat with Q4?

We definitely flexed up inventory in Q1 versus Q4. I think that's something that we have done historically. And I think that is commensurate with the increase in the sales that we have historically seen when tax season hits. And so we did grow inventory in Q1. We did that while lowering average day to sale and that just corresponds to the big increase in demand that we see starting late in Q1.

Could you give us an idea of what your inventory is going into the quarter here?

We ended Q1 with just under $300 million in inventory on the balance sheet.

Okay. I thought I will get some units. And then as you grow, have you to considered taking advantage of the leading auction companies to do some reconditioning for you, especially in areas of the country where you might not have a presence with an IRC?

Yes. We are doing that all internally. We think that's important to control the quality of the car and we have got a really strong process at our inspection centers when we take a car in, stock it in. We can go through and make sure we have got all the right data about the car. So we make sure we can merchandise it properly. We put it through our reconditioning standards so we can make sure we certify it to a level that we believe is a high enough level to put it in front of our customers and then we able to photograph the car as well merchandising it. So we think that's all important for us to control and so we are controlling that all today.

Okay. Thank you.

Thank you.

Our last question for today will come from James Albertine with Consumer Edge. Please go ahead.

Very good. Thanks for us squeezing me in gentlemen and congratulations on a solid first quarter.

Thank you.

I wanted to ask and as well, congrats on the follow-on offering. I wanted to focus on capital allocation here a little bit, if I may. You did an acquisition here of Carlypso. I am curious, how you think that's going to flow through? How we should gauge the necessity in terms of timing and then the progress you are making in terms of integrating those benefits? Where are we going to see that manifest itself and how soon perhaps? And then as well, as you are balancing growing into new markets, you are talking a lot about pinch points, you are talking a lot about excess demand for where you have supply to fulfill. And we are not seeing vending machines carry into every market you are opening and you are obviously leveraging your national branding to some degree there too. I am just wondering, given it's one of your highest CapEx uses right now, does the ROIC that you are calculating on your vending machine additions necessitate further vending machine investment at this point? Or is it better serve to sort of utilize it elsewhere, given the successes you are having in large swaps of the country without a vending machine?

Okay. So let's start with Car360 there. And you also mentioned Carlypso. I will briefly touch on that. So Carlypso was the first acquisition that we did that was earlier in the year in 2017. A lot of benefits that are already flowing through, as Mark brought up earlier in the in the call. One of the founders of Carlypso is now running our efforts to buy cars directly from customers and doing a great job. So we are feeling really good about where we are there and how we have been able to integrate that. We are definitely still working on many, many things that we expect to be rolling out over time. But in general, that's going very well and we are very happy with that partnership. As it relates to Car360, Car360 built really pretty exceptional technology and where you should expect to see that is just in enhancements to our vehicle player where customers can go on our website, click on a car and then explore that car. I will just say, when I got the demo for the first time, I laughed out loud because I thought it was so incredible and my mind was spinning a million miles a second trying to figure out how they were doing what they were doing. And we are really excited to integrate that technology and give that experience to our customers. So that will take time because there are many different levels of integration that we plan to do and many interesting functionality that we expect to rollout over time. I think we expect the first iterations and integration to start to rollout toward the end of the year. And then we will be working as quickly as possible to continue to rollout more of the incredible…

And then as it relates to Car360 and the financial, so in terms of revenue, gross profit, OpEx other than depreciation and amortization, the impacts would be immaterial. There will be some additional depreciation and amortization associated with the acquisition and we will provide additional details on that in Q2.

Okay. Listen, I really appreciate the thoughtful answer and to the degree that you have shared data in the past on market share and trajectory there, to be the degree that you are willing to share it on the ROI side, I think that could go a long way, but I understand a trade secret. But I do appreciate the comments and thanks again and best of luck.

Thank you.

And this will conclude our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you all for joining the call. We had a great quarter. Much more importantly, the pieces are in place for a bright future full of great quarters. Thanks everyone on Team Carvana for everything you do every day. All companies are nothing more than a collection of people working toward a common goal and I am proud to be part of this collection of people, to share with you all the missions to change the way people by cars and to be succeeding in fulfilling that goal to the degree we are. Thank you.

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