Good afternoon, and welcome to the Carvana Second Quarter 2021 Earnings Conference Call. All participants are in a listen-only mode. [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.

Thanks so much. Good afternoon, ladies and gentlemen and thank you for joining us on Carvana's second 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 second 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 everyone for joining the call. The second quarter was a landmark quarter for Carvana and one that will always play a central role in our story. It was the first quarter we delivered, delivered over a 100,000 cars to our customers. It was our first quarter of over $3 billion in revenue. It was the first quarter we achieved $5,000 total GPU. It was the first quarter we hit a $100 million EBITDA and it was our first quarter of positive net earnings. It was also the first quarter we made the Fortune 500 list. And to top it all off, we're now one of the four fastest companies to ever make the list organically along with Amazon, Google and Facebook. Those were some pretty great headlines. On that demand we take a step back for a minute to put it on context. Five years ago, the year before we went public, we sold 18,000 cars in the full year. We just sold over five times that many in a single quarter, five years ago, our total GPU was $1,000. This quarter it was $5,000. Five years ago, we lost $0.25 for every $1 of revenue we made. This quarter we made money for the first time. That's a lot of progress in a short amount of time. When we evaluate that progress, sometimes we all have a tendency to zoom in too far and this is what really makes it all possible. So I want to try to tell the simplest version of our story that I can. When we started 8.5 years ago, we were a bunch of ambitious kids with a shocking amount to learn. With the benefit of hindsight is now clear we had no idea what we were getting into, but…

Thank you, Ernie. And thank you everyone for joining us today. Q1 was a record quarter for Carvana. We said company records across many key financial metrics and made significant progress toward our long-term goals. Retail units sold in Q2 totaled 107,815, our first quarter over 100,000 units and an increase of 96%. Total revenue was $3.3 billion, an increase of 198%. This strong growth came despite operational constraints we faced during the quarter. Total gross profit per unit was 5,120 in Q2, the highest level in company history. It increased $2,394 year-over-year and $1,464 sequentially. Since Q2 2020 was impacted by COVID-19. I will focus my remaining commentary on sequential changes. Retail GPU was $2022, an increase of $811. Our growth in retail GPU was primarily driven by four factors. One, increased buying cars from customers. Two, an appreciating retail and market pricing environment, which was partially offset by higher wholesale acquisition prices. Three, optimizing our vehicle mix and pricing to match our production capacity and available inventory goals. And four, moving beyond the majority of the COVID-19 related transitory costs we experienced in Q4 and Q1. Wholesale GPU was $547, an increase of $320. This was driven by record gross profit per wholesale unit sold of $1,254 and record wholesale unit volume. Record gross profit per wholesale unit sold was primarily driven by strong industry-wide wholesale pricing and increased wholesale unit volume came from growth in buying cars from customers. Other GPU was 2,551, an increase of $333. This sequential increase was driven by a positive impact of higher industry-wide vehicle prices on average loan size and another strong quarter of execution by our finance team. EBITDA margin was positive 3.4% and improvement from negative 6.2% in the prior period. We achieved our second quarter of positive EBITDA…

[Operator Instructions] Our first question comes from Zach Fadem of Wells Fargo. Please go ahead.

Hey, guys, good afternoon and congrats on the progress. So it's been two and a half years now since you gave your 4,000 plus long-term GPU target and 8% to 12% EBITDA margin. And if you think about all the impressive progress you've made, particularly with 5,000 plus GPU today, and then you think about all the ways to take profitability structurally higher, added scale, ancillary services, maybe a marketplace offering, curious how you would frame today, the long-term guideposts for the business. And to what extent, it's now fair to assume that they could be higher than you initially thought in 2018.

Sure. Well, so let me start with, yes, I think that model that we put out in late 2018 was built on kind of deep structural forces inside automotive retail. We did a lot of work trying to understand, what normalized margins are across all the different products and what different groups were able to achieve. And I think that it's pretty deep and foundational. And so we feel really good about that model. And so let me start there. I think we've undoubtedly made a ton of progress. I think if you look at your 2016, the year before we went public. We had a $1,000 GPU. We just had 5,000 for the full year. We're expecting 4,000 plus. I mean, that's obviously lot of progress and it's happened across every single one of the line items. We've also made a lot of progress in some of the expense line items, as well as we've continued to make progress there while we're simultaneously growing. So I do think that, things look really good there, we feel like it's a bit early to update the long-term model, given that this is the first quarter that we've been inside the long-term gross margin target. So I think we want to stick with that model, but we're obviously extremely with the progress that we've made so far.

Got it. And then on the pricing environment, obviously a big tailwind today for both the top line and gross profit per unit. But as we look to the second half of the year and anticipate some softening in the wholesale and likely retail market, curious, first of all, if you could talk about where you think pricing is headed, and then can you talk us through just what to expect in terms of usually sales and growth profit outlook if the top line, or if the pricing environment were to soften? We would appreciate the color there.

Sure. So, let me start by trying to characterize the environment. I do think what characterize this environment is you have very rapid vehicle price appreciation both the wholesale market and the retail market. And it's unlike anything that I've at least ever seen in my career. So I think we've seen very dramatic price appreciation. Now in a normalized environment that doesn't have huge implications for margin. Generally speaking, the gap between wholesale and retail markets are fairly stable. And as price levels move up or down, kind of both markets move in tandem and you don't see super dramatic differences. I think what's unique now is the change had happened so quickly. And I also think many different acquisition sources for vehicles perform differently. So if you look at, many franchise dealers, for example, that are buying many cars off lease, or buying many cars off trade in, have seen pretty dramatic increases in margin. If you look at some independents that are heavily reliant on just the auction market, you're generally seeing a deterioration in margin despite the increasing price environment, because wholesale price have moved up faster than retail prices moved up. So I think what's unique in this environment is the speed of which things have moved. And then the way that has played out differently across different vehicle acquisition channels. For us we've built this channel buying cars from customers that has performed very well for us over a long period of time. We've made continual high-quality progress in both the number of cars we're buying – the cars we're buying relative to retail sales and the profits that we're making on cars we bought from customers. But I think that channel was especially valuable in this environment where kind of auction spreads collapsed…

Thank you. Our next question is from Sharon Zackfia of William Blair. Please go ahead.

Hi, good morning. And good morning, it's been a long day. Good afternoon. And congratulations on profitability. I guess a question on how consumers are dealing with the pricing environment. I mean, are you seeing any increased bulk at prices? Are you having to adjust your inventory mix at all? And is there any kind of change in the average credit that you're seeing?

So I think in general, the adjustments that we've made have been relatively subtle, and they've been more focused on trying to alleviate constraints and trying to be able to grow inventory faster than they've been driven by differences that we're seeing in different demand pockets. I think in general, we feel like we've got more demand than we've been able to satisfy across all demand pockets. So we've made some subtle changes in the mix of cars that we're buying to try to get them through the reconditioning centers faster, so that we can kind of scale inventory more quickly. But other than that nothing, nothing too dramatic. On the credit front, I think across the industry, there's been high quality credit performance. The loans that we originate, we've seen the same, but we do sell those loans off. And so the direct impact of that after the moment of sale is not something that flows through our financial statements.

Thank you. Our next question is from Ron Josey of JMP Securities. Please go ahead.

Great. Thanks for taking the question and great quarter, guys. Ernie, I just wanted to ask, I think we're quarter into launching the Pacific Northwest just as you launched newer markets and Carvana is now what 75%, 80% of the population in terms of reach, just talk about the benefits of awareness that comes with these newer markets. In other words, is it easier? It's easier now to launch new markets. You're seeing that every single new market that you launch. But when you open up a whole new corridor, like the Pacific Northwest, talk to us more about how the brand has reacted there, that'd be helpful. Thank you.

Sure. What I mean, I think, we're continually building the brand out. I think if you look even at our website traffic, for example, improved 25% quarter-over-quarter and very significantly a year-over-year, more than a 100% up year-over-year. So I think that's at least a reasonable measure of the brand that we're building. And I think that we still probably remain in relatively early innings of kind of building that brand. I think, as we've discussed in the past, the way that we like to think about that is you step one of building a brand is generating awareness. Step two is generating understanding of what you do. And step three is generating trust. And I think, we're making positive headway all the time in all those different dimensions, but we're still just an eight and a half year old company that's growing very fast. And even in this last quarter, we sold over a 100,000 cars. When you look at that relative to size of market that was still roughly 1% national market share. So I think it's still very early days. But undoubtedly, the progress that we're seeing in building brands does help us. We've seen these trends across time where our newer cohorts ran faster than older cohorts. We continue to see that. All the other trends we've seen across cohorts, we continue to see. We're obviously seeing very rapid market share increases across all of our cohorts that are supporting the growth that we're seeing. So I think, what's most important now is just continuing to grow and then getting the positive feedback that shows up across the model through that growth by being able to have more inventory available for our customers faster delivery times for average customers. And I think adding the Pacific Northwest was kind of the last big chunk of the U.S. that we weren't connected to and connecting that up as a big deal. And now we've just got filling to do from here and then we've got to keep scaling.

Great. Thank you, Ernie.

Thank you.

Thank you. Our next question comes from Brian Nagel of Oppenheimer. Please go ahead.

Hi, good afternoon. Great quarter. Congratulations.

Thank you.

So the question I have you talk again, I mean, despite the – just the other strength in the quarter that noted the degree to which sales were still held back by some spikes, right. So I guess the question I have there is how did that progress through the quarter? So as you're exited the quarter, how well are you running it against you’re your supplier running against the demand?

So I think we probably, through the quarter, for the most part progressively more constrained. And I think the driver of that is what we discussed kind of earlier in the call, which is we saw so much growth in offering of buying cars from customers. We grew retail units by 17% quarter-over quarter, but we grew very dramatically in the number of cars that we bought from our customers. And that is really what led to increasing constraints that was hard to foresee and we weren't prepared for that degree of growth that quickly. So I think that's what led to increase in constraints and those constraints can kind of show up across the business. Just because they're driven by buying Carson customers doesn't mean that's the only impact they have when customers are selling their car to us. They're calling in and they're talking to advocates there's a market ops going up and picking out those cars, we've got the logistics network gets involved with that. So as we see growth in any part of the business, it generates constraints across the rest of the business. So I do think we saw those constraints show up. I also think that this is a relatively difficult environment to alleviate constraints, but we've made a ton of headway that we're extremely excited about. So for perspective in July, we increased our average weekly hiring class by about 20% versus what we saw in the average of Q2. We're extremely proud of that. The speed of that move is really strong. The team's done a tremendous job, just kind of leaping to action and, and trying to get back in front of this. And I think it's been a tough environment to do it. I think that's a testament to the quality of opportunity that we offer to applicants that are looking to come to Carvana. I think it's a testament to the career path and that we've built over time and a testament to the team that that's been ramping up very quickly. So I think we're making a lot of progress. We're extremely focused there for the last year, we've been talking about the constraints of inventory and we've been working hard to alleviate that. This last quarter, we grew inventory, which was exciting, we would like to grow it a lot more from here. But then kind of the benefits of kind of alleviating that constraint to a degree, as well as the massive growth that we saw in buying Carson customers led to constraints in other places. And now we got to get to work at alleviating those. And I think we're well on our way.

That's very helpful. I appreciate it. My second question [indiscernible] on the Carvana models and capturing, show them the space for some time now. The query is if the economy starts or pulls out of COVID, obviously not an extraordinary fluid situation that, are you seeing with remodeled, increased market share opportunities, maybe as a result of some less efficient retailers having struggled further to the crisis?

Sure. So I think, there may be some like very high level macro trends that result from the crisis and persistent that have some impacts on the opportunity. But I think that's very secondary to just what we can do as a company. I think, a useful way to kind of think about how things are moving is, so far the first half of the year, roughly speaking of sales volumes across the industry have been roughly flat to 2019. So that just gives you a sense of kind of where we are, obviously they dropped in 2020 and they've come back and they're kind of leveled to 2019 right now give or take a little bit. In that time, we've increased our population coverage by about 21%. But we've increased sales by more than 2.5x. So we're clearly taking very significant market share. I spoke earlier a bit about the cohorts. If we look at our individual markets or cohorts, those continue to ramp up very nicely. The trends that we've seen are in place there. We now have a handful of markets that are over 3% market penetration, including some of our oldest and most mature markets. So I think that's all really exciting and that's all happening in the context of us being heavily constrained right now. So I think the opportunity is really, really large. We feel like as long as we keep delivering great customer experiences and executing and growing that's going to be the primary driver of our growth. And some of the macro factors you pointed to may also kind of push our direction a bit, but we think it's mostly about the customer experiences we deliver in our own execution.

Our next question is from Rajat Gupta of JPMorgan. Please go ahead.

Great. Thanks for taking the question. Congrats on the strong quarter. Just the $2,000 retail GPU number, is there any way to unpack that a little bit in terms of how much of that is temporary versus structural improvements that you might have seen in the business that might sustain not just like in the second half, but into next year and beyond. And then, a follow-up on the SG&A leverage, you talked about like some of the incremental transaction that would cause you to more sourcing. But in terms of, just looking at the fixed cost leverage, if I just look at like the comp and benefits and the other SG&A buckets, one of those buckets seem to grow more than the number of units you have grown over 2019. [ph] This is the questions there is like, are you – do you feel like you're having to do a lot more handholding of the customer during the transaction that you may have liked. I'm just curious how that's going and how that's progress over the last couple of years. And really like when can we see that fixed cost leverage start coming through in the model? Thanks. Sorry for the long question.

Yes. Great. Let me start by taking the Retail GPU question, then we'll move on to the SG&A question. So on retail GPU, we had our first quarter over 2000 retail GPU. We've come close a couple times before. I think we've done 1850 before and 1700 not including adjustments also in 2020, but the 2000 is a record for us. I think if we think through the drivers I think maybe it's helpful to think through it, sequentially from Q1, the biggest driver there was certainly the performance buying cars from customers. Ernie talked a little bit about that, but we had a great quarter for buying cars from customers, record volume both in an absolute sense and as ratios to retail units. And so that was a big, that was a big driver. There were several other factors that drove retail GPU, as we compare to Q1, those include when you think there was a net tailwind from the appreciating retail environment. But that was certainly partially offset by rapidly rising wholesale prices. And so as we – as Ernie alluded to, I think, we haven't seen when we look out across the industry dealers who rely heavily on auction or have a higher auction share of inventory, do quite as well as those that are really buying a lot of cars off lease and off trade in. But we do think there was some impact there. In addition, we made some vehicle mix and pricing optimizations doing things like trying to buy cars that we think could get through the reconditioning centers more quickly. For example and then finally, we did – finally move beyond the transitory costs, the majority of the transitory costs that we experienced in Q4 and Q1. And so I think when and…

Our next question is from Michael Montani of Evercore ISI. Please go ahead.

Hey, good evening. And thanks for taking the question. Congrats on the quarter. I just wanted to ask about on the GPU front, maybe one way to come at, it would be $1,500 step up sequentially sort of a 40% improvement versus 1Q. And then if you do the same kind of math versus 2019, 2Q stepped up 750, which was like a 30% increase. So does the incremental 10% relate basically to the price appreciation in the market? Is that kind of a fair way to think about it?

First of all, I think probably when you're thinking about margin, thinking about it in dollars instead of percentage terms is probably a better way to think about it. I think generally speaking margins kind of move more in dollars than they do in percentage terms across the industry. So I would start there. I think there's a lot that that is different, this year then just 2019. But I think the thing that we would point to is that is the biggest by a long, long way is just buying cars and customers. We just saw a massive, massive increase in the number of cars we're buying from customers and in the profitability of buying cars from customers. And I think that flowed through, and I think I want to be careful not to be too repetitive with the GPU answer that that Mark has provided, but I think everything that he outlined is also correct. And I think you can kind of look back on how some of those line items have moved historically, and kind of what some of our different high watermarks have been and get a sense of what the size of some of those impacts might have been. But I think, that's probably the best I can do to try to be helpful there.

And then maybe the follow-up on that, I guess, in terms of the second half outlook for the GPU, it seems to be implied like 3,500 to 3,700 in the back half. And so I guess I just wanted to understand is that kind of how much of that is sort of normal seasonality, what'd you say versus maybe some other factors we just need to be mindful of?

Sure. So I think, at a high level we're trying to provide you a sense of how things moved in the quarter and what we think are some of the unique drivers in the quarter. And then I think, from here, we basically expect some normalization of some of those factors paired with normal seasonality, and then that's taken into account in our outlook, which we raise from mid-3000s to over $4,000 for total GPU for the year which is obviously a huge move for us to be making is something that we're extremely excited about.

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

Great. Thanks for taking the questions. Maybe two, one, how are you thinking about inventory levels normalizing, is this kind of over the next couple of quarters is going to go into next year, I guess, how are you thinking about inventory availability normalizing kind of from here and then as it does normalize other kind of spurts of kind of choke points in the logistics network. Do you feel like you'll be well positioned when things are normalize and you can really kind of meet the demand particularly in your new markets? Because in the past there has been times where there has been some logistical choke points, just any thoughts on that would be great. Thanks.

Sure. So maybe let me try to break that into piece. I think what's going on at the industry level is probably most specifically kind of driven by OEM new car manufacturing issues. And I think that that is likely kind of the key driver that has led to a vehicle price appreciation in both new and used. I think trying to figure out when that will normalize is a very difficult question. I think everybody has tried to do that over the last years, has at least so far been wrong. And I think maybe simplified model to use for thinking about that is just that those OEMs have complicated global supply chains, which obviously includes the microchips that I was paying close attention to, but include many other parts as well. And as we've seen different waves of COVID kind of move through different parts of the world, we've generally seen supply constraints show up in their supply chains and that's kind of driven vehicle price appreciation. That seems like that's probably the number one driver of kind of the unique behavior that we're seeing in the market right now. And we wouldn't want to make a specific estimate of when that's likely to normalize and how that would work through their supply chains. But we think that that's probably the underlying cause. As it relates to our inventory, I think, we're in a pretty simple place right now where what we want is more. We feel like we've got significantly more demand than we're able to handle. And we think that we have a good understanding of the relationships between inventory size and conversion. And so we would love to have significantly more inventory. We're working incredibly hard through the addition of additional inspection centers to adding…

Our next question is from Chris Bottiglieri of Exane BNP Paribas. Please go ahead.

Hey guys, actually, I got a question. So yes, I was hoping you could talk more about your third-party listing business that seems to have really grown a lot recently. Like, what are your early learnings from this business? Are you seeing your third-party partners change the behavior, like in terms of their business model anyway, to kind of adapt to this third party model? But I have a follow-up question.

Well, I apologize in advance, but I think we're going to probably disappoint you a little bit with our answer there. So I think we've continued to make progress there. We're testing different things. We're interested by the results that we're seeing and that's why we continue to test it. But we don't have anything additional to add at this time. So I apologize there and hopefully we can do better on your follow-up.

Got you. Okay. I was going to follow-up to that, so I'll pivot and do a different angle here. So let's go to the financing. This is instead then. So, it seems like just looking at your latest deals, like the risk spreads versus the swap rates have gotten lower, the rating sees lower than loss expectations on your kind of cumulative losses. It seems like you are paying lower returns to the residual buyers. I just want to get sense, like how much of this is a product of the environment, just lower losses, just like we're in this weird credit bubble versus how much of these like recent improvements I'm speaking to how much of that data is structural and kind of sticks beyond kind of COVID that if there's a way you can kind of answer that or frame that?

Sure. I think we've made continual progress in our other GPU line item. Over a long period of time I do think that that's driven by many things. I think the finance team has done a great job, both kind of the operational finance team, that optimizes our credit scoring, and pricing and structuring, then the kind of finance, finance team for lack of a better description that executes our deals. I think both those teams have done an unbelievable job and driven a ton of progress. I also think the market is obviously a pretty solid financial market. So I think that all this constant that's helpful. And then I think as a result of the environment, we've seen some increases in ASP and then that does lead to increases in average loan sizes. And generally speaking, the premiums that we earn on those loans are kind of percentage premiums is probably the easier way to think about it. And so there's probably some scaling that goes with increasing prices. I think if we take a step further back from there, this line item along with all the other GPU line items is a multi-year constant progression toward our long-term financial model. And I think that there's a lot of really positive long-term drivers there. I think in the immediate term, trying to forecast exactly how that will evolve over the next two quarters, I think, is not simple to do in light of all the different drivers that are causing it to move around. But again, that's taken into account in the outlook that we provided in the shareholder letter.

Our next question is from Edward Yruma of KeyBanc Capital Markets. Please go ahead.

Hey, thanks for taking the question before I ask the question, I actually sold a car to you guys the other week, and it was the most painless experience I've ever had with anything, with car related. So my hats off to you.

Thank you.

I guess just thinking back a little bit, I know you guys are in the processing of, I think, eight more IRCs before the end of 2022. From a staffing perspective I understand there's a lot of technical know-how and expertise required. How difficult is it to staff those and maybe more importantly staff existing centers to get productivity higher. Thank you.

Sure. So I think you opened up this call with everything worth doing is, is hard. So I think, you know, nothing's easy. Don't want to make it sound easy at all, but I think that we've built up a really strong team that helps us do this over time. We've built a really strong recruiting functions, really strong training functions. And I think we've also taken advantage of the structure of our business model to be able to offer really interesting opportunities to people out there that are looking for a new job. And so what I mean by that is our inspection centers are our really big kind of assembly line facilities. And what's nice about that is it lends itself to building a career path inside the facility. In the rest of automotive retail generally speaking, at least you have very skilled technicians, they kind of take any car with any problem and put it on a single lift and they kind of do all the work associated with that car. And that requires that they have a lot of deep knowledge across everything that they would need to know about that car. And you have the car that might show up. What's really nice when you've got scale at these large inspection centers is we can kind of break down those tasks into many little pieces, whether it's inspecting the car or photographing the car, different parts of the reconditioning process, figuring out what options and features around the car so that we can merchandise it. We've got all these different steps in the process. So we can really build a career path that is exciting for people. So we can bring people in early in their career and then they can build a career with…

Thank you very much.

Our next question is from Mike Baker of D.A. Davidson, please go ahead.

Okay. Hi thanks. Two questions, one it looks like if my numbers are right here, the ratio of like inventory that's immediately available for sale versus the inventory that's on your website, it's about 30%. It's been actually pretty consistent in that range. Although at the beginning of 1Q 2020 was closer to like 75%. I understand this because you're having trouble with the constraints, because you are sourcing the inventory so quickly. But I guess the question is what's the right ratio? What should that look like? And what gets it more imbalanced? Is it that you obviously can produce things quicker or this piece come down, is it risk that fewer people are going to want to sell their car to you? Because right now, everyone knows you can sell your car for tons of money to you guys and your competitors.

Sure. So I think the most important metric is driving inventory up. That's the most important. And inventory in the eyes of the consumer is immediately available inventory. So just getting the absolute number of immediately available cars up is the most important measure. I think the ratio that you are referencing, you want to head as close to one as you can head, and you'll never get there, right. And the more constrained you are, the lower you'll be, because that means that you've got your larger percentage of your cars that are kind of in the process of customers checking them out and locking them. And they might be in the purchase process. And that's because you have a very high level of demand relative to the cars you have in your website. If you're constrained in logistics, then your delivery times might be a little longer, than you would like. And so that'll show up in kind of longer lock times and a lower proportion of inventory immediately available as well. So I think, as we alleviate constraints, that proportion should go up. But I think the number that is kind of most precisely important is just the absolute number of cars that are available to customers is that's what a customer sees and that's what represents the probability that a customer with any given set of desires finds the car they're looking for when they look through our site.

Okay. That makes sense. A follow-up and a little bit different perhaps as you guys get more mainstream and you advertise a lot and everyone is sort of, I think, is learning about Carvana. Are you seeing a different customer and is it less of an early adopter, the sort of online earlier adopters maybe were earlier in the process. And so now it's a different kind of customer. And this follows up on a previous question, how does that impact how you need to staff or how you need to think about operations, people were maybe less online savvy or sort of newer to the whole online thing start to learn about Carvana.

Sure. Well, so let me start with this. Our goal is to build an experience for customers that’s better in ways that, I think, are independent of demographics or psychographics. So, we want to deliver to customers the best value, the best selection, the best experience. And so we're working very hard to build an offering that is appealing to absolutely everyone. I think from the earliest days, we saw a mix demographically and psychographically that was pretty similar to the mix of the average used car buyer in the U.S. And generally speaking, that's been pretty true across time as well. I do think there's more evidence as we get a little bit bigger that we're seeing some of the skews emerge that we probably expect it from the beginning. We're seeing a little bit of a younger buyer, all those constant, not by a lot, but I think a little bit younger than any other competitor out there. We're seeing a more perspire, again, not by a huge amount, but more diverse than anyone else out there, at least according to our surveys. What we're generally seeing a more affluent buyer directionally. So I think that we do have some directional skews. Again, they're not super strong. And so that would be what we're seeing from a demographic perspective. From a psychographic perspective, we've got our values and one of those values, our next customer could be your mom. Something that we think is really important is that we build an offering that works great for you all use it personally, in this case, my mom. And I think this worked great for my mom. We can't be building something it's just for early adopters. And I think our scale and kind of our continued growth suggests that we're continually making progress there and that psychographically, we are broadening our appeal. And I think that's, what's driving the growth that we're seeing. So, I think, we're working hard to just continue to improve in all those dimensions that we think matter the most, which is best price, best experience, best selection. And if we do that, we think that we've got an offering that's going appeal to a lot of people over time.

Our next question is from Naved Khan of Truist Securities of Truist Securities. Please go ahead.

Yes, thanks a lot. I might've missed it, but did you guys talk about maybe share any trends from July, how other growth looks like so far into the quarter? And then I have a follow-up.

So, we did not provide any color on July. We obviously provided Q2 numbers in our outlook for the remainder of the year. And so that's taken into account in the outlook.

Okay. In terms of just us trying to model it out, obviously they are not moving cars, but is it fair to assume that at least the capacity increases that you already put in place, that's how you are thinking about growing the business for the balance of the year kind of fulfilling that driving your transition higher?

We're certainly positioning to try to alleviate operational constraints as quickly as we can. I do think that we've got work to do to catch up to where we are. As I said, the growth that we saw across the business, but most specifically in buying cars and customers was very dramatic in the quarter. So we got behind and now we're working very hard to alleviate that. And I think we're making a lot of progress and feel good about it.

Next question is from Seth Basham of Wedbush. Please go ahead.

Thanks a lot. And good afternoon. My question is also on inventory, because if I'm on the site today, I can see as many as 50,000 units listed for sale. What is the available for sale inventory today? And a follow-up to that is what percentage of the 50,000 units are marketplace? And when do you define that as being material?

Sure. So, first let's start with just units that are available for sale. So in the shareholder letter, we provided data for the average of Q2, which was 12,800, that was increasing throughout the quarter. The average Q1 for perspective was 9,300 cars that were immediately available for sale. So we're on an upward trend there and we expect to continue that upward trend. So, hopefully that's at least directionally helpful there. We don't break out different inventory types. And I think generally speaking, thought on that would just be when we expect some feature that we built to start to . When we expect that it could materially impact our results, we'll probably spend more time discussing it, but until that time, we'll just stick with the higher level metrics.

Okay. That’s helpful.

And then also may be – hopefully help as well. So, our inventory peak in terms of total available inventory for perspective was approximately 25,000 kind of immediately prior to, and immediately after the onset of COVID in March of last year. So, even with the inventory growth that we have seen in Q2, we were still approximately half of the peak that we were prior to the onset of COVID. So, we're obviously much, much lower levels than we'd like to be at. I apologize I interrupted, please go ahead.

Okay. Yes that’s a pretty dramatic difference that 12,500 quarterly average in the second quarter versus there were 50,000 listed for sale right now. I can't imagine that over, 35,000 units are not available for sale right now, either by yourselves or by a third party. Am I missing something there? Okay.

So, I think I would stick with the kind of the numbers that we've given you on immediately available units. And then there are obviously a number of units as well. The customers are checking out at any point in time considering purchasing, or maybe in transit to those customers in different locations. So hopefully that's at least directionally helpful.

Our next question comes from John Colantuoni of Jefferies. Please go ahead.

Thanks for my question. Just wanted to make sure I understand the interplay between production capacity and unit sales. So the directional outlook says second half unit sales will be governed primarily by production capacity, and then separately, it looks like you've ramped your operational team hiring rate by 20% in July and set a record for weekly additions in the most recent week. I know there's a lot of moving parts to ramping production aside from hiring. But should we interpret the comments about hiring to infer the unit sales could see a sizeable increase sequentially in the third quarter relative to the second quarter? Thanks.

Sure, yes. So, I think you should interpret the increase in hiring to suggest that we're booking up across some of our operational groups and across our corporate and technology groups as well. But obviously the vast majority of people are across the operational groups. So that includes inspection centers that'll show up first in kind of increased production capacity, which will allow us to kind of work through the cars that we've already purchased, but we have not yet produced. And then that will cause those cars to show up in available inventory. And then it will also show up in alleviating the other constraints that we have across our other operational groups. We're behind today, but working hard to catch up.

Great. Thanks so much.

Our next question is from [indiscernible] of Morgan Stanley. Please go ahead.

Thanks. This is on behalf of Adam Jonas. Just one question Ernie, from the feedback you are getting from customers, what are the one or two areas of the consumer experience where you can make the biggest improvement? Thanks.

I think I'm going – there's probably a millionaires across the experience where we can make it continually better across time. But if I had to pick one thing that is most important today, it's alleviating our constraints. I think our constraints can show up. Despite our constraints, we continue to deliver experiences that are meaningfully above anything else available anywhere in automotive retail. And we're continuing to see NPS scores that are meaningfully above anything else and automotive retail. But those constraints can lead to friction versus what we would otherwise be able to deliver if we didn't have constraints. So the constraints can show up in longer delivery times slightly higher odds of missing a delivery time and having to reschedule it that could show up in registration delays. They can show up in all kinds of different ways. So I think, the most important thing that we can do right now is catch up to the demand that we're seeing. Because the machine that we have delivers extremely high quality customer experiences, and it's also built in a way that it absorbs errors that we make in any given customer experience. You always make mistakes here and there. And we're built in a way to be able to absorb that as well, when we're properly staffed for the volume that we're seeing. And today we're behind. I think that would be the number one area to focus. I think taking a longer-term lens we've spoken before about how we have 70 plus product groups across Carvana. I think every single one of those product groups has a multi-year roadmap that is extremely exciting with myriad improvements all over the place. So, I think there's a lot of things that we're investing in today to try to continually make this experience even better for customers. And I wouldn't want to single any of those out, but I think there's a lot of opportunity.

Helpful. Thank you.

Thank you. That concludes our question-and-answer session. I'd like to turn the conference back to management for closing comments.

Well, thanks everyone for dialing into the call and thanks for your questions to the Carvana team. We only had our first profitable quarter one time, and I think I always find myself thanking you on these calls. And I can always hear that it doesn't come across as completely, sincerely, as I wish because it's an odd venue. And so I hope that you hear our absolute gratitude. This is an unbelievable milestone. For those who have been here for a long time, there was times, six, seven, eight years ago when today was extremely hard to see, and we fought a million battles together, and we figured a lot of things out, and we've continually improved, and the whole time we've stayed together, we fought through COVID together, we've just done so much and I'm so proud of it. And so thank you all for your contributions. And please always remember that this just does not happen without you [indiscernible] and we together make up the parts of Carvana. So thank you so much. We have a ton to be proud of. I hope you put your feet up and kind of take a moment to be proud. And then I hope you take them down and kind of, don't let it go to your head and kind of get your head in the right space because we still got a lot of building to do. But we've done a lot so far. We really appreciate it. Thank you all.

Thank you. That concludes today's call. Thank you for joining us. You may now disconnect your lines.