Good afternoon, and welcome to the Carvana Fourth Quarter and Full Year 2022 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Meg Kean, [ph] Investor Relations. Please go ahead.

Thank you, Gary. Good afternoon, ladies and gentlemen, and thank you for joining us on Carvana's Fourth Quarter and Full Year 2022 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 fourth quarter shareholder letter is also posted on the IR website. Additionally, we posted a set of supplemental financial tables for Q4, which can be found on the Events and Presentations page of our IR website. Joining me on the call today are Ernie Garcia, Chief Executive Officer; and Mark Jenkins, Chief Financial Officer. Before we start, I would like to remind you that the following discussion contains forward-looking statements within the 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. 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, whatsoever, as a result of new developments or otherwise. Our commentary today will include non-GAAP financial metrics. Unless otherwise specified, all references to GPU and SG&A will be to the non-GAAP metrics, and all references to EBITDA will be to adjusted EBITDA. Reconciliations between GAAP and non-GAAP metrics for our reported results can be found in our shareholder letter issued today, a copy of which can be found on our IR website. And now with that said, I'd like to turn the call over to Ernie Garcia. Ernie?

Thanks, Meg. And thanks, everyone, for joining the call. 10 years ago, in January 2013, we launched Carvana in Atlanta, Georgia. We were a passionate group of people who believe we could build something new in the world that we would be proud of. What we need to do was simple: to change the way people buy and sell cars. There were a million little reasons to bet against us and most people who cared enough to even be aware of what we were trying to do would have. But there were two big reasons why we believe we could do it. One, there was room for new offering that customers would love. Two, we were a scrappy group who cared and were ready to fight for our dream. We stand here 10 years later in a place it was hard to imagine from where we started. We built an offering customers do love. We have brought that offering to over 300 markets across the country. We have bought and sold cars in a whole new way to millions of people, and we've laid the foundations to buy and sell many millions more. The big things overpowered the little things. This story skips a lot of time and as a result, it skips a lot of detail and gives too simple an impression. It feels linear. But the truth is there were a lot of ups and downs along the way. There were high highs and there were low lows. There were fun days and there were hard days. I think the truth of building something new in the world that there are usually more hard days than there are easy days, even though it doesn't sound that way in the stories. This is still true. Progress is rarely linear,…

Thank you, Ernie, and thank you all for joining us today. Our results in 2022 were driven by numerous external factors as well as our internal decisions made to shift priorities toward profitability. We came into 2022 significantly overbuilt for the volume we ultimately realized. Through the year, we have been executing our plan to drive profitability by steadily reducing expenses, normalizing inventory size and executing profitability initiatives that make us more efficient, more resilient and more flexible. For the full year 2022, retail units sold totaled 412,296, a decrease of 3% year-over-year. While this was the first year that our retail units sold declined year-over-year, 2022 marked our ninth consecutive year of market share gains against the backdrop of double-digit industry declines. Revenue totaled $13.604 billion in 2022, an increase of 6% year-over-year, marking our ninth consecutive year of revenue growth. We finished the year as the second largest seller of used vehicles in the country for the third consecutive year. The scale that we have already achieved and the time line on which we have achieved it demonstrates the long-standing strength of our customer offering. Due to the dynamic nature of the current environment, we will focus our remaining remarks on fourth quarter results with a particular focus on sequential changes and the unique items impacting the quarter as well as our near-term outlook. Our long-term financial goal is to generate significant net income and free cash flow. In service of this goal, in the near term, our management team is focused on driving progress on a set of non-GAAP financial metrics that are inputs into this long-term goal. In order to provide clear visibility into our progress, beginning in Q4, we are reporting two new non-GAAP metrics, non-GAAP gross profit and non-GAAP SG&A expense, that adjust for…

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

Ernie, you were talking really fast. But I think you said 40% of vehicles were picked up at vending machines. I think it was in the fourth quarter. I didn't catch what that compared to maybe relative to a year ago? And I guess were you incentivizing to get to that number? It also begs the question, kind of how high could that go? What is the kind of trade-off in terms of GPU when you get a customer to come to vending machine for pickup? And I noticed in the shareholder letter, you also mentioned starting to offer a pickup at non-vending machine locations. So, I guess, this is a long question to just ask, are we seeing some sort of evolution in the model, which would be kind of more what I would think of as an omnichannel model versus a pure e-com?

Sure. So first, apologies for the fast talking. That is my habit. And so, in the prepared remarks, I didn't compare it to anything. It is 40% nationwide at vending machines, even though we only have vending machines in a subset of markets, and that is roughly double since early 2022. We are testing other pickup options as well, and we are incentivizing customers to do that. And what I would say there is, I think across the entire business, we're testing all kinds of opportunities to decrease our operational costs and then see what the impact is to both customer speed of getting them a car and also customer experience. And I think this is one of many areas where we're seeing really strong results there.

Can I just ask a follow-up? So when you do customer research, I mean how important is delivery and what the customers want? I mean, it would seem transparency, quality of car, the car they're getting, all of that is very important, but is delivery really high on the list?

I think it depends on the customer, and I think that's why we've kind of structured the system to give them their option. So, I think all of those things are important. And I think the easiest thing that we can measure is, in aggregate, how customers are responding to the sum total of their experience. And we are talking now about the vending machine, but there's many other examples there that I'll repeat that I kind of spoke about in my prepared remarks. Delivery distance is also down 25% since early 2022. We talked about activity pairings. That can be a bit of a confusing one to make sure your understanding. But we've got -- obviously, many customers that are buying cars from us. We have many customers that are selling cars to us. And so activity pairing is building the logic into our schedule that allows us to ensure that when a customer leaves a hub or a vending machine, they can complete two transactions in a single path, which is obviously a lot more efficient. That's gone from about 1 in 14 customers to approximately 1 out of 3 customers in the last year. So, we're making gains all over the place. And we are seeing that really show up in operational gains first, which then I think you're starting to get a peek into impact they'll have financially, but that does take more time. So we tend to roll these out in markets. We get a sense for the impact of both customer experience and cost and efficiency, and then we roll them out nationwide, and then we kind of are able to realize the dollar gains thereafter. So I think you'll probably start to see more of those gains over the next two quarters, which is why we're feeling really good about our cost reduction plan over the next two quarters. But we've been doing all of that and many, many more examples that would fit under the same umbrella. But we take different forms in every group, and we've seen customer experiences go up in the last six months. So I think overall, we're really excited about the way that's playing out. We still have a lot of work to do, but the team is doing a great job.

Okay. Last question for me. I know you said you're working towards EBITDA breakeven at current volumes. What's your line of sight on timing on that?

As fast as possible. I think we're going to be moving as quickly as we possibly can. We gave, I think, some hopefully helpful guide rails in there around driving down SG&A dollars by $100 million over the next two quarters. I think Mark spoke quite a bit about some of the GPU visibility that we have that is very high. Something that is imposing a very significant cost across GPU right now is the choice to drive down our inventory rapidly. We're very confident that's the right choice for the business. Sales volumes are low relative to the inventory that we're carrying and, therefore, turn times are high. And especially in a high depreciation environment, it's important to get those two things in balance, but the transition from too large of inventory to the right size of inventory means that turn times are even longer. That showed up in lower GPU in the quarter and in an allowance that we're taking as more of those cars that we expect to sell in the future are likely to have negative margins. So, that's a transitory cost. If you look at the rate at which we're selling cars relative to the cars that we have in inventory, it's a much better number, but the transition is expensive. So, I think there's a lot of visibility there. Mark also spoke a bit about the visibility we have in finance as we had a loan sale timing shift in Q4 that was costly. So, I think there's hopefully a lot of building blocks there that will give you a sense. And our goal is heads down sprint, and we'll get there as quickly as we can.

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

The first one is, in Q1, are you still taking provisions to increase the inventory allowance adjustment that's causing pressure retail GPU and wholesale? Is there a way to frame out how much is left? Like what percentage of units are 90 days or older? And they're still in inventory today? And what's normal? Looks like -- I imagine this happens routinely, but just give us context for what's left.

Sure. So I mean, I think the -- I think there's a couple of different ways to think about that. One, I wouldn't say there is any concept of what's left. I think we -- to set the allowance on 12/31, we looked at the cars that we had on balance sheet on 12/31. And then we formed expectations about the cars that we're going to sell at a loss and at what level those cars we’re going to sell at a loss, and then we recorded that allowance on that basis. I do think some of the things that benefit the inventory allowance is inventory size. I think shrinking inventory, getting inventory more in line with sales volume. Those are certainly beneficial from the standpoint of retail inventory allowance. As you sort of alluded to, a retail inventory allowance is something that's always in our results. We adjust our allowance every month, and retail inventory allowance is reflected in our results every quarter. It just happened to be particularly large on 12/31 in light of the dynamics that we saw in Q4 with much higher than normalized inventory size and also very elevated industry-wide retail depreciation rates. So, that's why it had an outsized effect on Q4. I think just to take that point home, I do think we've made really strong moves in normalizing our inventory size in Q4 and so far in Q1, our inventory size is much closer to a normal size relative to sales volumes than certainly it was in Q4. And we do think that over time, that will flow into positive tailwinds for retail GPU as we called out throughout our materials.

Got you. Okay. Thanks. And then just a bigger picture question. If I can squeeze one more in. When you're speaking to these profitability at current levels, are you extrapolating market share of your immature markets still like some natural run rate of the mature business? Because I think your national market share compared to Atlanta or some of them are early market at a similar point in time. Was Atlanta profitable on that penetration? Like I guess what gives you the visibility to achieve profitability at such a low volume level? And I think personally, you get well above that over time, so I'm not sure why this profitability level frankly matters in the near term, but just curious how you're thinking about all that.

Sure. Yes. So I mean, I think we mean that in the simplest way it can be interpreted, which is we believe that we can achieve EBITDA positive at the current volumes that we're at across the entire company. We're not extrapolating to kind of market shares that we have in some more mature markets. We're making a ton of progress on SG&A, and there's room for a ton more progress, frankly, given all the operational gains that we're seeing, and there's a lot of visibility in GPU progress as well. So, I think this last year has been a massive change in priorities for the Company. The world changed on us very, very quickly. And we shifted our priorities very, very quickly. And undoubtedly, that's been a difficult transition. But I think there's no doubt that it's leading to a more efficient company. I think that is not yet fully showing up in the numbers, but there's no doubt it's showing up very clearly in the operational numbers, and we expect it to show up in the numbers in the not-too-distant future. So, we believe that we can get to EBITDA positivity at current volumes and to significantly positive EBITDA at current volumes, and then we obviously expect to continue to grow from there and to get even more EBITDA positive on a unit basis from there as well. So, I think we've got a lot of work in front of us, but we've got a lot of great visibility as well.

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

Ernie, I think the elephant in the room is the $600 million or so of interest expense, if you get to EBITDA breakeven at some point next year or later next year. You also need to add more debt at some stage to continue to just pay the ongoing additional debt. Is there anything you can do or considering to use that burden, perhaps some form of restructuring that can take place, leveraging the real estate and find some sort of a middle ground with the bondholders? Just curious what level of engagement you have there. Any broader thoughts on that? And I have a follow-up. Thanks.

Sure. Well, so I mean, I think our plan, we try to break into three steps. Step one is get to EBITDA positive. We've got to have mile markers along the way. Step two is get a meaningfully positive EBITDA per unit, positive unit economics. And then step three is to start to grow. And we believe that with that plan, we have believed and continue to believe that we have the opportunity to run that plan and to not need to raise additional capital. Obviously, the question about whether or not we'll raise capital in the future is largely a function of the speed at which we drive down SG&A, the speed at which we drive up GPU and the speed at which we're able to also drive up units, once we bought them. And subtle changes in the shape of those curves can change the answer quite a bit. So, our plan is to not need to raise additional capital. But obviously, we'll be paying attention. We'll do what we need to do that's right for the business. I think we have access to capital in many forms. We've obviously got a lot of real estate that's very high quality. We have approximately $2 billion of real estate, approximately half in ADESA and half kind of original Carvana real estate. The majority of that is inspection centers, which are high-quality financeable properties. We've got a lot of other assets as well, and we've got capacity to put in more secured debt. We've got capacity to put in more unsecured debt. Obviously, in the future, we chose to -- and we believe it was the right choice, we could raise equity. So, I think we have a lot of options if we choose that that's the right path for the Company. But today, we're focused on the operating plan that's got our full attention, and we're marching that to hit the numbers that we've outlined.

Got it. That's clear. Maybe just on SG&A, you talked about the additional $100 million in reduction in the first half year. And you also mentioned coming across different buckets. I think one area where I believe you've not seen the meaningful reduction yet is the other SG&A, seemingly a bigger fixed component of your SG&A. Is a good chunk of that $100 million coming from that particular line item? Because I think you mentioned also that you don't expect more forced reductions or force reduction. So just curious like if you could help us understand where that $100 million is coming from. Thanks.

Sure. Yes. So, we talked a little bit about that in the letter. The -- we do expect the SG&A reductions, the $100 million in aggregate in quarterly expense reductions that we're targeting over the next two quarters to come across the major line items. So in that, I would include payroll, I would include advertising, logistics and the other expense bucket. I do think there's -- we certainly see opportunities to reduce other SG&A expenses, including in categories that you may traditionally think of as fixed. I think we have numerous projects ongoing to just be more efficient in our corporate and technology expenses. I think there's many areas across that component of SG&A, where we're very focused on efficiency and do expect to gain savings from that component as part of our plan over the next two quarters.

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

Just a follow-up on the last question. Even if you do hit your breakeven EBITDA goal, you're still carrying $100 million plus in CapEx and $600 million in interest expense. So maybe burning $700 million or so in cash. And your liquidity got -- support that for a period of time. But eventually, you'll run out of time. How do you expect to address that conundrum?

Sure. Well, I think as we discussed, step 1 of the plan is breakeven adjusted EBITDA, and step 2 is to go beyond that, and then step 3 is to grow. So, that's undoubtedly a milestone in the plan, but it's not the plan, and we think we've got a lot of visibility beyond that. So, as we discussed, we're focused to hit that plan. And we believe that if we hit in the ways that we're aiming to hit it, we've got a real shot at not requiring additional capital. If we're wrong, then we have lots of ways to go out and get additional capital.

Got it. And secondly, as it relates to the loan sales to Ally, could you help us understand the margins on those under the new agreement relative to the old agreement and whether there is still substantial loans on the balance sheet at this point in time relative to $1.3 billion that you had at the end of the quarter?

Sure. So I think first order, we completed the deal with Ally. It's the seventh year in that relationship. That's something that we're extremely proud of. We think it's been a great program for both of us. They've certainly been there for us in difficult times, including recently. They were there for us in COVID. And we would like to think that we've been great partners for them as well, especially in better times, and that they've had access to high-quality loans that are generally outperforming similar credit quality loans across that entire time. So, I think that's been a great partnership for us. And I think as we headed to the end of the year, we had a bunch of loans that we're looking to sell. We are also getting that renewal done. And it made sense to kind of complete the renewal first and push that over the years. So, we had approximately $1 billion of extra loans that shifted over year-end. As part of that deal, as you'd imagine, Ally does have more spread than they've historically had. But that spread is reflective of market conditions, which is kind of the structure that we generally have in our deal. And then we take those spreads, and we pass them on, and that enabled us to earn similar finance GPU to what we've earned in the past. So I think that's been a great deal for us. It gives us certainty of execution, and they've been a great partner for a long time, and we couldn't be happier with it. And then in addition, today, we also closed our first securitization of the year. So, we'll continue to operate a multichannel strategy, and we plan to catch up on loan sales in the first half of this year.

The next question is from Zachary Fadem with Wells Fargo.

This is Sam Reed [ph] pinch hitting for Zach Fadem. First, big picture. Kind of what's the assumption for industry volumes that you're embedding in your Q1 unit outlook? And does that sequential pullback you're looking from here, what you're seeing across the industry? Thanks. And then I've got one other industry follow-up.

Sure. Yes. So, let me start a little bigger picture. I think we're now a 10-year-old company. And I think for -- basically, for nine years of our life, well, we were in a reasonably stable environment. We were certainly in a stable environment for 7.5 years of our life, and then we went through COVID, but we still had somewhat similar used vehicle sales volume at the industry level. And then, I think for the last year, we saw those volumes at the industry level drop by -- on the order of 10%, give or take, and I certainly think that has correlated with a bunch of choices that we've made to shrink up and to focus on profitability, and I think basically with more pressure on independence even relative to franchise dealers. And so undoubtedly, the last year has been a much slower year for us. It's the first year where we actually shrunk by 3%. We've grown very, very quickly in all previous years. And so, I think the correlation is there where when the market was shrinking, we were shrinking. When the market was stable, we were growing. I do think that that is more correlation than it is direct causation. The market moving up or down by 10% relative to all the growth rates that we've seen in every year of our life prior to this year would be very, very small relative to how quickly we were growing. So I think, of course, we always have something of an embedded view around what's going to happen at the industry level. But we generally don't think that that's the biggest driver of our success. I think it happens to have correlated because many things occurred. Most notably, interest rates shooting up and car price shooting up over the last year that had a real impact on the industry in general, but us in particular. So, I would say probably the best way to evaluate that is we generally are looking at the market being flattish go forward. But we also, I don't think, are ever speaking in terms that are precise enough to where likely movements in the macro industry level sales volumes are that likely to impact us super dramatically. We would expect them to flow through to our results in the same way that they impact the industry in sum total. And then I'm sorry, what was the second part of your question?

No, it's just another industry question here. It kind of follows on advertising and volumes. You've seen -- you guys have done a good job of pulling back on advertising. But what are you seeing kind of across the industry? And is there a similar pullback that's taking place across your peer set? And as you pull back on advertising, can you compare and contrast your share of voice today versus where it might have been before you started to pull back?

Sure. Well, let's start with the maybe peers in automotive because I think the automotive world, yes, there's been a lot of interesting things happening over the last 1.5-year that are probably more distorted than any period that I can remember in my career. When I say distorted, I mean abnormal. There's been a lot of things that have been abnormal. So, we went through this period where cars very rapidly appreciated. And for the most part, consumers were going to get enough spots where that didn't necessarily impact industry-level sales volumes that much in 2022 as we saw cars start to slowly come down, but rates go up. We saw affordability stay in a pretty similar spot, but we saw the industry generally get softer. I think franchise dealers have done incredibly well through the last two years. I think if you kind of grab there, pick your kind of bottom line metric, but to make it comparable to ours, if you grab their EBITDA margins over the last 20 years, you would see extreme outliers over the last couple of years. I think that while new volumes have gone down, new margins have gone up by more than the volumes have gone down, and so there's been a lot of profitability there. I think given how high car prices are, they've been able to convert many would-be new car buyers in to used car buyers, and they've had an advantaged supply of used cars as they've been returned off lease. And those off-lease returns were priced in a completely different vehicle price environment. So they're able to acquire those cars at residuals that are far below the market value, even though historically, on average, residuals roughly approximated the market value. And so I think for franchise dealers, it's…

The next question is from Winnie Dong with Deutsche Bank.

I was wondering if you can give us an update on sort of the integration of ADESA and where you are with footprint integration relative to the logistical savings that can be achieved for the benefit of GPU. And in your prepared remarks, you mentioned getting back to that $4,000 in GPU. I was wondering if you can frame it around what you think the time frame is to achieving that? That's my first question, and then I have a follow-up. Thanks

Great. Sure. So I think we're making a ton of progress with the integration of ADESA. ADESA has 56 incredible sites around the country, and we currently have 75% of the cars that we buy from customers that we plan to sell wholesale that are now landing at ADESA properties. That's a really significant change from obviously where we were six months ago or certainly 12 months ago when we -- prior to the acquisition. That's very helpful from an efficiency perspective. It means those cars are on the ground in a location, where they can get rapidly inspected and sold. It means that the transportation to those locations is much less than it would have historically been because we're closer to ADESA. And so you'll start to see that flowing through in our wholesale margin. That footprint is incredible, and we really look forward to the gains that we'll continue to get in wholesale, in logistics and, ultimately, in reconditioning over time. But I think a lot of those gains will come more when we get to step 3 of the equation, which is turning growth back up. In the meantime, the ADESA team has been doing a great job. It's been a tough couple of years for auction businesses. I think post pandemic has been a very odd time for the auction business in general. But they've been doing a great job. They've got a great plan. We feel good about the path that they're on, and so we're excited there. And then, as it relates to the time frame to getting back to $4,000 GPU, I apologize for not being more precise in this response, but I think we tried to give some building blocks that we think are pretty big, and so I'll just -- I'll…

And then, I was wondering if you can also comment on sort of like the go-forward strategy in terms of mix of inventory. I think you had previously indicated that you going -- on a go-forward basis going to tailor towards the lower price inventory just given the current macro conditions. Can you give us a sense of that’s something still on the plan amid your plan to reduce inventory?

Sure. Yes, I can take that one. So just to set the stage a little bit, so the way we typically approach inventory mix is by evaluating what our customers are shopping for on the site and balancing that against what we're seeing in the market in terms of what customers or other suppliers are selling. And the combination of those two things dictate what mix of inventory we end up putting on the site. I would say we've talked a lot about inventory on this call. And certainly, our inventory has been too large relative to sales volume. We were working very ambitiously to correct that. In terms of mix, I wouldn't say there's any particular patterns to call out. I think the -- I think we'll continue to evaluate as we look forward from where we are here in Q1 and just be reading the demand signals, reading the supply signals and doing our best to balance the two of those. But right now, I don't think that points to any particular shift that's worth calling out at this time.

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

Just wanted to ask, if I could, when do you think that you would be in a position to kind of switch back to offense with respect to taking market share again? Would it be potentially third quarter when the SG&A reductions would have been substantively made? And if it is, do you need to basically start growing SG&A in accelerated pace to take market share, or do you think there's enough muscle that you could just be more productive, I guess, at a lower run rate moving forward?

Sure. So I think it's the third step in the plan right now. And the reason it's the third step in the plan is that I do think -- we were one of the more aggressive growth companies out there for the entirety of our life, basically from when we started 10 years ago until about a year ago. And that requires an alignment of thousands of people with priorities and what's being done and how we're working on things and how we make decisions. And I think that it's a lot of work, and it's very difficult to turn that quickly and focus completely on profitability, which is what we've done over the last 12 months. And there are definitely some, I would say, transition costs to just get thousands of people aligned on a new set of goals that we're all equally excited about and that we have a lot of work to do and a lot of gains to be had. And so, I think we paid those kind of fixed costs to transition. And I think as a result, we'll probably hang out here with priorities that look more like our current priorities for a little longer than might even be kind of optimal given what the market is putting in front of us just because it is expensive to have these big priority changes. And so, I don't know exactly when that will be. I think even over the last 3 or 4 months, we've learned a lot as we've gone. Many of these things that we do, we outline projects that we think make sense and then we roll them out, and then we learn what the reality is. They have some impacts to customer experience. They have some impacts to customer conversion. They…

Got it. And if I could just quickly follow up on one other angle was EBITDA. So for this year, I was getting to EBITDA loss in the $400 million to $600 million range for 2023. And that's basically like a slight decline in units, low $3,000s in total GPU, SG&A improvements like you've discussed and so kind of $1 billion plus of cash burn if you include the interest expense. I didn't know if you'd care to kind of comment on any of that or any key drivers that could give upside or downside to consider.

I would suggest reading our shareholder letter. I think we talked a lot about some of the near-term drivers of profitability as well as a sort of broader way to think about our plan, and I think that will most likely be helpful for trying to shed some light on our near-term expectations.

The next question is from Ron Josey with Citi.

I wanted to ask more about supply and just how you balance the supply reductions with demand and conversion rates? And wondering how this sort of conversion rates are trending? I'm assuming they're coming down simply because people might not have what they're looking for. And so just historically, I understand inventory is coming down, just wondering on conversion there. And then, maybe on the flip side of the marketing question. Ernie, you've seen the reduced marketing investments. Just talk to us about any lessons learned in terms of maybe awareness or traffic as you pull back on advertising. I think you said some of it didn't have a positive -- as positive in ROI. Maybe just talk about just inherent sort of awareness at Carvana that you don't need to market as much going forward and maintain sort of the sales that they are. Thank you, guys.

Thank you. Okay. Sure. So let's start with the first question. I think undoubtedly, inventory impacts conversion. And so as inventory is reduced, we expect conversion to also be reduced and so sales to be reduced, all else constant. I think the way that we can kind of try to think about that and reduce that to a math equation that is going to kind of flow into the second question is we can basically say, okay, given our estimates of inventory elasticity, what is the sales benefit of carrying a larger inventory and then what is the depreciation cost of carrying a larger inventory? And we can compare those two, and we can effectively get to a customer acquisition cost for those incremental transactions. And the way all that math works is you -- one, at any given level of depreciation you have kind of an optimal balance of inventory relative to sales, which shows up in a turn time goal. And then the way you kind of shift around that is when depreciation is higher, you want to have a smaller inventory. And when depreciation is lower, you want to have a larger inventory. And I think we're, A, in a -- well, right now, we're actually kind of in a maybe even appreciating environment in the wholesale market, but we've been for a year in a rapidly depreciating environment. And I think probably the smarter guess over the next year or two is that it will be a depreciating environment on average because car prices are still elevated relative to other goods. So, that as well as the fact that we have until recently had a large inventory relative to sales, both point in the same direction, which is the optimal inventory is smaller. And as discussed…

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

Perfect. Well, thank you everyone for joining the call. To everyone on team Carvana, thank you so much for the work you guys are doing. This has been a tough year, undoubtedly. We've made huge strides, massive changes, a huge pivot in priorities, and I'm just always reminded of how much you care and how much you fight. This is a team of fighters. You have been fighting hard, and it is showing up. It's going to keep showing up. We've still got some fighting left to do, but we're going to do it. So, thanks to all. We'll talk to you guys next quarter.

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