Michael Montani : I had one on the cost side and then a separate one on the customer base. But just on the cost side, if I could, just wanted to dig into a few of the buckets, in particular, the compensation and benefit, other SG&A and then market occupancy and just kind of get a handle around if you think of comp and ben right now, do you basically have the right team in place, the right size team? And any further improvements from here are basically going to be about process and efficiencies that you might gain? Or is there still some work to do there? And just kind of the same question then for other SG&A as well as market occupancy.
Mark Jenkins : Yes. Sure. So let me start with market. I can say that’s the shortest answer. Market occupancy, if you think of more or less of fixed expense, I think we — it’s largely facilities out in our markets and including betting machines. And that’s an expense where we think we have significant opportunities to scale into the fixed cost base that we have, but that is more or less fixed expense. So we think we can lever meaningfully with volume over time. . Moving on to comp and benefits, we certainly see opportunity to continue to drive down compensation and benefits. I think we’ve made tremendous progress there. Ernie talked a lot about that progress. I think the future gains are spread across different areas. We definitely see an opportunity to continue to become more efficient in operations.
We see opportunities to continue to get leverage through our logistics network. We see opportunities to continue to identify, I’d say, savings in our corporate expenses as well. So I think we see opportunities across the board in compensation and benefits, but we’ve obviously made a lot of gains there recently. In other SG&A, other SG&A, we’ve talked about before, it’s really — it’s kind of three major categories of expenses in there. There’s transaction expenses. There’s corporate expenses, and there’s technology expenses. I think as Ernie sort of alluded to, we see opportunities in all three of those areas. We see an opportunity to bring down per unit transaction expenses over time with further efficiency initiatives. We’ve made some gains in limited warranty, bring that down on a per unit basis recently and see opportunities in some of the other expenses like title of registration.
In corporate and technology, definitely, I think Ernie covered a lot of this ground, but see, a lot of opportunity for leverage with increased volume, but also see an opportunity to bring down dollar expenses over time as we continue to focus on efficiency. So that — in touching on a lot of the same points that Ernie touched on, but we clearly see opportunity throughout the cost structure from where we sit today.
Michael Montani : That’s helpful. And just to follow up on the consumer side for a second. I don’t know if there’s any color that you could share in terms of the 25% decline that you saw. How would that shake out based on household income levels? And then also, I know you all have been working to improve profitability, and there is some metering involved. So can you give us a sense for how maybe the coastal markets were able to perform relative to those in the central part of the country?
Ernie Garcia : Sure. I don’t think we have anything particularly interesting to say there. I think the trends that we’ve seen over the last year or so have remained. And I think as it relates to Carvana-specific trends, I think we continue to see middle of the country performing a little bit better than the coast for the same reasons discussed. And then I think as affordability has continued to kind of move away from most consumers, I mean, the trends that you’d expect where I think across the entire auto industry, there’s generally been a shift toward higher incomes and higher FICOs. And I think that’s really just more of a distribution shift that we would expect and hope will revert when either interest rates start to back up or car prices start to back up or both.
And I think we saw — through most of 2022, we saw car prices depreciate, but it was offset by increasing interest rates. I think early this year, we saw volatility in interest rates. We saw car prices start going back up. And I think more recently, we’ve seen wholesale prices going down for the last several weeks. Retail price has still been barely appreciating, but it looked like they will probably start to depreciate shortly. And so hopefully, we’re headed down to a more sustainable path of sort of orderly depreciation that will bring more customers back into the market.
Operator: Next question comes from Seth Basham with Wedbush Securities.
Seth Basham : My first question is just on your first quarter results that were meaningfully higher than the updated guidance you provided on March 22nd driven by gross profit. Can you give us some more insight as to what drove the major improvement in the last days of the quarter?
Mark Jenkins : Sure. Yes. So with respect to our outlook, for Q1, I think we’re very close to the top end of the range on units, revenue, SG&A, expense, loan originations, all those metrics. We beat on GPU. And in our outlook, we called out a couple of major points of uncertainty that wouldn’t be known until after quarter end, those being the P&L from our loan hedging as well as our retail inventory allowance, which, in part, depends on what we see in the market. It’s kind of around the time of quarter end or shortly thereafter. And so both of those uncertain items resolved favorably. That was the big driver on GPU. We had a couple of other beats — small beats across other areas of the business in the last couple of weeks of the quarter, but those are the big 2.
Seth Basham : Got it. That’s helpful. So you’ve indicated that the retail inventory allowance is likely not sustainable. You’ve also talked to other GPU likely being over 2,000 in the second quarter, primarily driven by normalization of loan sale volumes. What do you consider normalized volumes? You’ve already sold 1.3 billion this quarter. I presume that’s in line to above what I’d say normal based on historical trend.
