Ernie Garcia: Well, I think growth — so I think maybe it’s helpful to make that as concrete as possible, let’s kind of overlay it with the growth that we have from 2013 to 2021. During that period, we were growing very, very quickly, even in kind of like the last normal year, we grew at 100% in units year-over-year in 2019. Obviously, as you get to a large and larger scale, that gets very hard but we were able to grow very quickly. And what we were doing that entire time is, we were building each of our operational capabilities and scaling them out. And so, at that time, that meant that we were going out and we were finding reconditioning centers, we are purchasing the land, we’re getting it zoned, we are doing construction on the land, we’re getting all the improvements done.
And then we were going out and we were hiring teams. We were training teams, and we’re doing the reconditioning. We’re doing the same logistics and customer care to answer customer questions and verifications and registration, all these different operating groups, we had to do all this work, and we were able to grow at pretty fast rates doing all that. I think where we sit today, to first speak kind of medium and long-term, and then we’ll speak in the near-term. I think there’s reasons to be pretty optimistic about what’s possible. I think from an effort per sale perspective, the business is just materially more efficient than it was when we were driving that growth back through 2021. A couple of stats are useful. And this also speaks to the fundamental gains we made in the business.
In market operations, we now have 50% roughly of our activities are paired, which means when a customer advocate loads of a car to drive to a customer, before they come back, they stop somewhere else, they pick up a car that we bought from a customer and drive it back. That’s a relatively complicated capability to build out that requires a bunch of different teams, but it’s a valuable capability. And even a year ago, that was less than 30%. So that gives you a sense of each of these people in market ops are more efficient than they’ve been in the past. If we look at total miles driven in our logistics network for a number of reasons, we are down about 30% versus a year ago. So that’s less logistics work to drive a transaction. Our sales per advocate are up 61% year-over-year.
That’s a big number. That means that we’re more efficient there as a business. In title registration, we’re more than twice as efficient as we were per person a year ago. So I think from just a work required to grow perspective, we’re in the best place we’ve ever been. From an infrastructure perspective, we’re clearly in the best place we’ve ever been. In the past, we had to build infrastructure as we went. Today, we have infrastructure sitting on the shelf. So that’s great. I think the financial impacts of growth are better than they’ve ever been. We’re sitting here with more overhead expense per unit than we had back in the growth years by a significant margin. And with larger GPUs and very low variable costs, and that means contribution margins are high and leverage into fixed cost is also high.
So I think from a finance perspective, it’s good. And then I think risk is sort of a combination of all of those things. I think we all together saw very clearly the risk of growth at fast rates at large scale. When 2022 showed up and car prices went up and interest rates went up, and we were not well-positioned and that was tough. That put us in a tough spot, but I think what all is said and done is going to end up being a great part of our story, it’s going to be a positive part of our story. And so I think we’re extremely proud of the team for making the most of it, but we saw what risk looks like there. Given where we are in the kind of financial position of the business and our unit economics, it’s likely the risk is less. So I think growth from here, like I said, there’s reasons to be optimistic.
We also kind of coined this term of a transition period. I think we’ve had a lot of success over the last 2 years, focusing on driving efficiency. And when we go through each part of the business with every operating group and talk about what can we do in the next year, there are still meaningful gains to be had in every group, and they’re still exciting projects to work on. And so we want to make sure that we continue to take advantage of that and make progress there because we think in the long run, that’s going to serve our purpose by making this even more efficient. But we also see the very obvious payoff in growth. And so we want to start to lean into that — and so we’re going to have to start balancing those considerations. And the transition period, I think, is about us finding that right balance.
So we’ve always been an ambitious group of people. We remain an ambitious group people. We’re going to push that, but we also recognize that moving through this transition period purposefully and observing different levels of growth as we move, we’ll enable us to make the highest quality decision we can about exactly what the right speed is. So I think we had to figure that out over the next several quarters, but we’re excited about what it can look like.
Chris Pierce: Okay. Thank you.
Mark Jenkins: Thank you.
Operator: Thank you. The next question is from Seth Basham with Wedbush Securities. Please go ahead.
Seth Basham: Thanks a lot. Good afternoon and congrats on the outstanding results.
Ernie Garcia: Sounds like for you to say, but we appreciate it anyway.
Seth Basham: No, absolutely. It’s well deserved. The conversion is just popping here. Is there one or two things that you can point to that’s really driving this increased conversion over the last quarter or so.
Ernie Garcia: I think the simplest explanation for that, and I think that this is kind of the first of the feedback loops that we tried to point to in the prepared remarks is just that as we get better, our customer experiences get simpler and faster. One way to say it from a cost perspective is we have 60% more sales per advocate than we had a year ago. What also means is the customer has fewer touch points, right? When they call in, [indiscernible], they’re less likely to call in, if they call in, they get a better experience where they get more information, faster and things in the background are moving more quickly so that we don’t need as many back and forth. And so I think that is just the business getting simpler. And so I think a lot of these expense improvements that we’ve had over the last 2 years have also driven simplicity in customer experience.
We’ve seen NPS go up pretty linearly for the last 18 months, which is pretty exciting, and so we’re going to continue to push on that. But I think it’s that. And then again, going back to the answer we gave in the first question, I do think that we were dealing with some negative feedback for a 2-year period as we were shrinking inventory and shrinking marketing. And I think even just that stabilizing has been helpful.
Seth Basham: That’s helpful perspective. And then my follow-up, just on gross margins. You talked to them being at 19.1% about the long-term range. And obviously, there’s some seasonality, but do you think that you can sustain or even drive gross margins higher than that long-term goal over time?
Mark Jenkins: Sure, I’ll take that one. So in the shareholder letter, we lay out a number of places where we see opportunities for fundamental gains in gross profit per unit or gross margin. I think those gains take a number of different forms. One is, we definitely don’t think we’re done on costs. So I in response to Sharon’s question earlier, see meaningful opportunities for reductions in reconditioning costs from here, both due to technology and process driven efficiency gains as well as due to some scale components. I think in addition to that, we see opportunities to make further gains on inbound transport costs over time. Ernie touched on this with some of his commentary about adding more reconditioning centers, including at ADESA.
That gives you more production locations, which reduces your inbound shipping miles and therefore, your inbound shipping costs. So those are on the cost side. In some of the other areas, we absolutely see opportunities to continue to drive our wholesale vehicle business. We have teams that are working on fundamental gains there. We see opportunities in finance and ancillary products as well. That are outlined in the shareholder letter. I won’t talk through every single one of them here. But those have been areas where we’ve had success over the years, with teams really focused on just grinding out fundamental gains in those areas. And those same teams see more and more opportunities as we look forward from where we are today. So even though we’re experiencing exceptional results, we still see opportunities for fundamental gains across all of those different areas that the teams are going to be working to pursue.
Seth Basham: Got it. With that response, does that mean you’ll address your long-term margin expectations at a later point in time?
Mark Jenkins: So we — so it’s been almost 6 years since we had the Analyst Day. Obviously, we’re making great progress toward the long-term model we laid out at that time with our 7.7% adjusted EBITDA margin in Q1. We haven’t given any plans for an Analyst Day in the future, but I think that’s something that we could pursue at some point in time in the future.
Seth Basham: Thank you, guys very much.
Mark Jenkins: Thank you. Operator Thank you. The next question comes from Michael Montani with Evercore ISI. Please go ahead.
Michael Montani: Hey guys, good afternoon. Thanks for taking the question. Just wanted to ask if I could around two things. One was just around the capital stack. If we should be surprised if there’s an equity raise here coming down the pipe? Or if you think at this stage, it’s more about improving EBITDA and delevering the balance sheet gradually in that way? And then I had a separate question on the vehicle pricing?
Ernie Garcia: Sure. Yes. So I’d say for the last couple of years, in response to questions about capital structure, we’ve been focused on operating results. And talking about how first driving the positive adjusted EBITDA and then driving significant adjusted EBITDA from there was our key focus. That focus has obviously paid very significant dividends, here with record adjusted EBITDA in Q1 and a very big adjusted EBITDA number in Q1 that meaningfully exceeds our capital expenditures and interest expense. And so absolutely a goal for the business will be to continue to drive adjusted EBITDA. And as you drive more and more adjusted EBITDA, your — all of your capital structure metrics look better and better over time as you continue to drive those operating results.
So that’s certainly going to be our #1 focus. In terms of more financial aspects of the capital structure, we did call out in my prepared remarks that we do plan to pay cash interest on our 2028 and 2030 senior secured notes. Those are the two sets of notes that are eligible for cash interest in 2025. So we plan to pay cash interest on both of those notes in 2025. That reduces overall debt outstanding and also reduces long-term cash interest expense. And so we did call that out earlier in this call.
Michael Montani: Okay, got you. And then just on the pricing front, just want to see how you guys think about the potential opportunity with respect to unit growth, in a sense that when I look at the website demand on pricing surveys, at times I’m noticing you guys are above KBB, fair pricing. And I’m just wondering with GPUs above your target, if you would consider potentially flexing a little bit on GPU, either with more aggressive offers to bid up cars when you’re buying or potentially to push more units to get to 2 million plus units more quickly?
Ernie Garcia: Sure. What I would — let’s start with this. I think we keep track of millions of cars that are listed across many different websites all the time to make sure that we have a good sense of the pricing of our vehicles and how it compares. And I think over the last several years, our offering versus both some of our larger competitors. And then also just across — against the market generally have been very stable over time. So we’ve generally held that pretty consistent. I think that’s the right order assumption from here as well, especially given the constraints. Over time, I think as we continue to make gains, there’s no question that there’s opportunities there. But that’s not something that we’re planning on right now.
