And so I think we will always be in a rush to make as much progress as we possibly can. But we will try to be intelligent about how we transition between the goal of efficiency and the goal of growth. We think that there are still gains to be had in both areas. And that’s why we’re labeling that a transition period. The place where we’re headed is clear, the speed that we’re going to get there is less clear. And so as we start to make that transition, we’ll keep giving you feedback to make it clear what we believe at any point in time.
Rajat Gupta: Got it. Okay. That’s fair. And just on the finance business, I mean you undersold a couple of hundred million in the fourth quarter. And you noted in the shareholder letter that you don’t expect any onetime benefits here in the first quarter either. So does that mean you’re likely to run at this elevated level of receivables on the balance sheet from here on? And then what was driving that decision? Thanks.
Mark Jenkins: I can hit that. Yes. So I think the – I would say the – what we called out in the outlook is us being significantly above $100 million of adjusted EBITDA that doesn’t anticipate any loan sales above originations. I think it’s possible that we could oversell originations. That’s just not – it’s not necessarily a baseline expectation. And it’s also – I think the most important point is we don’t need to feel really good about our significantly above $100 million adjusted EBITDA outlook. And then in terms of the – is Q4 the base level, the answer to that is no. I do think we’ll transition back toward more normalized levels by overselling originations at various points from time-to-time over the course of the year would be my expectation.
Rajat Gupta: Understood. That’s clear. Thank you.
Operator: And our next question will come from Mike Baker with D.A. Davidson. Please go ahead.
Michael Baker: Okay. Thanks. A couple real quick sort of asked, but I’ll ask it another way, maybe anything unique about the first quarter and not significantly above $100 million that shouldn’t translate into something similar in future quarters in 2024.
Mark Jenkins: We did address this in our outlook. So our outlook does not anticipate any onetime benefits or costs.
Michael Baker: Anything in terms of the market or – is the first quarter usually more profitable than other quarters? Or anything externally or anything that would suggest that, that kind of quarterly number isn’t sustainable?
Ernie Garcia: No. I think our expectations for Q1 are normal seasonality, but nothing – there’s tax season that we discussed earlier that is hitting today. Nothing abnormal beyond that in our assumptions.
Michael Baker: Thank you. That makes sense. Okay. We’ve seen a lot of advertisements and announcements on the same day. I understand part of that is sort of the backhaul being more efficient on your backhaul. But is that – what’s the uptake on that? How much of a competitive advantage is that becoming for you from a customer standpoint?
Ernie Garcia: Yes. Well, I mean, first, we’re extremely proud of that offering. That’s not an easy thing to do. I think it’s the kind of thing that I think sort of flexes our vertical integration muscles because to do that well, you have to have a transaction platform that’s very quick and easy, that’s deeply integrated into your logistics system, which is connected up through your verification system most of those customers are getting financing and they need to get their financing terms and get verified to unlock that. So I think that’s a complicated offering to put together that does require vertical integration and a lot of systems intelligently speaking to one another. I think that’s something we’ve been working on for a bit now.
But it’s something that we’ve generally been pointing more at efficiency gains than at driving growth. And I think what we mean by that is just as a function of normal course, there are always kind of gaps in any given calendar that pop up for many different reasons. And by building same-day capabilities, we’ve been able to then basically fill in gaps with additional volume by just making those times available to customers. And so we’ve been able to basically drive efficiency in our cost while simultaneously giving customers faster delivery. Now to the extent we want to start to flex that into more of a growth tool over time. One, you kind of can just do that with scale because density makes that easier to do. But two, you can lean in a little bit more into your kind of staffing model to enable more of those slots.
That, I would say, is sort of a separate choice. The underlying capability is something that we have built something that we’re rolling out something that we’re extremely excited about, something that does have uptake that is notable and that customers really like. And if you search around in our reviews or online, you can find a lot of commentary on it, where customers are very positively surprised by it. And then I think separately, we have a choice of kind of are we using that just to drive efficiency or are we going to kind of push the lever more in the direction of growth. And over time, as we balance this transition, I think that’s probably the direction it will go, but we’ll see what speed it goes that direction.
Michael Baker: Okay. Makes sense. If I could ask one more. Your units available for sale on your website has been pretty consistent, although we did see a pickup lately as we track that. My guess is that’s because of taking the inventory from your liquidating competitor – or am I wrong about that? Is that more of a discretionary decision to start to bump up your inventory in anticipation of stronger growth?
Mark Jenkins: I think that – I think most likely what you’re referencing is the bulk sale or bulk acquisition vehicles from a competitor – is most likely what you’re referencing there in the data. There hasn’t been a concerted effort.
Michael Baker: Right. Understood. Thank you.
Operator: And our next question will come from Ron Josey with Citi. Please go ahead.
Ronald Josey: Great. Thanks for taking the questions. Maybe as a quick follow-up, Ernie, this one, just on same-day shipping. I think we just talked about it a little bit, but now live in 11 markets. Rather than focusing on efficiency, I wanted to hear your comments on perhaps the impact to improve conversion rates that’s coming from same-day shipping. Is this something that you’re seeing to have an impact on just conversion to sale? Or is it say, call it, still too early to tell in the market to see the benefits there? That’s question one. And then maybe, Mark, realizing it’s also early, but CARLI, now that it’s, call it, implement, I wanted to hear about the efficiencies range just across the reconditioning process. And this is in the process of like how AI is changing the business? Thank you.
Ernie Garcia: Sure. So on same-day delivery, I think we’re will elect to not quantify the impact, but absolutely, there’s no question that speed drives conversion and that we see that in same delivery as well or same-day delivery as well. So I think that is exciting. That’s a powerful feature. And as discussed earlier, I think over time, it’s a feature that we can lean into more – if we choose to use that as a growth lever and then also as we expand our footprint leveraging more of our ADESA for reconditioning, it unlocks the ability to do same-day delivery in many more markets. So I think that’s a story that will probably unfold over many years, but we think it’s a pretty exciting story. It’s a story that is only possible for integration. It’s a story that’s only possible with an enormous footprint, and I think it’s very hard to replicate. So something we’re very excited about. And then Mark, do you want to hit CARLI?
Mark Jenkins: Sure. Yes. I can hit CARLI. So I think we’re very excited about the progress that we’ve made, obviously, in the reconditioning centers. A lot of that was operational gains and a lot of that was technology gains led by the nationwide rollout of CARLI. And so we have seen – I think we’ve talked about more than $900 step-down non-vehicle retail cost of sales. Since our peak over a year ago, and I think that’s been driven by many sources getting better at managing the process of reconditioning, getting better at parts procurement and efficiency and a number of other things. So I think that’s been a big success story in the IRCs. And then you also looked in a question about AI more broadly. And that’s certainly an area it’s widely talked about, but it is something that we’re very excited about.
I think we have several what we see as significant advantages in our position to take advantage of the rapid development of AI. One is our large scale. So we have – are collecting enormous numbers of data points every year with all the cars that we’re evaluating on a day-to-day basis, all of the customer interactions that we have every single day, whether it’s on the website or in our communications with customers, and a number of other things. And we’re able to do that at a very large scale. We’re also highly vertically integrated, which we think makes AI even more powerful because various parts of the vertically integrated chain can be connecting and learning from one another, driving even further gains on AI. And obviously, we’re also technology-centric, which I think along with having large scale and vertical integration is important to making the most use of AI as quickly as possible.
We’ve seen all kinds of gains already in customer care, in particular, getting better at processing documents, automatically speeding up the time it takes to handle calls that come in to our customer care centers. And I think those are a couple of quick examples, but this is certainly something that we’re very excited about. We think we’re structurally positioned to significantly benefit from it, given our large scale, our vertical integration and our technology focus. And so definitely something that we are excited about.
Ernie Garcia: And just because that’s a fun one I would love to jump in and add a couple of points as well. The other thing that we believe is unique about us is our system is totally deterministic, meaning that there is a negotiation. And that means that a customer coming to our site can get a complete answer instantly just driven by logic. And so it means the experience that they can get through these tools are much more complete. And I think there are a few tools that we’ve worked on in our history that I think have more clearly demonstrated the value of vertical integration because it is very, very hard to answer what can feel to a customer like a very simple question. Do you have any similar cars with the sunroof that will cost me $20 less per month?
That’s a hard question to answer. And it’s an extremely hard question to answer if you’re not vertically integrated and if your data isn’t organized in a way that enables you to do it and impossible to answer, if you’re not – if your policies don’t result in deterministic calcs that drive that and all of ours do. So I think it’s really exciting. This is an area where anyone who’s paying any attention at all is your mind is constantly blown every week when you kind of see the new things that are rolling out. So I don’t think we yet know exactly where this is going to go. I think we do know that we’re well positioned to take advantage of it. I think also there’s kind of another fundamental at play, which is the value of any given technology is always a function of how well positioned you are to use it versus those you compete with.
And I think there’s a pretty differentiated story here. We’ve got a great team. We’re paying very close attention. And so we’ll see where that takes us. I’m not sure it’s driving numerical results yet outside of some things you’re seeing in customer care, but we are certainly working on it, and we’re excited about where it could go over time.
Ronald Josey: Super helpful. Thanks, guys.
Ernie Garcia: Thank you.
Operator: And our last question will come from John Blackledge with TD Cowen. Please go ahead.
John Blackledge: Great. Thanks. Two questions. First, the ad spend was down over 30% year-over-year. Just curious how we should think about ad spend in the first quarter and then 2024? And then just a follow-up on same-day. Recognized it’s in 11 markets right now, and it’s early days, but what is the typical mix of kind of same-day inventory available in a given market? And how could that trend over time? Thank you.
Mark Jenkins: I could start by hitting the question on ad spend. So ad spend in the first quarter, we expect a slight tick down from where we were in Q4, more toward Q2, Q3 levels, maybe slightly lower, but roughly in the Q2 to Q3 range. So the overall story there is stable ad spend in Q1 relative to the past few quarters.
Ernie Garcia: And then generally speaking, as it relates to inventory availability of same-day, the right kind of first order way to think about that is usually the vehicles that are closest to customers in the markets where we offer it, are available same-day, and we are generally rolling it out in markets where we are nearby inspection centers. And so that is what is governing our choices of which markets rolling that out to, and that’s why over time, as we continue to open more capabilities at [indiscernible] locations, we’ll be able to expand that further.
