CARG - CarGurus Announces Second Quarter 2020 Results

Second Quarter Highlights:

• Total revenue of $94.7 million, a decrease of (35%) year-over-year
• GAAP operating income of $8.7 million; non-GAAP operating income of $24.7 million
• GAAP net income of $7.1 million; non-GAAP net income of $21.3 million
• Adjusted EBITDA of $27.5 million

CAMBRIDGE, Mass., Aug. 06, 2020 (GLOBE NEWSWIRE) -- CarGurus, Inc. (Nasdaq: CARG), a leading global online automotive marketplace, today announced financial results for the second quarter ended June 30, 2020.

“Although our industry and our business are facing unprecedented uncertainty amidst the COVID-19 pandemic, CarGurus generated strong results in the second quarter that demonstrate our business’s flexibility and resilience,” said Langley Steinert, Founder and Chief Executive Officer of CarGurus. “Over the last several months, our employees have produced remarkable successes all while navigating work-from-home environments and often-challenging circumstances. As a result of their hard work, we continue to deliver what we believe to be market-leading innovation and return on investment to our dealer customers. Our business showed several signs of recovery in the second quarter as consumer demand increased significantly in May and June, yielding strong lead generation and helping dealers rebuild their sales pipelines. We began a broad rollout of our Realtime Performance Marketing suite, generated record engagement on our consumer financing platform, and developed additional elements of the online transaction to offer more digital retail services in our marketplace.”

COVID-19 Business Update

The COVID-19 pandemic and its adverse effects have become widespread in locations where CarGurus and its customers, suppliers and third-party business partners conduct business and, as a result, CarGurus has experienced disruptions in its operations. Within the second quarter of 2020, CarGurus implemented several cost-savings measures pursuant to an expense reduction plan approved by the CarGurus Board of Directors to address the impact of the COVID-19 pandemic on CarGurus’ business (the “Restructuring”). For example, CarGurus initiated a reduction of approximately 13% of its workforce, significantly reduced global advertising spend compared to the second quarter of 2019, ceased marketplace operations in Germany, Italy, and Spain, and halted any new international expansion efforts. Additionally, to help dealer customers impacted by the COVID-19 pandemic, CarGurus was the first major online automotive marketplace⁽¹⁾ in the United States, Canada and the United Kingdom to extend billings relief to its customers. Specifically, CarGurus offered United States and Canadian paying dealers fee reductions of 50%, 50%, and 20% in the months of April, May, and June, respectively. In the United Kingdom, CarGurus offered paying dealers fee reductions of 50% during each month of the second quarter. The following table depicts marketplace subscription revenue in both the U.S. and International segments for the three months and six months ending June 30, 2020 and June 30, 2019, respectively, reflecting the fee reductions.

(1) CarGurus defines major online automotive marketplaces in: (i) the United States as CarGurus.com, AutoTrader.com, Cars.com, and TrueCar.com; (ii) Canada as www.CarGurus.ca, Kijiji.ca, and AutoTrader.ca; and (iii) the United Kingdom as CarGurus.co.uk, Motors.co.uk, AutoTrader.co.uk, Pistonheads.com, and Gumtree.com.

While the macro-economic environment makes it difficult to anticipate the many variables that are impacting the economy, the industry and CarGurus’ business, recent events are encouraging. Despite reduced consumer marketing spend in May and June, during this period CarGurus’ U.S. average monthly unique users were 36.6 million⁽²⁾ compared to April’s U.S. monthly unique users of 29.0 million⁽²⁾. Additionally, in May and June, CarGurus’ U.S. average monthly sessions were 93.0 million⁽³⁾ compared to April’s U.S. monthly sessions of 71.7 million⁽³⁾. CarGurus believes these increases in May and June, demonstrate the strength in CarGurus’ recovery and the value delivered by CarGurus to paying dealers. While CarGurus’ paying dealer count declined in the month of April, cancellations stabilized in May and the rapid recovery in traffic and leads resulted in a substantial re-acquisition of business in the last two months of the quarter. Additionally, in the second quarter of 2020, CarGurus continued to innovate as it rolled out its Realtime Performance Marketing suite product on a broad scale and experienced a record number of loan originations on its consumer financing platform.

(2) Includes users from the Autolist website
(3) Includes sessions from the Autolist website

KPI Update

CarGurus adopted a new definition of its paying dealer metric to align CarGurus’ data with an enterprise-system upgrade. CarGurus now defines a paying dealer as a dealer account with an active, paid marketplace subscription at the end of a defined period. CarGurus had previously defined a paying dealer as a dealer, based on a distinct associated inventory feed, that subscribes to one of CarGurus’ paid Listings packages or Dealer Display advertising and audience targeting products at the end of a defined period. The enterprise-system upgrade and overhaul of its data architecture have provided CarGurus with improved accuracy in dealer-level data and is expected to yield improved efficiency in sales account management. CarGurus also completed a data-reconciliation effort to align its historical data to the new structure. After adjusting for the new definition, and taking into account the reconciled data, CarGurus has restated certain prior period paying dealer metrics. Due to the overhaul of the system’s architecture, CarGurus does not have the ability to restate paying dealer count metrics for periods prior to the end of the third quarter of 2019. As a result, the following table represents the number of paying dealers in both the U.S. and International segments reflecting the revised paying dealer definition as well as the reconciled data on each of September 30, 2019, December 31, 2019, March 31, 2020 and June 30, 2020.

To offer additional insight regarding the business, the table below depicts marketplace subscription revenue in both the U.S. and International segments for each of the six most recent fiscal quarters ending with the quarter ended June 30, 2020. CarGurus intends to provide marketplace subscription revenue by segment in future quarters.

Finally, because of the updated paying dealer definition and the restatement of prior period paying dealer numbers, CarGurus is not providing Average Annual Revenue per Subscribing Dealer (“AARSD”) for the second quarter of 2020 and does not intend to provide AARSD for future quarters. However, the table below depicts a related metric, Quarterly Average Marketplace Revenue per Subscribing Dealer (“QARSD”) which CarGurus expects to report moving forward, as of December 31, 2019, March 31, 2020 and June 30, 2020. CarGurus defines QARSD, which is measured at the end of a fiscal quarter, as the marketplace subscription revenue during that quarter divided by the average number of paying dealers in that marketplace during the same quarter.  CarGurus calculates the average number of paying dealers for a period by adding the number of paying dealers at the end of the prior period and the end of the current period and dividing by two. CarGurus intends to provide QARSD by segment in future quarters.

Revenue

• Total revenue was $94.7 million, a decrease of (35%) compared to $145.0 million in the second quarter of 2019.
• Marketplace subscription revenue was $80.0 million, a decrease of (38%) compared to $129.1 million in the second quarter of 2019.
• Advertising and other revenue was $14.8 million, a decrease of (7%) compared to $15.9 million in the second quarter of 2019.
• Total non-GAAP, pro forma revenue would have been approximately $141.5 million which is inclusive of (i) approximately $126.7 million non-GAAP, pro forma marketplace subscription revenue, and (ii) $14.8 million of GAAP advertising and other revenue.

Operating Income

• GAAP operating income was $8.7 million, or 9% of total revenue, compared to $3.5 million, or 2% of total revenue, in the second quarter of 2019.
• GAAP operating income includes a one-time non-recurring $4.3 million Restructuring expense, inclusive of $0.8 million of stock-based compensation expense, associated with the impact of the COVID-19 pandemic in the second quarter of 2020.
• Non-GAAP operating income was $24.7 million, or 26% of total revenue, compared to $12.7 million, or 9% of total revenue, in the second quarter of 2019.

Net Income & Adjusted EBITDA

• GAAP net income was $7.1 million, or $0.06 per fully diluted share during the second quarter ended June 30, 2020, compared to $6.0 million, or $0.05 per fully diluted share during the second quarter ended June 30, 2019.
• Non-GAAP net income was $21.3 million, or $0.19 per fully diluted share during the second quarter ended June 30, 2020, compared to $11.0 million, or $0.10 per fully diluted share during the second quarter ended June 30, 2019.
• Adjusted EBITDA, a non-GAAP metric, was $27.5 million for the second quarter ended June 30, 2020 compared to $14.5 million for the second quarter ended June 30, 2019.

Balance Sheet and Cash Flow

• As of June 30, 2020, CarGurus had cash, cash equivalents, and short-term investments of $176.2 million and no debt.
• CarGurus generated $24.8 million in cash from operations and $22.4 million in free cash flow, a non-GAAP metric, during the second quarter of 2020, compared to having generated $16.0 million in cash from operations and $12.4 million in free cash flow during the second quarter of 2019.

Second Quarter Business Metrics

• U.S. revenue was $89.7 million in the second quarter of 2020, a decrease of (34%) compared to $137.0 million in the second quarter of 2019. GAAP operating income in the U.S. was $15.3 million, an increase of 9% compared to $14.1 million in the second quarter of 2019.
• International revenue was $5.0 million in the second quarter of 2020, a decrease of (38%) compared to $8.0 million in the second quarter of 2019. GAAP operating loss in International markets was ($6.6) million, a reduction in loss of 37% compared to a loss of ($10.6) million in the second quarter of 2019.   
• Website traffic and consumer engagement metrics for the second quarter of 2020 were as follows:
  • U.S. average monthly unique users were 34.1 million⁽¹⁾, a decrease of (8%) compared to 36.9 million in the second quarter of 2019. U.S. average monthly sessions were 85.9 million⁽²⁾, a decrease of (15%) compared to 101.4 million in the second quarter of 2019.
  • International average monthly unique users were 7.8 million, a decrease of (21%) compared to 9.8 million in the second quarter of 2019. International average monthly sessions were 17.4 million, a decrease of (28%) compared to 24.1 million in the second quarter of 2019.           

 (1)     Includes users from the Autolist website
 (2)     Includes sessions from the Autolist website

Third Quarter and Full-Year 2020 Guidance

CarGurus anticipates total revenue, non-GAAP operating income, and non-GAAP earnings per share to be in the following ranges:

Third Quarter 2020:

The third quarter 2020 non-GAAP earnings per share calculation assumes 114.1 million diluted weighted-average common shares outstanding.

Full-Year 2020:

The full-year non-GAAP earnings per share calculation assumes 114.3 million diluted weighted-average common shares outstanding.

Guidance for the third quarter and full-year 2020 does not include any potential impact of foreign currency exchange gains or losses.

CarGurus has not reconciled its non-GAAP operating income guidance to GAAP operating income, or its non-GAAP EPS guidance to GAAP EPS, because stock-based compensation, amortization of intangible assets, acquisition-related expenses, and restructuring expenses, the reconciling items between such GAAP and non-GAAP financial measures, cannot be reasonably predicted due to, as applicable, the timing, amount, valuation and number of future employee equity awards, and the uncertainty relating to the timing, frequency and effect of acquisitions as well as restructuring and the significance of the resulting acquisition-related or restructuring expenses, and therefore cannot be determined without unreasonable effort. For more information regarding the non-GAAP financial measures discussed in this release, please see the reconciliations of GAAP financial measures to non-GAAP financial measures and the section titled “Non-GAAP Financial Measures and Other Business Metrics” below.

Conference Call and Webcast Information

CarGurus will host a conference call and live webcast to discuss its second quarter ended June 30, 2020 financial results and business outlook at 5:00 p.m. Eastern Time today, August 6, 2020. To access the conference call, dial (888) 220-8474 for callers in the U.S. or Canada, or (646) 828-8193 for international callers, and use the passcode 7553176. The webcast will be available live on the Investors section of CarGurus’ website at https://investors.cargurus.com.

An audio replay of the call will also be available to investors beginning at approximately 8:00 p.m. Eastern Time on August 6, 2020, until 11:59 p.m. Eastern Time on August 20, 2020, by dialing (844) 512-2921 for callers in the U.S. or Canada, or (412) 317-6671 for international callers, and entering passcode 10146279. In addition, an archived webcast will be available on the Investors section of CarGurus’ website at https://investors.cargurus.com.

About CarGurus

Founded in 2006, CarGurus (Nasdaq: CARG) is a global, online automotive marketplace connecting buyers and sellers of new and used cars. The Company uses proprietary technology, search algorithms and data analytics to bring trust and transparency to the automotive search experience and help users find great deals from top-rated dealers. CarGurus is the most visited automotive shopping site in the U.S. (source: Comscore Media Metrix^® Multi-Platform, Automotive – Information/Resources, Total Audience, Q2 2020, U.S. (Competitive set includes: CarGurus.com, Autotrader.com, Cars.com, TrueCar.com)). In addition to the United States, CarGurus operates online marketplaces under the CarGurus brand in Canada and the United Kingdom. In the United States and the United Kingdom, CarGurus also operates the Autolist and PistonHeads online marketplaces, respectively, as independent brands. To learn more about CarGurus, visit www.cargurus.com.  CarGurus^® is a registered trademark of CarGurus, Inc.

© 2020 CarGurus, Inc., All Rights Reserved.

Cautionary Language Concerning Forward-Looking Statements

This press release includes forward-looking statements. All statements contained in this press release other than statements of historical facts, including, without limitation, statements regarding our future financial and business performance for the third quarter 2020 and full-year 2020, our business and strategy, our ability to help our dealer customers and consumers, the impact of fee reductions that we have provided, our expectations for our enterprise-system upgrade and overhaul of our data architecture to yield improved efficiency in sales account management, and the impact of the COVID-19 pandemic on our business and financial results, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “estimate,” “expect,” “guide,” “intend,” “likely,” “may,” “will” and similar expressions and their negatives are intended to identify forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks and uncertainties, including, without limitation, risks related to our growth and ability to grow our revenue, our relationships with dealers, competition in the markets in which we operate, market growth, our ability to innovate, our ability to realize benefits from our acquisitions and successfully implement the integration strategies in connection therewith, natural disasters, epidemics or pandemics, like COVID-19 that has negatively impacted our business, our ability to realize cost savings and achieve other benefits for our business from our expense reduction efforts, our ability to operate in compliance with applicable laws, as well as other risks and uncertainties as may be detailed from time to time in our Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q and other reports we file with the Securities and Exchange Commission. Moreover, we operate in very competitive and rapidly changing environments. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, we cannot guarantee that future results, levels of activity, performance, achievements or events and circumstances reflected in the forward-looking statements will occur. We are under no duty to update any of these forward-looking statements after the date of this press release to conform these statements to actual results or revised expectations, except as required by law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this press release.

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