CARG - CarGurus Announces Third Quarter 2020 Results

Third Quarter Highlights:

• Total revenue of $147.5 million , a decrease of (2%) year-over-year
• GAAP operating income of $43.6 million ; non-GAAP operating income of $55.1 million
• GAAP net income of $32.6 million; non-GAAP net income of $41.9 million
• Adjusted EBITDA of $57.0 million

CAMBRIDGE, Mass., Nov. 05, 2020 (GLOBE NEWSWIRE) -- CarGurus, Inc. (Nasdaq: CARG), a leading global online automotive marketplace, today announced financial results for the third quarter ended September 30, 2020.

“Despite the ongoing uncertainty amidst the COVID-19 pandemic, CarGurus generated strong results in the third quarter that continue to demonstrate our business’s flexibility and resilience,” said Langley Steinert, Founder and Chief Executive Officer of CarGurus. “Since March, our employees have navigated work-from-home environments and often challenging circumstances and I want to thank them for their tremendous effort. As a result of their hard work, CarGurus’ financial performance was well above both our revenue and profit guidance for the quarter driven by improved dealer retention versus Q2, and continued efficiency of our marketing investments.”

Revenue

• Total revenue was $147.5 million, a decrease of (2%) compared to $150.5 million in the third quarter of 2019.
• Marketplace subscription revenue was $130.0 million, a decrease of (4%) compared to $135.5 million in the third quarter of 2019.
• Advertising and other revenue was $17.5 million, an increase of 17% compared to $14.9 million in the third quarter of 2019.

Operating Income

• GAAP operating income was $43.6 million, or 30% of total revenue, compared to $9.7 million, or 6% of total revenue, in the third quarter of 2019.
• Non-GAAP operating income was $55.1 million, or 37% of total revenue, compared to $18.7 million, or 12% of total revenue, in the third quarter of 2019.

Net Income & Adjusted EBITDA

• GAAP net income was $32.6 million, or $0.29 per fully diluted share during the third quarter ended September 30, 2020, compared to $10.4 million, or $0.09 per fully diluted share during the third quarter ended September 30, 2019.
• Non-GAAP net income was $41.9 million, or $0.37 per fully diluted share during the third quarter ended September 30, 2020, compared to $15.6 million, or $0.14 per fully diluted share during the third quarter ended September 30, 2019.
• Adjusted EBITDA, a non-GAAP metric, was $57.0 million for the third quarter ended September 30, 2020, compared to $20.6 million for the third quarter ended September 30, 2019.

Balance Sheet and Cash Flow

• As of September 30, 2020, CarGurus had cash and cash equivalents of $245.9 million and no debt. There were no short-term investments at September 30, 2020.
• CarGurus generated $73.9 million in cash from operations and $72.4 million in free cash flow, a non-GAAP metric, during the third quarter of 2020, compared to having generated $23.8 million in cash from operations and $21.1 million in free cash flow during the third quarter of 2019.

Third Quarter Business Metrics

• U.S. revenue was $138.4 million in the third quarter of 2020, a decrease of (2%) compared to $141.6 million in the third quarter of 2019. U.S. marketplace subscription revenue was $121.8 million in the third quarter of 2020, a decrease of (5%) compared to $127.8 million in the third quarter of 2019. GAAP operating income in the U.S. was $46.5 million, an increase of 133% compared to $20.0 million in the third quarter of 2019.
• International revenue was $9.1 million in the third quarter of 2020, an increase of 3% compared to $8.8 million in the third quarter of 2019. International marketplace subscription revenue was $8.1 million in the third quarter of 2020, an increase of 5% compared to $7.7 million in the third quarter of 2019. GAAP operating loss in International markets was ($2.9) million, a reduction in loss of 72% compared to a loss of ($10.3) million in the third quarter of 2019.
• Total paying dealers were 30,162 ⁽¹⁾ at September 30, 2020, a decrease of (9%) compared to 33,086 at September 30, 2019 ^{( 2 )} . Of the total paying dealers at September 30, 2020, U.S. and International accounted for 23,659 ⁽¹⁾ and 6,503, respectively, compared to 26,163 and 6,923, respectively, at September 30, 2019 ^{( 2 )} .
• Quarterly Average Revenue per Subscribing Dealer (“QARSD”) in the U.S. was $5,133 as of September 30, 2020, an increase of 68% compared to $3,047 as of June 30, 2020 ^{( 3 )} and an increase of 6% compared to $4,825 as of June 30, 2020 ^{( 3 )} on a non-GAAP, pro forma basis ^{( 4 )} .
• QARSD in International markets was $1,256 as of September 30, 2020, an increase of 95% compared to $643 as of June 30, 2020 ^{( 3 )} and an increase of 22% compared to $1,029 as of June 30, 2020 ^{( 3 )} on a non-GAAP, pro forma basis ^{( 4 )} .
• Website traffic and consumer engagement metrics for the third quarter of 2020 were as follows:

° U.S. average monthly unique users were 38.7 million ^{( 5 )} , an increase of 2% compared to 38.1 million in the third quarter of 2019. U.S. average monthly sessions were 94.3 million ^{( 6 )} , a decrease of (9%) compared to 103.5 million in the third quarter of 2019.

º International average monthly unique users were 7.8 million, a decrease of (24%) compared to 10.2 million in the third quarter of 2019. International average monthly sessions were 18.3 million, a decrease of (30%) compared to 26.2 million in the third quarter of 2019.

Fourth 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:

Fourth Quarter 2020:

The fourth quarter 2020 non-GAAP earnings per share calculation assumes 114.2 million diluted weighted-average common shares outstanding.

Full-Year 2020:

The full-year non-GAAP earnings per share calculation assumes 114.1 million diluted weighted-average common shares outstanding.

Guidance for the fourth quarter and full-year 2020 excludes the effects of significant COVID-19 resurgences, including the reintroduction of lockdowns and/or a slowed pace of recovery, that result in dealers and consumers materially changing their recent market behaviors or that cause us to enact measures to assist dealers, such as by offering billings relief. Guidance assumes that our pace of paid dealer acquisition, churn, and expansion activity for the remainder of the year will be in line with recent market behaviors. Guidance 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 third quarter ended September 30, 2020 financial results and business outlook at 5:00 p.m. Eastern Time today, November 5, 2020. To access the conference call, dial (800) 909-7944 for callers in the U.S. or Canada, or (212) 231-2936 for international callers. 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 today, November 5, 2020, until 11:59 p.m. Eastern Time on November 19, 2020, by dialing (844) 512-2921 for callers in the U.S. or Canada, or (412) 317-6671 for international callers, and entering passcode 21971108. 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, Q3 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 fourth quarter 2020 and full-year 2020, our business and strategy and the impact of the COVID-19 pandemic on our industry, 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.

Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)

Unaudited Condensed Consolidated Income Statements
(in thousands, except share and per share data)

Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)

Unaudited Reconciliation of Marketplace Subscription Revenue
(in thousands)

Unaudited Reconciliation of GAAP Operating Income to Non-GAAP Operating Income and GAAP Operating Margin to Non-GAAP Operating Margin
(in thousands, except percentages)

Unaudited Reconciliation of GAAP Net Income to Non-GAAP Net Income
(in thousands, except per share data)

Unaudited Reconciliation of GAAP Gross Profit to Non-GAAP Gross Profit and GAAP Gross Profit Margin to Non-GAAP Gross Profit Margin
(in thousands, except percentages)

Unaudited Reconciliation of GAAP Expense to Non -GAAP Expense
(in thousands)

Unaudited Reconciliation of GAAP Net Income to Adjusted EBITDA
(in thousands)

Unaudited Reconciliation of GAAP Net Cash and Cash Equivalents Provided by Operating Activities to Non-GAAP Free Cash Flow
(in thousands)

Non-GAAP Financial Measures and Other Business Metrics

To supplement our consolidated financial statements, which are prepared and presented in accordance with Generally Accepted Accounting Principles in the United States (GAAP), we provide investors with certain non-GAAP financial measures and other business metrics, which we believe are helpful to our investors. We use these non-GAAP financial measures and other business metrics for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons. We believe that these non-GAAP financial measures and other business metrics provide useful information about our operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to metrics used by our management in its financial and operational decision-making.

The presentation of non-GAAP financial information and other business metrics is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. While our non-GAAP financial measures and other business metrics are an important tool for financial and operational decision-making and for evaluating our own operating results over different periods of time, we urge investors to review the reconciliation of these financial measures to the comparable GAAP financial measures included above, and not to rely on any single financial measure to evaluate our business.

We define Adjusted EBITDA as net income, adjusted to exclude: depreciation and amortization, stock-based compensation expense, acquisition-related expenses, restructuring expenses, other income, net, and the provision for (benefit from) income taxes. We have presented Adjusted EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our operating performance, generate future operating plans, and make strategic decisions regarding the allocation of capital. In particular, we believe that the exclusion of certain items in calculating Adjusted EBITDA can produce a useful measure for period-to-period comparisons of our business.

We define Free Cash Flow as cash flow from operations, adjusted to include purchases of property and equipment and capitalization of website development costs. We have presented Free Cash Flow because it is a measure of the Company’s financial performance that represents the cash that the Company is able to generate after expenditures required to maintain or expand our asset base.

We define non-GAAP, pro forma marketplace subscription revenue as GAAP marketplace subscription revenue, adjusted to exclude the impact of fee reductions and which assumes that we had no incremental churn other than realized in the relevant quarter, such that all reported paying dealers retained their subscriptions at their full subscription level. We believe this non-GAAP financial measure provides useful information that will allow investors to compare our period-to-period revenue trends.

We also monitor operating measures of certain non-GAAP items including non-GAAP gross margin, non-GAAP expense, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income and non-GAAP net income per share. These non-GAAP financial measures exclude the effect of stock-based compensation expense, amortization of intangible assets, restructuring expenses and acquisition-related expenses. Non-GAAP net income and non-GAAP net income per share also exclude the change in tax provision from stock-based compensation expense. We believe that these non-GAAP financial measures provide useful information about our operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to metrics used by our management in its financial and operational decision-making.

While a reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort 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, we have provided a reconciliation of non-GAAP financial measures and other business metrics to the nearest comparable GAAP measures in the accompanying financial statement tables included in this press release.

We define a paying dealer as a dealer account with an active, paid marketplace subscription, at the end of a defined period.

We define QARSD, which is measured at the end of a fiscal quarter, as the marketplace subscription revenue during that trailing quarter divided by the average number of paying dealers in that marketplace during the quarter. We calculate the average number of paying dealers for a period by adding the number of paying dealers at the end of such period and the end of the prior period and dividing by two. We have provided QARSD for the three months ended June 30, 2020 utilizing non-GAAP, pro forma marketplace subscription revenue for such quarter in addition to GAAP marketplace subscription revenue because we believe that calculating QARSD for such quarter with this non-GAAP revenue measure provides useful information that will allow investors to compare period-to-period trends in our business.

For each of our websites, we define a monthly unique user as an individual who has visited such website within a calendar month, based on data as measured by Google Analytics. We calculate average monthly unique users as the sum of the monthly unique users in a given period, divided by the number of months in that period. We count a unique user the first time a computer or mobile device with a unique device identifier accesses one of our websites during a calendar month. If an individual accesses a website using a different device within a given month, the first access by each such device is counted as a separate unique user.

We define monthly sessions as the number of distinct visits to our websites that take place each month within a given time frame, as measured and defined by Google Analytics. We calculate average monthly sessions as the sum of the monthly sessions in a given period, divided by the number of months in that period. A session is defined as beginning with the first page view from a computer or mobile device and ending at the earliest of when a user closes their browser window, after 30 minutes of inactivity, or each night at midnight (i) Eastern Time for our United States and Canada websites, other than the Autolist website, (ii) Pacific Time for the Autolist website, (iii) Greenwich Mean Time for our U.K. websites, and (iv) Central European Time (or Central European Summer Time when daylight savings is observed) for our Germany, Italy, and Spain websites, which ceased operations in the second quarter of 2020. A session can be made up of multiple page views and visitor actions, such as performing a search, visiting vehicle detail pages, and connecting with a dealer.

We define leads as user inquiries via our marketplace to dealers by phone calls, email, or managed text and chat.

Investor Contact:
Scot Fredo
Senior Vice President, CarGurus
investors@cargurus.com