CarGurus Announces Second Quarter 2018 Results

August 7, 2018
PDF Version

Second Quarter Highlights:

  • Total revenue of $110.3 million, an increase of 45% year-over-year
  • GAAP operating income of $1.4 million; non-GAAP operating income of $7.0 million
  • GAAP net income of $31.3 million; non-GAAP net income of $6.9 million
  • Adjusted EBITDA of $8.3 million

CAMBRIDGE, Mass., Aug. 07, 2018 (GLOBE NEWSWIRE) -- CarGurus, Inc. (Nasdaq:CARG), a leading global automotive marketplace, today announced financial results for the second quarter ended June 30, 2018.

“The second quarter’s results built upon the momentum we delivered in Q1, resulting in both revenue and profitability above our guidance,” said Langley Steinert, Founder and Chief Executive Officer of CarGurus.  “In addition to our strong financial results, we also continued to grow our global consumer audience and install base of paying dealers, providing trust and transparency to auto shoppers and increasing the value we deliver to dealers.”

Revenue

Second Quarter 2018:

  • Total revenue was $110.3 million, an increase of 45% compared to $76.2 million in the second quarter of 2017.
  • Marketplace subscription revenue was $97.7 million, an increase of 44% compared to $67.8 million in the second quarter of 2017.
  • Advertising and other revenue was $12.6 million, an increase of 49% compared to $8.5 million in the second quarter of 2017.

Operating Income

Second Quarter 2018:

  • GAAP operating income was $1.4 million, or 1% of total revenue, compared to $6.0 million, or 8% of total revenue, in the second quarter of 2017.
  • Non-GAAP operating income was $7.0 million, or 6% of total revenue, compared to $6.1 million, or 8% of total revenue, in the second quarter of 2017.

Net Income & Adjusted EBITDA

Second Quarter 2018:

  • GAAP net income was $31.3 million, or $0.28 per share based on 113.1 million weighted-average diluted shares outstanding as of June 30, 2018, as compared to net income of $4.3 million, or $0.04 per share based on 46.1 million weighted-average diluted shares outstanding as of June 30, 2017, in the second quarter of 2017.   
  • Non-GAAP net income was $6.9 million, or $0.06 per share based on 113.1 million weighted-average diluted shares outstanding as of June 30, 2018, compared to $4.1 million or $0.04 per share based on 106.7 million weighted-average diluted shares outstanding as of June 30, 2017, in the second quarter of 2017.
  • Adjusted EBITDA, a non-GAAP metric, was $8.3 million, compared to $7.0 million in the second quarter of 2017.

Balance Sheet and Cash Flow

  • As of June 30, 2018, CarGurus had cash, cash equivalents, and short-term investments of $141.8 million and no debt. 
  • The Company generated $17.5 million in cash from operations and $16.8 million in free cash flow, which is a non-GAAP metric, during the second quarter of 2018 compared to generating $4.8 million in cash from operations and $2.6 million in free cash flow during the second quarter of 2017. 

Second Quarter Business Metrics

  • U.S. revenue was $106.4 million in the second quarter of 2018, an increase of 44% compared to $74.1 million in the second quarter of 2017. GAAP operating income in the U.S. was $9.7 million, a decrease of 21% compared to $12.2 million in the second quarter of 2017. The decrease in GAAP operating income from the second quarter of 2017 to the second quarter of 2018 was primarily due to a $5.2 million increase in stock-based compensation expense. 
  • International revenue was $3.9 million in the second quarter of 2018, an increase of 87% compared to $2.1 million in the second quarter of 2017. GAAP operating loss in International markets was ($8.2) million, an increase of 33% compared to a loss of ($6.2) million in the second quarter of 2017.
  • Total paying dealers were 29,969 at June 30, 2018, an increase of 20% compared to 25,041 at June 30, 2017.  Of the total paying dealers at June 30, 2018, U.S. and International accounted for 26,871 and 3,098, respectively, compared to 23,347 and 1,694, respectively, at June 30, 2017.
  • Average annual revenue per subscribing dealer (AARSD) in the U.S. was $13,130 as of June 30, 2018, an increase of 19% compared to $11,048 as of June 30, 2017.
  • AARSD in International markets was $5,037 as of June 30, 2018, an increase of 2% compared to $4,944 as of June 30, 2017.
  • Website traffic and consumer engagement metrics for the second quarter of 2018 grew as follows:
    • U.S. average monthly unique users were 36.0 million, an increase of 56% compared to 23.1 million in the second quarter of 2017. U.S. average monthly sessions were 93.3 million, an increase of 52% compared to 61.3 million in the second quarter of 2017.
    • International average monthly unique users were 3.5 million, an increase of 54% compared to 2.3 million in the second quarter of 2017. International average monthly sessions were 8.0 million, an increase of 60% compared to 5.0 million in the second quarter of 2017.

Third Quarter and Full-Year 2018 Guidance

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

Third Quarter 2018:

• Total revenue $112 to $113 million
• Non-GAAP operating income $5.5 to $6.5 million
• Non-GAAP EPS $0.04 to $0.05

The third quarter 2018 non-GAAP earnings per share calculation assumes 113.6 million diluted weighted-average common shares outstanding.

Full-Year 2018:

• Total revenue $436 to $438 million
• Non-GAAP operating income $28.5 to $30.5 million
• Non-GAAP EPS $0.22 to $0.23

The full-year non-GAAP earnings per share calculation assumes 113.5 million diluted weighted-average common shares outstanding.  Guidance for the third quarter and full-year 2018 does not include any potential impact of foreign 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, the reconciling item between such GAAP and non-GAAP financial measures, cannot be reasonably predicted due to timing, amount, valuation and number of future employee awards and therefore is not available 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 2018 financial results and third quarter and full fiscal year 2018 financial guidance at 5:00 p.m. Eastern Time today, August 7, 2018. To access the conference call, dial (877) 451-6152 for the U.S. or Canada, or (201) 389-0879 for international callers. The webcast will be available live on the Investors section of the Company's 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 7, 2018, until 11:59 p.m. Eastern Time on August 21, 2018, by dialing (844) 512-2921 for the U.S. or Canada, or (412) 317-6671 for international callers, and entering passcode 13681306. In addition, an archived webcast will be available on the Investors section of the Company's 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 largest automotive shopping site in the U.S. by unique monthly visitors (source: ComScore Media Metrix Multi Platform, June 2018). In addition to the United States, CarGurus operates online marketplaces in Canada, the United Kingdom, Germany, Italy, and Spain. To learn more about CarGurus, visit www.cargurus.com.

CarGurus® is a registered trademark of CarGurus, Inc.

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 2018 and full-year 2018, attractiveness of our product offerings and platform, the value proposition of our products and our market awareness, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “estimate,” “expect,” “intend,” “guide,” “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 rapid growth and ability to sustain our revenue growth rate, our relationships with dealers, competition in the markets in which we operate, market growth, our ability to innovate and manage our growth, our ability to expand effectively into new markets, our ability to operate in compliance with applicable laws as well as other risks and uncertainties set forth in the “Risk Factors” section of our Quarterly Report on Form 10-Q, filed on August 7, 2018 with the Securities and Exchange Commission (SEC), and subsequent reports that we file with the SEC.  Moreover, we operate in a very competitive and rapidly changing environment. 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 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)

               
  At
June 30,
2018		     At
December 31,
2017		  
Assets              
Current assets              
Cash and cash equivalents $ 31,762     $ 87,709  
Investments   110,000       50,000  
Accounts receivable, net of allowance for doubtful accounts of $551
  and $494, respectively		   11,432       12,577  
Prepaid expenses, prepaid income taxes and other current assets   11,090       6,918  
Total current assets   164,284       157,204  
Property and equipment, net   16,221       16,563  
Restricted cash   3,604       1,843  
Deferred tax assets   29,049       825  
Other long–term assets   143       159  
Total assets $ 213,301     $ 176,594  
Liabilities and Stockholders’ Equity              
Current liabilities              
Accounts payable $ 30,476     $ 23,908  
Accrued expenses, accrued income taxes and other current liabilities   11,290       13,588  
Deferred revenue   7,577       4,305  
Deferred rent   1,206       1,165  
Total current liabilities   50,549       42,966  
Deferred rent, net of current portion   5,206       5,648  
Other non–current liabilities   1,155       955  
Total liabilities   56,910       49,569  
Stockholders’ equity:              
Class A common stock, $0.001 par value per share; 500,000,000 shares
  authorized; 88,682,807 and 77,884,754 shares issued and outstanding
  at June 30, 2018 and December 31, 2017, respectively.		   89       78  
Class B common stock, $0.001 par value per share; 100,000,000 shares
  authorized; 20,702,084 and 28,226,104 shares issued and outstanding
  at June 30, 2018 and December 31, 2017, respectively.		   21       28  
Additional paid-in capital   179,716       185,190  
Accumulated deficit   (23,583 )     (58,499 )
Accumulated other comprehensive income   148       228  
Total stockholders’ equity   156,391       127,025  
Total liabilities and stockholders’ equity $ 213,301     $ 176,594  
               

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

    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2018     2017     2018     2017  
Revenue   $ 110,325     $ 76,240     $ 209,026     $ 143,275  
Cost of revenue(1)     5,959       4,322       11,528       7,647  
Gross profit     104,366       71,918       197,498       135,628  
Operating expenses:                                
Sales and marketing     80,933       55,533       152,441       104,604  
Product, technology, and development     11,844       4,709       20,942       8,357  
General and administrative     9,541       5,033       17,412       9,092  
Depreciation and amortization     604       648       1,337       1,196  
Total operating expenses     102,922       65,923       192,132       123,249  
Income from operations     1,444       5,995       5,366       12,379  
Other income, net     703       53       985       217  
Income before income taxes     2,147       6,048       6,351       12,596  
(Benefit from) provision for income taxes     (29,118 )     1,702       (28,565 )     4,043  
Net income   $ 31,265     $ 4,346     $ 34,916     $ 8,553  
Reconciliation of net income to net income
  attributable to common stockholders:		                                
Net income   $ 31,265     $ 4,346     $ 34,916     $ 8,553  
Net income attributable to participating securities     —       (2,563 )     —       (5,045 )
Net income attributable to common stockholders — basic   $ 31,265     $ 1,783     $ 34,916     $ 3,508  
Net income   $ 31,265     $ 4,346     $ 34,916     $ 8,553  
Net income attributable to participating securities     —       (2,468 )     —       (4,853 )
Net income attributable to common stockholders — diluted   $ 31,265     $ 1,878     $ 34,916     $ 3,700  
Net income per share attributable to common
  stockholders:		                                
Basic   $ 0.29     $ 0.04     $ 0.32     $ 0.08  
Diluted   $ 0.28     $ 0.04     $ 0.31     $ 0.08  
Weighted–average number of shares of common stock
  used in computing net income per share
  attributable to common stockholders:		                                
Basic     108,500,802       42,162,718       107,726,105       42,122,339  
Diluted     113,081,209       46,097,163       113,215,564       46,182,359  
(1) Includes depreciation and amortization expense for the three months ended June 30, 2018 and 2017 and for the six months ended June 30, 2018 and 2017 of $616, $269, $1,120 and $391, respectively.  
   

Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)

    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2018     2017     2018     2017  
Operating Activities                                
Net income   $ 31,265     $ 4,346     $ 34,916     $ 8,553  
Adjustments to reconcile net income to net cash provided by operating activities:                                
Depreciation and amortization     1,220       917       2,457       1,587  
Unrealized currency (gain) loss on foreign denominated transactions     (72 )     128       (19 )     128  
Deferred taxes     (26,214 )     435       (28,224 )     410  
Provision for doubtful accounts     345       221       722       380  
Stock-based compensation expense     5,605       74       9,423       150  
Changes in operating assets and liabilities:                                
Accounts receivable     411       (1,693 )     418       (2,720 )
Prepaid expenses, prepaid income taxes, and other assets     (3,805 )     (2,487 )     (4,312 )     (890 )
Accounts payable     6,689       1,156       7,338       1,200  
Accrued expenses, accrued income taxes, and other current liabilities     1,660       502       (1,991 )     (784 )
Deferred revenue     504       217       3,315       1,251  
Deferred rent     (219 )     938       (434 )     668  
Other non-current liabilities     85       91       239       157  
Net cash provided by operating activities     17,474       4,845       23,848       10,090  
Investing Activities                                
Purchases of property and equipment     (547 )     (1,817 )     (981 )     (1,976 )
Capitalization of website development costs     (144 )     (385 )     (725 )     (947 )
Investments in certificates of deposit     (70,000 )     —       (130,000 )     (30,000 )
Maturities of certificates of deposit     40,000       —       70,000       26,774  
Net cash used in investing activities     (30,691 )     (2,202 )     (61,706 )     (6,149 )
Financing Activities                                
Proceeds from exercise of stock options     2,305       59       2,385       168  
Payment of initial public offering costs     —       (305 )     (1,142 )     (305 )
Payment of withholding taxes on net share settlements of equity awards     (17,488 )     —       (17,488 )     —  
Net cash used in financing activities     (15,183 )     (246 )     (16,245 )     (137 )
Impact of foreign currency on cash, cash equivalents, and restricted cash     (107 )     3       (83 )     29  
Net (decrease) increase in cash, cash equivalents, and restricted cash     (28,507 )     2,400       (54,186 )     3,833  
Cash, cash equivalents, and restricted cash at beginning of period     63,873       32,953       89,552       31,520  
Cash, cash equivalents, and restricted cash at end of period   $ 35,366     $ 35,353     $ 35,366     $ 35,353  
Supplemental disclosure of cash flow information:                                
Cash paid for income taxes   $ 2,275     $ 600     $ 2,280     $ 647  
Cash paid for interest   $ 5     $ 6     $ 10     $ 12  
Supplemental disclosure of non-cash investing and financing activities:                                
Unpaid purchases of property and equipment   $ 712     $ 2,271     $ 712     $ 2,271  
Capitalized stockholders' compensation in website development costs   $ 61     $ —     $ 210     $ —  
Unpaid deferred initial public offering costs   $ —     $ 1,549     $ —     $ 1,549  
                                 

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

    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2018     2017     2018     2017  
GAAP operating income   $ 1,444     $ 5,995     $ 5,366     $ 12,379  
Stock-based compensation expense     5,605       74       9,423       150  
Non-GAAP operating income   $ 7,049     $ 6,069     $ 14,789     $ 12,529  
                                 
GAAP operating margin     1 %     8 %     3 %     9 %
Non-GAAP operating margin     6 %     8 %     7 %     9 %
                                 

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

    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2018     2017     2018     2017  
GAAP net income   $ 31,265     $ 4,346     $ 34,916     $ 8,553  
Stock-based compensation expense, net of tax(1)     4,428       48       7,444       98  
Change in tax provision from stock-based compensation expense(2)     (28,828 )     (264 )     (28,941 )     (373 )
Non-GAAP net income   $ 6,865     $ 4,130     $ 13,419     $ 8,278  
Non-GAAP net income attributable to common stockholders   $ 6,865     $ 4,130     $ 13,419     $ 8,278  
Non-GAAP net income attributable to common stockholders per share:                                
Basic   $ 0.06     $ 0.04     $ 0.12     $ 0.08  
Diluted   $ 0.06     $ 0.04     $ 0.12     $ 0.08  
Weighted-average number of shares of common stock
  used in computing non-GAAP net income per share
  to common stockholders:		                                
GAAP Basic Shares     108,501       42,163       107,726       42,122  
Preferred Shares assuming conversion     —       60,565       —       60,565  
Total Non-GAAP Basic Shares     108,501       102,728       107,726       102,687  
GAAP Diluted Shares     113,081       46,097       113,216       46,182  
Preferred Shares assuming conversion     —       60,565       —       60,565  
Total Non-GAAP Diluted Shares     113,081       106,662       113,216       106,747  
                                 
(1) The stock-based compensation amounts reflected in the table above, for 2018 and 2017, are tax effected at the U.S. federal statutory tax rates of 21% and 35%, respectively.  
(2) This adjustment reflects the tax effect of differences between tax deductions related to stock compensation and the corresponding financial statement expense.  
   

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)

    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2018     2017     2018     2017  
Revenue   $ 110,325     $ 76,240     $ 209,026     $ 143,275  
Cost of revenue     5,959       4,322       11,528       7,647  
Gross profit     104,366       71,918       197,498       135,628  
Stock-based compensation expense included in Cost of revenue     92       5       181       10  
Non-GAAP gross profit   $ 104,458     $ 71,923     $ 197,679     $ 135,638  
                                 
GAAP gross profit margin     95 %     94 %     94 %     95 %
Non-GAAP gross profit margin     95 %     94 %     95 %     95 %
                                 

Unaudited Reconciliation of GAAP Expense to Non-GAAP Expense and GAAP Expense as a Percentage of Revenue to Non-GAAP Expense as a Percentage of Revenue 
(in thousands, except percentages)

    Three Months Ended
June 30,		  
    2018     2017  
    GAAP
expense		     Stock-based
compensation
expense		     Non-GAAP
expense		     GAAP
expense as a
percentage of
revenue		     Non-GAAP
expense as a
percentage of
revenue		     GAAP
expense		     Stock-based
compensation
expense		     Non-GAAP
expense		     GAAP
expense as a
percentage of
revenue		     Non-GAAP
expense as a
percentage
of revenue		  
Cost of revenue   $ 5,959     $ (92 )   $ 5,867       5 %     5 %   $ 4,322     $ (5 )   $ 4,317       6 %     6 %
S&M     80,933       (1,536 )     79,397       73 %     72 %     55,533       (35 )     55,498       72 %     72 %
P,T&D(1)     11,844       (2,658 )     9,186       11 %     8 %     4,709       (23 )     4,686       6 %     6 %
G&A     9,541       (1,319 )     8,222       9 %     8 %     5,033       (11 )     5,022       7 %     7 %
Depreciation & amortization     604       —       604       1 %     1 %     648       —       648       1 %     1 %
Operating expenses(2)   $ 102,922     $ (5,513 )   $ 97,409       94 %     89 %   $ 65,923     $ (69 )   $ 65,854       86 %     86 %
Total expenses   $ 108,881     $ (5,605 )   $ 103,276       99 %     94 %   $ 70,245     $ (74 )   $ 70,171       92 %     92 %
                                                                                 
(1) Product, Technology, & Development  
(2) Operating expenses include S&M, P,T&D, G&A, and depreciation & amortization  
                                                                                 
    Six Months Ended
June 30,		  
    2018     2017  
    GAAP
expense		     Stock-based
compensation
expense		     Non-GAAP
expense		     GAAP
expense as a
percentage of
revenue		     Non-GAAP
expense as a
percentage of
revenue		     GAAP
expense		     Stock-based
compensation
expense		     Non-GAAP
expense		     GAAP
expense as a
percentage of
revenue		     Non-GAAP
expense as a
percentage
of revenue		  
Cost of revenue   $ 11,528     $ (181 )   $ 11,347       6 %     5 %   $ 7,647     $ (10 )   $ 7,637       5 %     5 %
S&M     152,441       (2,546 )     149,895       72 %     72 %     104,604       (73 )     104,531       73 %     73 %
P,T&D(1)     20,942       (4,319 )     16,623       10 %     8 %     8,357       (48 )     8,309       6 %     6 %
G&A     17,412       (2,377 )     15,035       8 %     7 %     9,092       (19 )     9,073       6 %     6 %
Depreciation & amortization     1,337       —       1,337       1 %     1 %     1,196       —       1,196       1 %     1 %
Operating expenses(2)   $ 192,132     $ (9,242 )   $ 182,890       91 %     88 %   $ 123,249     $ (140 )   $ 123,109       86 %     86 %
Total expenses   $ 203,660     $ (9,423 )   $ 194,237       97 %     93 %   $ 130,896     $ (150 )   $ 130,746       91 %     91 %
                                                                                 
(1) Product, Technology, & Development  
(2) Operating expenses include S&M, P,T&D, G&A, and depreciation & amortization  
   

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

    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2018     2017       2018         2017  
GAAP net income   $ 31,265     $ 4,346     $ 34,916     $ 8,553  
Depreciation and amortization     1,220       917       2,457       1,587  
Stock-based compensation expense     5,605       74       9,423       150  
Other (income), net     (703 )     (53 )     (985 )     (217 )
(Benefit from) provision for income taxes     (29,118 )     1,702       (28,565 )     4,043  
Adjusted EBITDA   $ 8,269     $ 6,986     $ 17,246     $ 14,116  
                                 

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

    Three Months Ended     Six Months Ended  
    June 30,     June 30,  
    2018     2017     2018     2017  
GAAP net cash and cash equivalents provided by operating activities   $ 17,474     $ 4,845     $ 23,848     $ 10,090  
Purchases of property and equipment     (547 )     (1,817 )     (981 )     (1,976 )
Capitalization of website development costs     (144 )     (385 )     (725 )     (947 )
Non-GAAP free cash flow   $ 16,783     $ 2,643     $ 22,142     $ 7,167  
                                 

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, other (income) expense, net, the (benefit from) provision for income taxes, and other one-time, non-recurring items, when applicable. 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 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.  Non-GAAP net income and non-GAAP 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 as a result of the uncertainty regarding, and the potential variability of, stock-based compensation expenses that we may incur in the future, 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, based on a distinct associated inventory feed, that subscribes to our Enhanced or Featured Listing product at the end of a defined period.

We define AARSD, which is measured at the end of a defined period, as the total marketplace subscription revenue during the trailing 12 months divided by the average number of paying dealers during the same trailing 12-month period.

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 a website 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 device and ending at the earliest of when a user closes their browser window, after 30 minutes of inactivity, or at midnight Eastern Time each night. 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.

Investor Contact:
Rodney Nelson
Director, Investor Relations
888-508-1190
investors@cargurus.com

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Source: CarGurus, Inc.