CORRECTION - CarGurus Announces Fourth Quarter 2019 and Full-Year 2019 Results

February 14, 2020
PDF Version

CAMBRIDGE, Mass., Feb. 14, 2020 (GLOBE NEWSWIRE) -- In a release issued under the same headline on Thursday, February 13, 2020 by CarGurus, Inc. (Nasdaq: CARG), due to a newswire service error, please note that the third bullet under Revenue, Full-Year 2019 should read “Advertising and other revenue was $62.9 million, an increase of 30% compared to $48.3 million in 2018.” Also, in the Unaudited Condensed Consolidated Income Statements, Basic earnings per share under the column for the Year Ended December 31, 2018 should read “$0.60”.  The corrected release follows:

CarGurus Announces Fourth Quarter 2019 and Full-Year 2019 Results

Fourth Quarter Highlights:

  • Total revenue of $158.2 million, an increase of 25% year-over-year
  • GAAP operating income of $13.6 million; non-GAAP operating income of $23.1 million
  • GAAP net income of $13.2 million; non-GAAP net income of $19.3 million
  • Adjusted EBITDA of $25.1 million

Full-Year 2019 Highlights:

  • Total revenue of $588.9 million, an increase of 30% year-over-year
  • GAAP operating income of $34.3 million; non-GAAP operating income of $69.8 million
  • GAAP net income of $42.1 million; non-GAAP net income of $59.3 million
  • Adjusted EBITDA of $77.0 million

CarGurus, Inc. (Nasdaq: CARG), a leading global automotive marketplace, today announced financial results for the fourth quarter and full-year ended December 31, 2019.

“CarGurus finished 2019 with a strong fourth quarter. Our U.S. marketplace saw continued traffic and lead growth in the fourth quarter, and for the full-year 2019 we generated over 65 million connections and over 38 million leads, supporting what we believe is industry-leading ROI for our paying dealers,” said Langley Steinert, Founder and Chief Executive Officer of CarGurus. “We are seeing consistent new product adoption, as we ended 2019 with a product attach rate of 30%, with over 1,000 U.S. dealers subscribing to at least three of our products. We also completed the roll out of our second consumer financing partner, Westlake, enabling a wider array of consumers to seek loan pre-qualifications. As a result, we now provide financing pre-qualification opportunities on roughly 85% of our U.S. used car listings, creating a richer experience for our industry-leading audience and dealer base. Finally, our international business continues to scale efficiently, as strong audience and leads growth is yielding healthy paying dealer additions in each of our commercialized markets.”

Revenue

Fourth Quarter 2019:

  • Total revenue was $158.2 million, an increase of 25% compared to $126.1 million in the fourth quarter of 2018.
  • Marketplace subscription revenue was $140.6 million, an increase of 24% compared to $113.0 million in the fourth quarter of 2018. 
  • Advertising and other revenue was $17.6 million, an increase of 34% compared to $13.1 million in the fourth quarter of 2018.

Full-Year 2019:

  • Total revenue was $588.9 million, an increase of 30% compared to $454.1 million in 2018.
  • Marketplace subscription revenue was $526.0 million, an increase of 30% compared to $405.8 million in 2018.
  • Advertising and other revenue was $62.9 million, an increase of 30% compared to $48.3 million in 2018.

Operating Income

Fourth Quarter 2019:

  • GAAP operating income was $13.6 million, or 9% of total revenue, compared to $6.9 million, or 5% of total revenue, in the fourth quarter of 2018.
  • Non-GAAP operating income was $23.1 million, or 15% of total revenue, compared to $13.4 million, or 11% of total revenue, in the fourth quarter of 2018.

Full-Year 2019:

  • GAAP operating income was $34.3 million, or 6% of total revenue, compared to $23.2 million, or 5% of total revenue, in 2018.
  • Non-GAAP operating income was $69.8 million, or 12% of total revenue, compared to $44.6 million, or 10% of total revenue, in 2018.

Net Income & Adjusted EBITDA

Fourth Quarter 2019:

  • GAAP net income was $13.2 million, or $0.12 per fully diluted share during the quarter ended December 31, 2019, compared to $12.5 million, or $0.11 per fully diluted share during the quarter ended December 31, 2018.
  • Non-GAAP net income was $19.3 million, or $0.17 per fully diluted share during the quarter ended December 31, 2019, compared to $12.8 million, or $0.11 per fully diluted share during the quarter ended December 31, 2018.
  • Adjusted EBITDA, a non-GAAP metric, was $25.1 million for the quarter ended December 31, 2019 compared to $14.6 million for the quarter ended December 31, 2018.

Full-Year 2019:

  • GAAP net income was $42.1 million, or $0.37 per fully diluted share during 2019, compared to net income of $65.2 million, or $0.57 per fully diluted share in 2018.
  • Non-GAAP net income was $59.3 million, or $0.52 per fully diluted share during 2019, compared to $41.5 million, or $0.37 per fully diluted share in 2018.
  • Adjusted EBITDA, a non-GAAP metric, was $77.0 million in 2019 compared to $49.7 million in 2018.

Balance Sheet and Cash Flow

  • As of December 31, 2019, CarGurus had cash, cash equivalents, and short-term investments of $171.6 million and no debt. 
  • CarGurus generated $20.6 million in cash from operations and $19.2 million in free cash flow, a non-GAAP metric, during the fourth quarter of 2019 compared to having generated $17.1 million in cash from operations and $12.5 million in free cash flow during the fourth quarter of 2018. For the full-year 2019, CarGurus generated $70.1 million in cash from operations and $55.9 million in free cash flow compared to having generated $51.7 million in cash from operations and $44.2 million in free cash flow in 2018. 

Fourth Quarter Business Metrics

  • U.S. revenue was $148.0 million in the fourth quarter of 2019, an increase of 22% compared to $121.1 million in the fourth quarter of 2018. GAAP operating income in the U.S. was $22.4 million, an increase of 24% compared to $18.0 million in the fourth quarter of 2018.
  • International revenue was $10.2 million in the fourth quarter of 2019, an increase of 104% compared to $5.0 million in the fourth quarter of 2018. GAAP operating loss in International markets was ($8.8) million, a decrease of (21%) compared to a loss of ($11.1) million in the fourth quarter of 2018.
  • Total paying dealers were 36,115(1) at December 31, 2019, an increase of 15% compared to 31,472 at December 31, 2018. Of the total paying dealers at December 31, 2019, U.S. and International accounted for 28,990 and 7,125(1), respectively, compared to 27,534 and 3,938, respectively, at December 31, 2018.
  • Average annual revenue per subscribing dealer (AARSD) in the U.S. was $17,576 as of December 31, 2019, an increase of 19% compared to $14,819 as of December 31, 2018.
  • AARSD in International markets was $5,399(2) as of December 31, 2019, an increase of 13% compared to $4,778 as of December 31, 2018.
  • Website traffic and consumer engagement metrics for the fourth quarter of 2019 were as follows:
    -- U.S. average monthly unique users were 34.2 million, an increase of 3% compared to 33.2 million in the fourth quarter of 2018. U.S. average monthly sessions were 91.2 million, an increase of 3% compared to 88.5 million in the fourth quarter of 2018.
    -- International average monthly unique users were 10.0 million(3), an increase of 75% compared to 5.7 million in the fourth quarter of 2018. International average monthly sessions were 23.8 million(4), an increase of 83% compared to 13.0 million in the fourth quarter of 2018. 
  1. Includes paying dealers from the PistonHeads website.
  2. Excludes revenue and dealers for dealers that subscribe to the (i) PistonHeads website as it was acquired on January 8, 2019, and therefore, data for the trailing 12-month revenue calculation is not available and (ii) Italy website as it began earning marketplace subscription revenue in April 2019, and therefore, data for the trailing 12-month revenue calculation is not available.
  3. Includes users from the PistonHeads website.
  4. Includes sessions from the PistonHeads website.

First 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:

First Quarter 2020:

     
• Total revenue $156.5 to $159.5 million
• Non-GAAP operating income $10 to $12 million
• Non-GAAP EPS $0.07 to $0.08
     

The first quarter 2020 non-GAAP earnings per share calculation assumes 115.0 million diluted weighted-average common shares outstanding.

Full-Year 2020:

     
• Total revenue $664 to $676 million
• Non-GAAP operating income $78 to $86 million
• Non-GAAP EPS $0.50 to $0.55
     

The full-year non-GAAP earnings per share calculation assumes 115.9 million diluted weighted-average common shares outstanding.

Guidance for the first 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, and acquisition-related 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 and the significance of the resulting acquisition-related 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 fourth quarter and full fiscal year 2019 financial results and first quarter and full fiscal year 2020 financial guidance at 5:00 p.m. Eastern Time today, February 13, 2020. To access the conference call, dial (877) 451-6152 for callers in the U.S. or Canada, or (201) 389-0879 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 on February 13, 2020, until 11:59 p.m. Eastern Time on February 27, 2020, by dialing (844) 512-2921 for callers in the U.S. or Canada, or (412) 317-6671 for international callers, and entering passcode 13698111. 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, Q4 2019, U.S. (Competitive set includes: CarGurus.com, Autotrader.com, Cars.com, TrueCar.com)). 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.

© 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 first quarter 2020 and full-year 2020, our business and growth strategy, including in international markets, and our expectations for our newest consumer financing partnership, including the impact on our audience and dealer base, 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 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 realize benefits from our acquisitions and successfully implement the integration strategies in connection therewith, 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 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 December 31,  
    2019     2018  
Assets                
Current assets:                
Cash and cash equivalents   $ 59,920     $ 34,887  
Investments     111,692       122,800  
Accounts receivable, net of allowance for doubtful accounts of $240 and     22,124       13,614  
  $479, respectively
Prepaid expenses and prepaid income taxes     10,452       10,144  
Deferred contract costs     9,544       5,253  
Other current assets     4,972       7,410  
Restricted cash     250       750  
Total current assets     218,954       194,858  
Property and equipment, net     27,950       24,269  
Intangible assets     3,920       —  
Goodwill     15,207       —  
Operating lease right-of-use assets     59,986       —  
Restricted cash     10,553       1,921  
Deferred tax assets     42,713       38,886  
Deferred contract costs, net of current portion     10,514       7,252  
Other non-current assets     3,826       1,104  
Total assets   $ 393,623     $ 268,290  
Liabilities and stockholders’ equity                
Current liabilities:                
Accounts payable   $ 36,731     $ 34,345  
Accrued expenses, accrued income taxes and other current liabilities     18,262       18,654  
Deferred revenue     9,984       8,811  
Deferred rent     —       1,693  
Operating lease liabilities     8,781       —  
Total current liabilities     73,758       63,503  
Deferred rent     —       9,395  
Operating lease liabilities     60,818       —  
Deferred tax liabilities     284       —  
Other non–current liabilities     1,908       1,281  
Total liabilities     136,768       74,179  
Stockholders’ equity:                
  Preferred stock, $0.001 par value; 10,000,000 shares authorized;     —       —  
  no shares issued and outstanding
Class A common stock, $0.001 par value; 500,000,000 shares authorized;     92       90  
  91,819,649 and 89,728,223 shares issued and outstanding at
  December 31, 2019 and 2018, respectively
Class B common stock, $0.001 par value; 100,000,000 shares authorized;     20       21  
  20,314,644 and 20,702,084 shares issued and outstanding at
  December 31, 2019 and 2018, respectively
Additional paid–in capital     205,234       184,216  
Retained earnings     51,859       9,713  
Accumulated other comprehensive (loss) income     (350 )     71  
Total stockholders’ equity     256,855       194,111  
Total liabilities and stockholders’ equity   $ 393,623     $ 268,290  
                 

 


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

    Three Months Ended     Year Ended  
    December 31,     December 31,  
    2019     2018     2019     2018  
Revenue   $ 158,153     $ 126,090     $ 588,916     $ 454,086  
Cost of revenue(1)     10,560       6,871       36,300       24,811  
Gross profit     147,593       119,219       552,616       429,275  
Operating expenses:                                
Sales and marketing     100,606       85,991       393,844       315,939  
Product, technology, and development     18,399       14,153       69,462       47,866  
General and administrative     13,812       11,433       50,434       39,475  
Depreciation and amortization     1,141       740       4,554       2,804  
Total operating expenses     133,958       112,317       518,294       406,084  
Income from operations     13,635       6,902       34,322       23,191  
Other income, net:                                
Interest income     737       712       2,984       2,283  
Other income (expense), net     141       (5 )     1,399       10  
Total other income, net     878       707       4,383       2,293  
Income before income taxes     14,513       7,609       38,705       25,484  
Provision for (benefit from) income taxes     1,342       (4,841 )     (3,441 )     (39,686 )
Net income   $ 13,171     $ 12,450     $ 42,146     $ 65,170  
Net income per share attributable to common stockholders:                                
Basic   $ 0.12     $ 0.11     $ 0.38     $ 0.60  
Diluted   $ 0.12     $ 0.11     $ 0.37     $ 0.57  
Weighted–average number of shares of common                                
  stock used in computing net income per share
  attributable to common stockholders:
Basic     112,023,661       110,215,116       111,450,443       108,833,028  
Diluted     113,552,018       113,390,212       113,431,850       113,364,712  
(1) Includes depreciation and amortization expense for the three months ended December 31, 2019 and 2018 and for the years ended December 31, 2019 and 2018 of $1,017, $524, $3,263 and $2,225, respectively.  
   

 

Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)

    Three Months Ended     Year Ended  
    December 31,     December 31,  
    2019     2018     2019     2018  
Operating Activities                                
Net income   $ 13,171     $ 12,450     $ 42,146     $ 65,170  
Adjustments to reconcile net income to net cash provided by operating activities:                                
Depreciation and amortization     2,158       1,264       7,817       5,029  
Currency loss (gain) on foreign denominated transactions     237       (134 )     (690 )     (190 )
Deferred taxes     1,291       (4,497 )     (3,734 )     (39,040 )
Provision for doubtful accounts     396       434       1,091       1,680  
Stock–based compensation expense     8,911       5,843       34,301       20,794  
Amortization of deferred contract costs     2,619       1,334       8,416       3,689  
Changes in operating assets and liabilities:                                
Accounts receivable, net     (4,624 )     (743 )     (9,608 )     (1,911 )
Prepaid expenses, prepaid income taxes, and other assets     493       (3,105 )     (378 )     (11,753 )
Deferred contracts costs     (4,537 )     (3,272 )     (15,979 )     (12,987 )
Accounts payable     (6,472 )     (2,117 )     4,268       9,345  
Accrued expenses, accrued income taxes and other current liabilities     4,198       5,659       2,151       2,695  
Deferred revenue     2,201       1,127       1,174       4,508  
Deferred rent     —       2,823       —       4,289  
Lease obligations     414       —       (1,468 )     —  
Other non–current liabilities     109       58       609       405  
Net cash provided by operating activities     20,565       17,124       70,116       51,723  
Investing Activities                                
Purchases of property and equipment     (440 )     (4,083 )     (11,205 )     (5,956 )
Capitalization of website development costs     (947 )     (544 )     (3,021 )     (1,522 )
Cash paid for acquisition     —       —       (19,139 )     —  
Investments in certificates of deposit     (43,000 )     (82,800 )     (177,808 )     (212,800 )
Maturities of certificates of deposit     66,116       30,000       188,916       140,000  
Net cash provided by (used in) investing activities     21,729       (57,427 )     (22,257 )     (80,278 )
Financing Activities                                
Payment of initial public offering costs     —       —       —       (1,142 )
Proceeds from exercise of stock options     351       571       1,807       3,632  
Financing cash flows from finance leases     (9 )     —       (30 )     —  
Payment of withholding taxes and option costs on net share settlement of     (3,687 )     (4,018 )     (16,470 )     (25,885 )
  restricted stock units and stock options
Net cash used in financing activities     (3,345 )     (3,447 )     (14,693 )     (23,395 )
Impact of foreign currency on cash, cash equivalents, and restricted cash     96       10       (1 )     (44 )
Net increase (decrease) in cash, cash equivalents, and restricted cash     39,045       (43,740 )     33,165       (51,994 )
Cash, cash equivalents, and restricted cash at beginning of period     31,678       81,298       37,558       89,552  
Cash, cash equivalents, and restricted cash at end of period   $ 70,723     $ 37,558     $ 70,723     $ 37,558  
                                 

 

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     Year Ended  
    December 31,     December 31,  
    2019     2018(2)     2019     2018(2)  
GAAP operating income   $ 13,635     $ 6,902     $ 34,322     $ 23,191  
Stock-based compensation expense     8,911       5,843       34,301       20,794  
Amortization of intangible assets     163       —       649       —  
Acquisition-related expenses(1)     424       616       549       644  
Non-GAAP operating income   $ 23,133     $ 13,361     $ 69,821     $ 44,629  
                                 
GAAP operating margin     9 %     5 %     6 %     5 %
Non-GAAP operating margin     15 %     11 %     12 %     10 %
(1) Acquisition-related expenses relate to acquisition costs incurred during the three months ended December 31, 2019 and 2018 and during the years ended December 31, 2019 and 2018.  
(2) In December 2019, we revised our definition of Non-GAAP operating income to exclude the impact of acquisition-related expenses. This changed definition more accurately reflects management's view of our business and financial performance. Non-GAAP operating income for the three months and year ended December 31, 2018 have been restated for comparison purposes.
 

 


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

    Three Months Ended     Year Ended  
    December 31,     December 31,  
    2019     2018(4)     2019     2018(4)  
GAAP net income   $ 13,171     $ 12,450     $ 42,146     $ 65,170  
Stock-based compensation expense, net of tax(1)     7,040       4,616       27,098       16,427  
Change in tax provision from stock-based compensation expense(2)     (1,483 )     (4,853 )     (11,115 )     (40,765 )
Amortization of intangible assets     163       —       649       —  
Acquisition-related expenses(3)     424       616       549       644  
Non-GAAP net income   $ 19,315     $ 12,829     $ 59,327     $ 41,476  
Non-GAAP net income per share:                                
Basic   $ 0.17     $ 0.12     $ 0.53     $ 0.38  
Diluted   $ 0.17     $ 0.11     $ 0.52     $ 0.37  
Shares used in Non-GAAP per share calculations                                
Basic     112,024       110,215       111,450       108,833  
Diluted     113,552       113,390       113,432       113,365  
(1) The stock-based compensation amounts reflected in the table above are tax effected at the U.S. federal statutory tax rate of 21%.  
(2) This adjustment reflects the tax effect of differences between tax deductions related to stock-based compensation and the corresponding financial statement expense.  
(3) Acquisition-related expenses relate to acquisition costs incurred during the three months ended December 31, 2019 and 2018 and during the years ended December 31, 2019 and 2018.  
(4) In December 2019, we revised our definition of Non-GAAP net income to exclude the impact of acquisition-related expenses. This changed definition more accurately reflects management's view of our business and financial performance. Non-GAAP net income for the three months and year ended December 31, 2018 have been restated for comparison purposes.  
   

 


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     Year Ended  
    December 31,     December 31,  
    2019     2018     2019     2018  
Revenue   $ 158,153     $ 126,090     $ 588,916     $ 454,086  
Cost of revenue     10,560       6,871       36,300       24,811  
Gross profit     147,593       119,219       552,616       429,275  
Stock-based compensation expense included in Cost of revenue     86       90       354       354  
Non-GAAP gross profit   $ 147,679     $ 119,309     $ 552,970     $ 429,629  
                                 
GAAP gross profit margin     93 %     95 %     94 %     95 %
Non-GAAP gross profit margin     93 %     95 %     94 %     95 %
                                 

 

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

  Three Months Ended
December 31,
  2019   2018(4)
  GAAP expense   Stock-based compensation expense     Amortization of intangible assets     Acquisition-related expenses(3)     Non-GAAP expense   GAAP expense   Stock-based compensation expense     Amortization of intangible assets   Acquisition-related expenses(3)     Non-GAAP expense
Cost of revenue $ 10,560   $ (86 )   $ —     $ —     $ 10,474   $ 6,871   $ (90 )   $ —   $ —     $ 6,781
S&M   100,606     (2,597 )     —       —       98,009     85,991     (1,349 )     —     —       84,642
P,T&D(1)   18,399     (4,041 )     —       —       14,358     14,153     (2,962 )     —     —       11,191
G&A   13,812     (2,187 )     —       (424 )     11,201     11,433     (1,442 )     —     (616 )     9,375
Depreciation & amortization   1,141     —       (163 )     —       978     740     —       —     —       740
Operating expenses(2) $ 133,958   $ (8,825 )   $ (163 )   $ (424 )   $ 124,546   $ 112,317   $ (5,753 )   $ —   $ (616 )   $ 105,948
Total expenses $ 144,518   $ (8,911 )   $ (163 )   $ (424 )   $ 135,020   $ 119,188   $ (5,843 )   $ —   $ (616 )   $ 112,729
(1) Product, Technology, & Development
(2) Operating expenses include S&M, P,T&D, G&A, and depreciation & amortization
(3) Acquisition-related expenses relate to acquisition costs incurred during the three months ended December 31, 2019 and 2018 and during the years ended December 31, 2019 and 2018.
(4) In December 2019, we revised our definition of Non-GAAP expense to exclude the impact of acquisition-related expenses. This changed definition more accurately reflects management's view of our business and financial performance. Non-GAAP expense for the three months and year ended December 31, 2018 have been restated for comparison purposes.
   
  Year Ended
December 31,
  2019   2018(4)
  GAAP expense   Stock-based compensation expense     Amortization of intangible assets     Acquisition-related expenses(3)     Non-GAAP expense   GAAP expense   Stock-based compensation expense     Amortization of intangible assets   Acquisition-related expenses(3)     Non-GAAP expense
Cost of revenue $ 36,300   $ (354 )   $ —     $ —     $ 35,946   $ 24,811   $ (354 )   $ —   $ —     $ 24,457
S&M   393,844     (9,989 )     —       —       383,855     315,939     (5,111 )     —     —       310,828
P,T&D(1)   69,462     (15,159 )     —       —       54,303     47,866     (9,865 )     —     —       38,001
G&A   50,434     (8,799 )     —       (549 )     41,086     39,475     (5,464 )     —     (644 )     33,367
Depreciation & amortization   4,554     —       (649 )     —       3,905     2,804     —       —     —       2,804
Operating expenses(2) $ 518,294   $ (33,947 )   $ (649 )   $ (549 )   $ 483,149   $ 406,084   $ (20,440 )   $ —   $ (644 )   $ 385,000
Total expenses $ 554,594   $ (34,301 )   $ (649 )   $ (549 )   $ 519,095   $ 430,895   $ (20,794 )   $ —   $ (644 )   $ 409,457
(1) Product, Technology, & Development
(2) Operating expenses include S&M, P,T&D, G&A, and depreciation & amortization
(3) Acquisition-related expenses relate to acquisition costs incurred during the three months ended December 31, 2019 and 2018 and during the years ended December 31, 2019 and 2018.
(4) In December 2019, we revised our definition of Non-GAAP expense to exclude the impact of acquisition-related expenses. This changed definition more accurately reflects management's view of our business and financial performance. Non-GAAP expense for the three months and year ended December 31, 2018 have been restated for comparison purposes.
 

 

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

    Three Months Ended     Year Ended  
    December 31,     December 31,  
    2019     2018(2)     2019     2018(2)  
GAAP net income   $ 13,171     $ 12,450     $ 42,146     $ 65,170  
Depreciation and amortization     2,158       1,264       7,817       5,029  
Stock-based compensation expense     8,911       5,843       34,301       20,794  
Acquisition-related expenses(1)     424       616       549       644  
Other income, net     (878 )     (707 )     (4,383 )     (2,293 )
Provision for (benefit from) income taxes     1,342       (4,841 )     (3,441 )     (39,686 )
Adjusted EBITDA   $ 25,128     $ 14,625     $ 76,989     $ 49,658  
(1) Acquisition-related expenses relate to acquisition costs incurred during the three months ended December 31, 2019 and 2018 and during the years ended December 31, 2019 and 2018.  
(2) In December 2019, we revised our definition of Adjusted EBITDA to exclude the impact of acquisition-related expenses. This changed definition more accurately reflects management's view of our business and financial performance. Adjusted EBITDA for the three months and year ended December 31, 2018 have been restated for comparison purposes.
 

 

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

    Three Months Ended     Year Ended  
    December 31,     December 31,  
    2019     2018     2019     2018  
GAAP net cash and cash equivalents provided by operating   $ 20,565     $ 17,124     $ 70,116     $ 51,723  
  activities
Purchases of property and equipment     (440 )     (4,083 )     (11,205 )     (5,956 )
Capitalization of website development costs     (947 )     (544 )     (3,021 )     (1,522 )
Non-GAAP free cash flow   $ 19,178     $ 12,497     $ 55,890     $ 44,245  
                                 

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, 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 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, 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 as a result of the uncertainty regarding, and the potential variability of, stock-based compensation expenses, amortization of intangible assets, and acquisition-related 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 one of our paid Listings packages or Dealer Display advertising and audience targeting products 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 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, (ii) Greenwich Mean Time for our U.K. websites and (iii) Central European Time (or Central European Summer Time when daylight savings is observed) for our Germany, Italy, and Spain websites, as applicable. 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:
Rodney Nelson
Head of Investor Relations, CarGurus
888-508-1190
investors@cargurus.com

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Source: CarGurus, Inc.