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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2019

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________ to _________________

Commission File Number: 001-38233

 

CARGURUS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

04-3843478

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

2 Canal Park, 4th Floor

Cambridge, Massachusetts

02141

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (617354-0068

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

Trading Symbol

Name of Exchange on Which Registered

Class A Common Stock, par value $0.001 per share

CARG

 

     The Nasdaq Stock Market LLC (Nasdaq Global Select Market)

 

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No    

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Small reporting company

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of October 31, 2019, the registrant had 91,447,156 shares of Class A common stock, $0.001 par value per share, and 20,502,084 shares of Class B common stock, par value $0.001 per share, outstanding.

 

 

 

 

 


 

Table of Contents

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

Item 1.

 

Financial Statements

1

 

 

Unaudited Condensed Consolidated Balance Sheets

1

 

 

Unaudited Condensed Consolidated Income Statements

2

 

 

Unaudited Condensed Consolidated Statements of Comprehensive Income

3

 

 

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

4

 

 

Unaudited Condensed Consolidated Statements of Cash Flows

5

 

 

Notes to Unaudited Condensed Consolidated Financial Statements

6

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

19

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

35

Item 4.

 

Controls and Procedures

36

 

 

 

 

PART II.

 

OTHER INFORMATION

37

Item 1.

 

Legal Proceedings

37

Item 1A.

 

Risk Factors

37

Item 6.

 

Exhibits

56

Signatures

57

 


ii


 

SPECIAL NOTE REGARDING FORWARD‑LOOKING STATEMENTS

This report contains forward‑looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward‑looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward‑looking statements because they contain words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “likely,” “may,” “might,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms. Forward-looking statements contained in this report include, but are not limited to, statements about:

 

our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses, ability to generate cash flow, and ability to achieve, and maintain, future profitability;

 

our anticipated growth and growth strategies and our ability to effectively manage that growth;

 

our ability to maintain and build our brand;

 

our ability to continue to expand internationally;

 

our ability to realize benefits from our acquisition of PistonHeads and successfully implement the integration strategies in connection therewith;

 

the impact of competition in our industry and innovation by our competitors;

 

the impact of accounting pronouncements;

 

the impact of litigation;

 

our ability to hire and retain necessary qualified employees to expand our operations;

 

our ability to adequately protect our intellectual property;

 

the migration of some of our data-hosting to a different third-party data-hosting facility;

 

our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our business;

 

our ability to overcome challenges facing the automotive industry ecosystem, including global supply chain challenges, changes to trade policies and other macroeconomic issues;

 

failure to maintain an effective system of internal controls necessary to accurately report our financial results and prevent fraud;

 

our expectations regarding cash generation and the sufficiency of our cash to fund our operations; and

 

the future trading prices of our Class A common stock.

You should not rely upon forward‑looking statements as predictions of future events. We have based the forward‑looking statements contained in this report primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, and growth prospects. The outcome of the events described in these forward‑looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this report. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward‑looking statements contained in this report. Further, our forward‑looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions or joint ventures in which we may be involved, or investments we may make. We cannot assure you that the results, events, and circumstances reflected in the forward‑looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward‑looking statements.

The forward‑looking statements made in this report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward‑looking statements made in this report to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, except as required by law.

 

 

iii


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

CarGurus, Inc.

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

At

September 30,

2019

 

 

At

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

29,514

 

 

$

34,887

 

Investments

 

 

134,808

 

 

 

122,800

 

Accounts receivable, net of allowance for doubtful accounts of $216

   and $479 at September 30, 2019 and December 31, 2018, respectively

 

 

17,892

 

 

 

13,614

 

Prepaid expenses and prepaid income taxes

 

 

8,381

 

 

 

10,144

 

Deferred contract costs

 

 

8,170

 

 

 

5,253

 

Other current assets

 

 

7,167

 

 

 

7,410

 

Restricted cash

 

 

250

 

 

 

750

 

Total current assets

 

 

206,182

 

 

 

194,858

 

Property and equipment, net

 

 

27,568

 

 

 

24,269

 

Intangible assets

 

 

3,982

 

 

 

 

Goodwill

 

 

14,828

 

 

 

 

Operating lease right-of-use assets

 

 

56,439

 

 

 

 

Restricted cash

 

 

1,914

 

 

 

1,921

 

Deferred tax assets

 

 

44,200

 

 

 

38,886

 

Deferred contract costs, net of current portion

 

 

9,944

 

 

 

7,252

 

Other long–term assets

 

 

4,326

 

 

 

1,104

 

Total assets

 

$

369,383

 

 

$

268,290

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

42,752

 

 

$

34,345

 

Accrued expenses, accrued income taxes and other current liabilities

 

 

14,022

 

 

 

18,654

 

Deferred revenue

 

 

7,781

 

 

 

8,811

 

Operating lease liabilities

 

 

7,823

 

 

 

1,693

 

Total current liabilities

 

 

72,378

 

 

 

63,503

 

Operating lease liabilities

 

 

57,806

 

 

 

9,395

 

Deferred tax liabilities

 

 

289

 

 

 

 

Other non–current liabilities

 

 

1,808

 

 

 

1,281

 

Total liabilities

 

 

132,281

 

 

 

74,179

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Class A common stock, $0.001 par value per share; 500,000,000 shares

   authorized; 91,312,647 and 89,728,223 shares issued and outstanding

   at September 30, 2019 and December 31, 2018, respectively

 

 

91

 

 

 

90

 

Class B common stock, $0.001 par value per share; 100,000,000 shares

   authorized; 20,502,084 and 20,702,084 shares issued and outstanding

   at September 30, 2019 and December 31, 2018, respectively

 

 

21

 

 

 

21

 

Additional paid-in capital

 

 

199,228

 

 

 

184,216

 

Retained earnings

 

 

38,688

 

 

 

9,713

 

Accumulated other comprehensive (loss) income

 

 

(926

)

 

 

71

 

Total stockholders’ equity

 

 

237,102

 

 

 

194,111

 

Total liabilities and stockholders’ equity

 

$

369,383

 

 

$

268,290

 

 

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

1


 

CarGurus, Inc.

Unaudited Condensed Consolidated Income Statements

(in thousands, except share and per share data)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue

 

$

150,462

 

 

$

119,125

 

 

$

430,763

 

 

$

327,996

 

Cost of revenue(1)

 

 

9,392

 

 

 

6,412

 

 

 

25,740

 

 

 

17,940

 

Gross profit

 

 

141,070

 

 

 

112,713

 

 

 

405,023

 

 

 

310,056

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

100,133

 

 

 

82,708

 

 

 

293,238

 

 

 

229,948

 

Product, technology, and development

 

 

17,745

 

 

 

12,771

 

 

 

51,063

 

 

 

33,713

 

General and administrative

 

 

12,322

 

 

 

10,630

 

 

 

36,622

 

 

 

28,042

 

Depreciation and amortization

 

 

1,166

 

 

 

727

 

 

 

3,413

 

 

 

2,064

 

Total operating expenses

 

 

131,366

 

 

 

106,836

 

 

 

384,336

 

 

 

293,767

 

Income from operations

 

 

9,704

 

 

 

5,877

 

 

 

20,687

 

 

 

16,289

 

Other income, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

759

 

 

 

639

 

 

 

2,247

 

 

 

1,571

 

Other income (expense), net

 

 

251

 

 

 

(38

)

 

 

1,258

 

 

 

15

 

Total other income, net

 

 

1,010

 

 

 

601

 

 

 

3,505

 

 

 

1,586

 

Income before income taxes

 

 

10,714

 

 

 

6,478

 

 

 

24,192

 

 

 

17,875

 

Provision for (benefit from) income taxes

 

 

330

 

 

 

(7,404

)

 

 

(4,783

)

 

 

(34,845

)

Net income

 

$

10,384

 

 

$

13,882

 

 

$

28,975

 

 

$

52,720

 

Net income per share attributable to common stockholders:

   (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.09

 

 

$

0.13

 

 

$

0.26

 

 

$

0.49

 

Diluted

 

$

0.09

 

 

$

0.12

 

 

$

0.26

 

 

$

0.47

 

Weighted-average number of shares of common

   stock used in computing net income per share

   attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

111,662,949

 

 

 

109,628,692

 

 

 

111,257,271

 

 

 

108,367,270

 

Diluted

 

 

113,364,775

 

 

 

113,601,415

 

 

 

113,389,695

 

 

 

113,351,150

 

 

(1)

Includes depreciation and amortization expense for the three months ended September 30, 2019 and 2018 and for the nine months ended September 30, 2019 and 2018 of $952, $581, $2,246 and $1,701, respectively.  

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

2


 

CarGurus, Inc.

Unaudited Condensed Consolidated Statements of Comprehensive Income

(in thousands)

 

 

 

Three Months Ended

September 30,

 

 

Nine Months Ended

September 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

 

$

10,384

 

 

$

13,882

 

 

$

28,975

 

 

$

52,720

 

Other comprehensive loss:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(929

)

 

 

(12

)

 

 

(997

)

 

 

(92

)

Comprehensive income

 

$

9,455

 

 

$

13,870

 

 

$

27,978

 

 

$

52,628

 

 

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

 

 

3


 

CarGurus, Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

 

 

 

Class A

Common Stock

 

 

Class B

Common Stock

 

 

Additional

Paid–in

 

 

Accumulated

Other

Comprehensive

 

 

Retained

Earnings

(Accumulated

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

(Loss) Income

 

 

Deficit)

 

 

Equity

 

Balance at December 31, 2018

 

 

89,728,223

 

 

$

90

 

 

 

20,702,084

 

 

$

21

 

 

$

184,216

 

 

$

71

 

 

$

9,713

 

 

$

194,111

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,584

 

 

 

12,584

 

Stock–based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,995

 

 

 

 

 

 

 

 

 

7,995

 

Issuance of common stock upon exercise of stock options

 

 

447,210

 

 

 

 

 

 

 

 

 

 

 

 

697

 

 

 

 

 

 

 

 

 

697

 

Issuance of common stock upon vesting

   of restricted stock units

 

 

297,374

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment of withholding taxes on net share settlements of equity awards

 

 

(102,034

)

 

 

 

 

 

 

 

 

 

 

 

(3,954

)

 

 

 

 

 

 

 

 

(3,954

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(424

)

 

 

 

 

 

(424

)

Balance at March 31, 2019

 

 

90,370,773

 

 

 

90

 

 

 

20,702,084

 

 

 

21

 

 

 

188,954

 

 

 

(353

)

 

 

22,297

 

 

 

211,009

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,007

 

 

 

6,007

 

Stock–based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,260

 

 

 

 

 

 

 

 

 

9,260

 

Issuance of common stock upon exercise of stock options

 

 

133,838

 

 

 

 

 

 

 

 

 

 

 

 

391

 

 

 

 

 

 

 

 

 

391

 

Issuance of common stock upon vesting of restricted stock units

 

 

362,447

 

 

 

1

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Payment of withholding taxes and option costs on net share

   settlement of restricted stock units and stock options

 

 

(122,137

)

 

 

 

 

 

 

 

 

 

 

 

(4,637

)

 

 

 

 

 

 

 

 

(4,637

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

356

 

 

 

 

 

 

356

 

Balance at June 30, 2019

 

 

90,744,921

 

 

 

91

 

 

 

20,702,084

 

 

 

21

 

 

 

193,967

 

 

 

3

 

 

 

28,304

 

 

 

222,386

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

10,384

 

 

 

10,384

 

Stock–based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9,085

 

 

 

 

 

 

 

 

 

9,085

 

Issuance of common stock upon exercise of stock options

 

 

144,760

 

 

 

 

 

 

 

 

 

 

 

 

368

 

 

 

 

 

 

 

 

 

368

 

Issuance of common stock upon vesting of restricted stock units

 

 

343,909

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment of withholding taxes on net share settlements of equity awards

 

 

(120,943

)

 

 

 

 

 

 

 

 

 

 

 

(4,192

)

 

 

 

 

 

 

 

 

(4,192

)

Conversion of common stock

 

 

200,000

 

 

 

 

 

 

(200,000

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(929

)

 

 

 

 

 

(929

)

Balance at September 30, 2019

 

 

91,312,647

 

 

$

91

 

 

 

20,502,084

 

 

$

21

 

 

$

199,228

 

 

$

(926

)

 

$

38,688

 

 

$

237,102

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

 

77,884,754

 

 

$

78

 

 

 

28,226,104

 

 

$

28

 

 

$

185,190

 

 

$

228

 

 

$

(58,499

)

 

$

127,025

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,495

 

 

 

5,495

 

Stock–based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,967

 

 

 

 

 

 

 

 

 

3,967

 

Issuance of common stock upon exercise of stock options

 

 

6,574

 

 

 

 

 

 

10,690

 

 

 

 

 

 

80

 

 

 

 

 

 

 

 

 

80

 

Cumulative adjustment from adoption of

   revenue recognition model

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,042

 

 

 

3,042

 

Conversion of common stock

 

 

7,534,710

 

 

 

7

 

 

 

(7,534,710

)

 

 

(7

)

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment