SEC Filing | CarGurus

View:

Download DOC

Download PDF

Download XLS

Download XBRL

carg-10q_20190930.htm

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

☐	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: (617) 354-0068

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

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.

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.

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.

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	)