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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, 2020

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 29, 2020, the registrant had 94,160,683 shares of Class A common stock, $0.001 par value per share, and 19,076,500 shares of Class B common stock, par value $0.001 per share, outstanding.

 

 

 

 

 


 

Table of Contents

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

1

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

20

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

38

Item 4.

 

Controls and Procedures

39

 

 

 

 

PART II.

 

OTHER INFORMATION

40

Item 1.

 

Legal Proceedings

40

Item 1A.

 

Risk Factors

40

Item 6.

 

Exhibits

55

Signatures

56

 


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 growth strategies and our ability to effectively manage any growth;

 

our ability to maintain and build our brand;

 

our ability to succeed internationally;

 

our ability to realize benefits from our acquisitions 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;

 

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;

 

the future trading prices of our Class A common stock;

 

our intentions with respect to availing ourselves of net operating loss, or NOL, carryback provisions under the CARES Act, and the corresponding impact on the valuation allowance for our NOLs and deferred federal research and development credit;

 

our expected returns on investments;

 

our ability to realize cost savings and achieve other benefits for our business from our expense reduction efforts, the impact of such reductions on our business and the timing of payments associated with such efforts;

 

our outlook for our Restricted Listings product;

 

our expectations regarding future billings relief for customers; and

 

the impacts of the COVID-19 pandemic.

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 statement 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,

2020

 

 

At

December 31,

2019

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

245,941

 

 

$

59,920

 

Investments

 

 

 

 

 

111,692

 

Accounts receivable, net of allowance for doubtful accounts of $610

   and $240, respectively

 

 

16,322

 

 

 

22,124

 

Prepaid expenses and prepaid income taxes

 

 

7,325

 

 

 

10,452

 

Deferred contract costs

 

 

9,950

 

 

 

9,544

 

Other current assets

 

 

1,634

 

 

 

4,972

 

Restricted cash

 

 

250

 

 

 

250

 

Total current assets

 

 

281,422

 

 

 

218,954

 

Property and equipment, net

 

 

27,276

 

 

 

27,950

 

Intangible assets

 

 

10,262

 

 

 

3,920

 

Goodwill

 

 

28,357

 

 

 

15,207

 

Operating lease right-of-use assets

 

 

63,525

 

 

 

59,986

 

Restricted cash

 

 

10,627

 

 

 

10,553

 

Deferred tax assets

 

 

27,267

 

 

 

42,713

 

Deferred contract costs, net of current portion

 

 

8,501

 

 

 

10,514

 

Other non-current assets

 

 

3,314

 

 

 

3,826

 

Total assets

 

$

460,551

 

 

$

393,623

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

16,839

 

 

$

36,731

 

Accrued expenses, accrued income taxes and other current liabilities

 

 

17,878

 

 

 

18,262

 

Deferred revenue

 

 

9,678

 

 

 

9,984

 

Operating lease liabilities

 

 

11,472

 

 

 

8,781

 

Total current liabilities

 

 

55,867

 

 

 

73,758

 

Operating lease liabilities

 

 

62,016

 

 

 

60,818

 

Deferred tax liabilities

 

 

304

 

 

 

284

 

Other non–current liabilities

 

 

4,105

 

 

 

1,908

 

Total liabilities

 

 

122,292

 

 

 

136,768

 

Commitments and contingencies (Note 10)

 

 

 

 

 

 

 

 

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 per share; 500,000,000 shares

   authorized; 94,016,568 and 91,819,649 shares issued and outstanding

   at September 30, 2020 and December 31, 2019, respectively

 

 

94

 

 

 

92

 

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

   authorized; 19,076,500 and 20,314,644 shares issued and outstanding

   at September 30, 2020 and December 31, 2019, respectively

 

 

19

 

 

 

20

 

Additional paid-in capital

 

 

233,246

 

 

 

205,234

 

Retained earnings

 

 

104,249

 

 

 

51,859

 

Accumulated other comprehensive income (loss)

 

 

651

 

 

 

(350

)

Total stockholders’ equity

 

 

338,259

 

 

 

256,855

 

Total liabilities and stockholders’ equity

 

$

460,551

 

 

$

393,623

 

 

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,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Revenue

 

$

147,472

 

 

$

150,462

 

 

$

399,898

 

 

$

430,763

 

Cost of revenue(1)

 

 

9,762

 

 

 

9,392

 

 

 

31,252

 

 

 

25,740

 

Gross profit

 

 

137,710

 

 

 

141,070

 

 

 

368,646

 

 

 

405,023

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

57,618

 

 

 

100,133

 

 

 

189,796

 

 

 

293,238

 

Product, technology, and development

 

 

20,758

 

 

 

17,745

 

 

 

65,729

 

 

 

51,063

 

General and administrative

 

 

14,279

 

 

 

12,322

 

 

 

44,297

 

 

 

36,622

 

Depreciation and amortization

 

 

1,488

 

 

 

1,166

 

 

 

4,529

 

 

 

3,413

 

Total operating expenses

 

 

94,143

 

 

 

131,366

 

 

 

304,351

 

 

 

384,336

 

Income from operations

 

 

43,567

 

 

 

9,704

 

 

 

64,295

 

 

 

20,687

 

Other income, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

174

 

 

 

759

 

 

 

1,053

 

 

 

2,247

 

Other income, net

 

 

31

 

 

 

251

 

 

 

354

 

 

 

1,258

 

Total other income, net

 

 

205

 

 

 

1,010

 

 

 

1,407

 

 

 

3,505

 

Income before income taxes

 

 

43,772

 

 

 

10,714

 

 

 

65,702

 

 

 

24,192

 

Provision for (benefit from) income taxes

 

 

11,209

 

 

 

330

 

 

 

13,312

 

 

 

(4,783

)

Net income

 

$

32,563

 

 

$

10,384

 

 

$

52,390

 

 

$

28,975

 

Net income per share attributable to common stockholders:

   (Note 12)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.29

 

 

$

0.09

 

 

$

0.46

 

 

$

0.26

 

Diluted

 

$

0.29

 

 

$

0.09

 

 

$

0.46

 

 

$

0.26

 

Weighted-average number of shares of common

   stock used in computing net income per share

   attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

113,027,995

 

 

 

111,662,949

 

 

 

112,707,003

 

 

 

111,257,271

 

Diluted

 

 

113,966,863

 

 

 

113,364,775

 

 

 

113,732,616

 

 

 

113,389,695

 

 

(1)

Includes depreciation and amortization expense for the three months ended September 30, 2020 and 2019 and for the nine months ended September 30, 2020 and 2019 of $944, $952, $4,250, and $2,246, 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,

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

Net income

 

$

32,563

 

 

$

10,384

 

 

$

52,390

 

 

$

28,975

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

1,013

 

 

 

(929

)

 

 

1,001

 

 

 

(997

)

Comprehensive income

 

$

33,576

 

 

$

9,455

 

 

$

53,391

 

 

$

27,978

 

 

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

 

 

Retained

 

 

Accumulated

Other

Comprehensive

 

 

Total

Stockholders’

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Income (Loss)

 

 

Equity

 

Balance at December 31, 2019

 

 

91,819,649

 

 

$

92

 

 

 

20,314,644

 

 

$

20

 

 

$

205,234

 

 

$

51,859

 

 

$

(350

)

 

$

256,855

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,696

 

 

 

 

 

 

12,696

 

Stock–based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,793

 

 

 

 

 

 

 

 

 

11,793

 

Issuance of common stock upon exercise of stock options

 

 

160,668

 

 

 

 

 

 

 

 

 

 

 

 

514

 

 

 

 

 

 

 

 

 

514

 

Issuance of common stock upon vesting of restricted stock units

 

 

308,303

 

 

 

1

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Payment of withholding taxes on net share settlements of equity awards

 

 

(106,934

)

 

 

 

 

 

 

 

 

 

 

 

(3,397

)

 

 

 

 

 

 

 

 

(3,397

)

Conversion of common stock

 

 

335,741

 

 

 

 

 

 

(335,741

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(493

)

 

 

(493

)

Balance at March 31, 2020

 

 

92,517,427

 

 

 

93

 

 

 

19,978,903

 

 

 

20

 

 

 

214,143

 

 

 

64,555

 

 

 

(843

)

 

 

277,968

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

7,131

 

 

 

 

 

 

7,131

 

Stock–based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,249

 

 

 

 

 

 

 

 

 

12,249

 

Issuance of common stock upon exercise of stock options

 

 

84,796

 

 

 

 

 

 

 

 

 

 

 

 

415

 

 

 

 

 

 

 

 

 

415

 

Issuance of common stock upon vesting of restricted stock units

 

 

375,645

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Payment of withholding taxes on net share settlements of equity awards

 

 

(119,009

)

 

 

 

 

 

 

 

 

 

 

 

(2,389

)

 

 

 

 

 

 

 

 

(2,389

)

Conversion of common stock

 

 

3,748

 

 

 

 

 

 

(3,748

)

 

 

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-

 

 

 

 

 

 

481

 

 

 

481

 

Balance at June 30, 2020

 

 

92,862,607

 

 

 

93

 

 

 

19,975,155

 

 

 

20

 

 

 

224,418

 

 

 

71,686

 

 

 

(362

)

 

 

295,855

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

32,563

 

 

 

 

 

 

32,563

 

Stock–based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11,684

 

 

 

 

 

 

 

 

 

11,684

 

Issuance of common stock upon exercise of stock options

 

 

31,523

 

 

 

 

 

 

 

 

 

 

 

 

66

 

 

 

 

 

 

 

 

 

66

 

Issuance of common stock upon vesting of restricted stock units

 

 

335,153

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment of withholding taxes on net share settlements of equity awards

 

 

(111,370

)

 

 

 

 

 

 

 

 

 

 

 

(2,922

)

 

 

 

 

 

 

 

 

(2,922

)

Conversion of common stock

 

 

898,655

 

 

 

1

 

 

 

(898,655

)

 

 

(1

)

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1,013

 

 

 

1,013

 

Balance at September 30, 2020

 

 

94,016,568

 

 

$

94

 

 

 

19,076,500

 

 

$

19

 

 

$

233,246

 

 

$

104,249

 

 

$

651

 

 

$

338,259