SEC Filing | CarGurus

View:

Download DOC

Download PDF

Download XLS

Download XBRL

carg-10q_20210331.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 March 31, 2021

☐	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 April 29, 2021, the registrant had 98,925,105 shares of Class A common stock, $0.001 par value per share, and 18,146,903 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 Redeemable Noncontrolling Interest and 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	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	36
Item 4.	Controls and Procedures	37

PART II.	OTHER INFORMATION	38
Item 1.	Legal Proceedings	38
Item 1A.	Risk Factors	38
Item 5.	Other Information	52
Item 6.	Exhibits	53
Signatures		54

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 belief that we are building the world’s most trusted and transparent automotive marketplace and creating a differentiated automotive search experience for consumers;

•

our ability to deliver quality leads at a high volume for our dealer customers;

•

our ability to maintain and acquire new customers;

•

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;

•

our expectations regarding future share issuances and the exercise of put and call rights in connection with our acquisition of a majority interest in CarOffer, LLC, as well as the associated valuation of redeemable noncontrolling interests;

•

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 and effectively comply with new or modified laws and regulations that currently apply or become applicable to our business and our beliefs regarding our compliance therewith;

•

our ability to overcome challenges facing the automotive industry ecosystem, including inventory supply problems, global supply chain challenges, the global semiconductor chip shortage, 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 expectation that we will realize the benefits of deferred tax assets;

•

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 fee reductions for customers; and

•

the impacts of the COVID-19 pandemic.

iii

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.

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

CarGurus, Inc.

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

	At March 31, 2021		At December 31, 2020
Assets
Current assets
Cash and cash equivalents	$	140,668	$	190,299
Investments		100,000		100,000
Accounts receivable, net of allowance for doubtful accounts of $636 and $616, respectively		36,364		18,235
Prepaid expenses, prepaid income taxes and other current assets		17,170		12,385
Deferred contract costs		11,085		10,807
Restricted cash		6,489		250
Total current assets		311,776		331,976
Property and equipment, net		29,816		27,483
Intangible assets, net		108,165		10,862
Goodwill		157,152		29,129
Operating lease right-of-use assets		70,087		60,835
Restricted cash		10,377		10,377
Deferred tax assets		19,728		19,774
Deferred contract costs, net of current portion		9,134		9,189
Other non-current assets		3,158		2,673
Total assets	$	719,393	$	502,298
Liabilities, redeemable noncontrolling interest and stockholders’ equity
Current liabilities
Accounts payable	$	36,293	$	21,563
Accrued expenses, accrued income taxes and other current liabilities		22,847		24,751
Deferred revenue		11,986		9,137
Operating lease liabilities		10,599		11,085
Total current liabilities		81,725		66,536
Operating lease liabilities		68,280		58,810
Deferred tax liabilities		294		291
Other non–current liabilities		5,218		3,075
Total liabilities		155,517		128,712
Commitments and contingencies (Note 9)
Redeemable noncontrolling interest		55,221		—
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; 98,759,576 and 94,310,309 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively		99		94
Class B common stock, $0.001 par value per share; 100,000,000 shares authorized; 18,146,903 and 19,076,500 shares issued and outstanding at March 31, 2021 and December 31, 2020, respectively		18		19
Additional paid-in capital		355,968		242,181
Retained earnings		151,773		129,412
Accumulated other comprehensive income		797		1,880
Total stockholders’ equity		508,655		373,586
Total liabilities, redeemable noncontrolling interest and stockholders’ equity	$	719,393	$	502,298

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 March 31,
	2021			2020
Revenue	$	171,368		$	157,689
Cost of revenue⁽¹⁾		24,058			11,610
Gross profit		147,310			146,079
Operating expenses:
Sales and marketing		68,174			93,595
Product, technology, and development		25,164			23,084
General and administrative		20,514			15,860
Depreciation and amortization		7,667			1,521
Total operating expenses		121,519			134,060
Income from operations		25,791			12,019
Other income, net		222			728
Income before income taxes		26,013			12,747
Provision for income taxes		6,462			51
Consolidated net income		19,551			12,696
Net loss attributable to redeemable noncontrolling interest		(2,810	)		—
Net income attributable to common stockholders	$	22,361		$	12,696
Net income per share attributable to common stockholders: (Note 11)
Basic	$	0.19		$	0.11
Diluted	$	0.19		$	0.11
Weighted-average number of shares of common stock used in computing net income per share attributable to common stockholders:
Basic		116,316,464			112,355,093
Diluted		117,249,365			113,489,992

⁽¹⁾	Includes depreciation and amortization expense for the three months ended March 31, 2021 and 2020 of $999 and $1,469, 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 March 31,
	2021			2020
Consolidated net income	$	19,551		$	12,696
Other comprehensive income (loss):
Foreign currency translation adjustment		(1,083	)		(493	)
Consolidated comprehensive income		18,468			12,203
Less comprehensive loss attributable to redeemable noncontrolling interests		(2,810	)		—
Comprehensive income attributable to common stockholders	$	21,278		$	12,203

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

CarGurus, Inc.

Unaudited Condensed Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ Equity

(in thousands, except share data)

	Redeemable Noncontrolling			Class A Common Stock					Class B Common Stock						Additional Paid–in			Retained		Accumulated Other Comprehensive			Total Stockholders’
	Interest			Shares			Amount		Shares			Amount			Capital			Earnings		Income (Loss)			Equity
Balance at December 31, 2020	$	—			94,310,309		$	94		19,076,500		$	19		$	242,181		$	129,412	$	1,880			373,586
Net income (loss)		(2,810	)		—			—		—			—			—			22,361		—			22,361
Stock–based compensation expense		—			—			—		—			—			14,929			—		—			14,929
Issuance of common stock upon exercise of stock options		—			93,455			—		—			—			258			—		—			258
Issuance of common stock upon vesting of restricted stock units		—			473,883			1		—			—			(1	)		—		—			—
Payment of withholding taxes on net share settlements of equity awards		—			(162,950	)		—		—			—			(5,041	)		—		—			(5,041	)
Conversion of common stock		—			929,597			1		(929,597	)		(1	)		—			—		—			—
Issuance of common stock upon for acquisition		—			3,115,282			3		—			—			103,642			—		—			103,645
Acquisition of a 51% interest in CarOffer, LLC		58,031			—			—		—			—			—			—		—			—
Foreign currency translation adjustment		—			—			—		—			—			—			—		(1,083	)		(1,083	)
Balance at March 31, 2021	$	55,221			98,759,576		$	99		18,146,903		$	18		$	355,968		$	151,773	$	797		$	508,655

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

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

CarGurus, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

	Three Months Ended March 31,
	2021			2020
Operating Activities
Consolidated net income	$	19,551		$	12,696
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Depreciation and amortization		8,666			2,990
Currency gain on foreign denominated transactions		(51	)		(102	)
Deferred taxes		60			5,464
Provision for doubtful accounts		379			1,202
Stock-based compensation expense		14,360			11,606
Amortization of deferred contract costs		3,195			2,836
Changes in operating assets and liabilities:
Accounts receivable, net		(2,423	)		5,401
Prepaid expenses, prepaid income taxes, and other assets		(2,217	)		(11,047	)
Deferred contract costs		(3,494	)		(3,296	)
Accounts payable		4,876			(7,437	)
Accrued expenses, accrued income taxes, and other liabilities		(1,632	)		(4,513	)
Deferred revenue		2,857			(4,938	)
Lease obligations		(265	)		(721	)
Net cash provided by operating activities		43,862			10,141
Investing Activities
Purchases of property and equipment		(1,227	)		(1,214	)
Capitalization of website development costs		(966	)		(666	)
Cash paid for acquisitions, net of cash acquired		(65,899	)		(21,004	)
Maturities of certificates of deposit		—			30,411
Net cash (used in) provided by investing activities		(68,092	)		7,527
Financing Activities
Proceeds from exercise of stock options		258			514
Payment of finance lease obligations		(10	)		(9	)
Payment of withholding taxes and option costs on net share settlement of restricted stock units and stock options		(5,041	)		(3,397	)
Repayment of line of credit		(14,250	)		—
Net cash used in financing activities		(19,043	)		(2,892	)
Impact of foreign currency on cash, cash equivalents, and restricted cash		(119	)		(28	)
Net (decrease) increase in cash, cash equivalents, and restricted cash		(43,392	)		14,748
Cash, cash equivalents, and restricted cash at beginning of period		200,926			70,723
Cash, cash equivalents, and restricted cash at end of period	$	157,534		$	85,471
Supplemental disclosure of cash flow information: