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10-Q

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 June 30, 2022


☐	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 August 4, 2022, the registrant had 102,689,181 shares of Class A common stock, $0.001 par value per share, and 15,999,173 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	17
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	53
Item 6.	Exhibits	54
Signatures		55

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;

•

the value proposition of our product offerings for dealers and consumers, and the return on investment that our dealers realize from our products;

•

our evolution to becoming a transaction-enabled marketplace where consumers can shop, buy, seek financing, and sell their cars and dealers can source, market, and sell their vehicles;

•

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 potentially acquiring additional equity interests in CarOffer, LLC, or CarOffer, as well as the associated valuation of redeemable noncontrolling interests;

•

the value proposition of the CarOffer online wholesale platform, including our belief that as dealer enrollments increase, dealers will see a corresponding increase in inventory on the platform, further enabling liquidity, selection, choice and business efficiencies;

•

our expectations for CarGurus Instant Max Cash Offer, as well as our digital retail offerings and continued investments;

•

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;

•

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 regarding deferred tax assets;

•

the material weakness in our internal control over financial reporting that we have identified, and our ability to remediate such weakness and enhance our internal control environment;

•

our expected returns on investments; 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 June 30, 2022			At December 31, 2021
Assets
Current assets
Cash and cash equivalents	$	338,238		$	231,944
Investments		30,000			90,000
Accounts receivable, net of allowance for doubtful accounts of $1,084 and $420, respectively		193,431			189,324
Inventory		21,684			19,656
Prepaid expenses, prepaid income taxes and other current assets		24,599			16,430
Deferred contract costs		8,271			9,045
Restricted cash		13,291			6,709
Total current assets		629,514			563,108
Property and equipment, net		35,343			32,210
Intangible assets, net		68,338			83,915
Goodwill		157,073			158,287
Operating lease right-of-use assets		59,226			60,609
Restricted cash		9,627			9,627
Deferred tax assets		36,816			13,378
Deferred contract costs, net of current portion		6,631			5,867
Other non-current assets		7,138			4,573
Total assets	$	1,009,706		$	931,574
Liabilities, redeemable noncontrolling interest and stockholders’ equity
Current liabilities
Accounts payable	$	74,171		$	66,153
Accrued expenses, accrued income taxes and other current liabilities		74,391			78,586
Deferred revenue		15,071			12,784
Operating lease liabilities		12,340			13,186
Total current liabilities		175,973			170,709
Operating lease liabilities		56,110			57,519
Deferred tax liabilities		32			58
Other non–current liabilities		51,251			23,639
Total liabilities		283,366			251,925
Commitments and contingencies (Note 7)
Redeemable noncontrolling interest		264,505			162,808
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; 102,465,807 and 101,773,034 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively		102			102
Class B common stock, $0.001 par value per share; 100,000,000 shares authorized; 15,999,173 and 15,999,173 shares issued and outstanding at June 30, 2022 and December 31, 2021, respectively		16			16
Additional paid-in capital		407,363			387,868
Retained earnings		56,832			129,258
Accumulated other comprehensive loss		(2,478	)		(403	)
Total stockholders’ equity		461,835			516,841
Total liabilities, redeemable noncontrolling interest and stockholders’ equity	$	1,009,706		$	931,574

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 June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Revenue
Marketplace	$	163,926		$	160,458		$	327,215		$	316,259
Wholesale		75,937			53,514			166,931			67,317
Product		271,366			3,776			447,691			5,540
Total revenue		511,229			217,748			941,837			389,116
Cost of revenue (1)
Marketplace		13,257			11,311			25,466			22,299
Wholesale		46,518			35,226			104,700			46,352
Product		263,603			3,780			441,945			5,724
Total cost of revenue		323,378			50,317			572,111			74,375
Gross profit		187,851			167,431			369,726			314,741
Operating expenses:
Sales and marketing		95,605			66,135			183,186			134,309
Product, technology, and development		31,354			27,630			62,007			52,794
General and administrative		33,514			26,167			66,635			46,681
Depreciation and amortization		3,836			9,022			7,697			16,689
Total operating expenses		164,309			128,954			319,525			250,473
Income from operations		23,542			38,477			50,201			64,268
Other (expense) income, net		(156	)		61			(275	)		283
Income before income taxes		23,386			38,538			49,926			64,551
Provision for income taxes		5,325			11,142			13,027			17,604
Consolidated net income		18,061			27,396			36,899			46,947
Net loss attributable to redeemable noncontrolling interest		(1,223	)		(656	)		(2,295	)		(3,466	)
Net income attributable to CarGurus, Inc.		19,284			28,052			39,194			50,413
Accretion of redeemable noncontrolling interest to redemption value		29,620			—			111,620			—
Net (loss) income attributable to common stockholders	$	(10,336	)	$	28,052		$	(72,426	)	$	50,413
Net (loss) income per share attributable to common stockholders: (Note 9)
Basic	$	(0.09	)	$	0.24		$	(0.61	)	$	0.43
Diluted	$	(0.09	)	$	0.23		$	(0.61	)	$	0.42
Weighted-average number of shares of common stock used in computing net (loss) income per share attributable to common stockholders:
Basic		118,390,641			117,124,895			118,211,975			116,722,913
Diluted		118,390,641			119,454,104			118,211,975			118,353,969

(1)

Includes depreciation and amortization expense for the three months ended June 30, 2022 and 2021 and for the six months ended June 30, 2022 and 2021 of $7,398, $1,143, $14,722 and $2,142, 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 June 30,						Six Months Ended June 30,
	2022			2021			2022			2021
Consolidated net income	$	18,061		$	27,396		$	36,899		$	46,947
Other comprehensive income:
Foreign currency translation adjustment		(1,586	)		248			(2,075	)		(835	)
Consolidated comprehensive income		16,475			27,644			34,824			46,112
Comprehensive loss attributable to redeemable noncontrolling interests		(1,223	)		(656	)		(2,295	)		(3,466	)
Comprehensive income attributable to CarGurus, Inc.	$	17,698		$	28,300		$	37,119		$	49,578

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			Loss (Income)			Equity
Balance as of December 31, 2021	$	162,808			101,773,034		$	102		15,999,173	$	16	$	387,868		$	129,258		$	(403	)		516,841
Net (loss) income		(1,072	)		—			—		—		—		—			19,910			—			19,910
Stock–based compensation expense		—			—			—		—		—		15,353			—			—			15,353
Issuance of common stock upon exercise of stock options		—			74,163			—		—		—		680			—			—			680
Issuance of common stock upon vesting of restricted stock units		—			451,084			—		—		—		—			—			—			—
Payment of withholding taxes on net share settlements of equity awards		—			(155,736	)		—		—		—		(5,430	)		—			—			(5,430	)
Accretion of redeemable noncontrolling interest to redemption value		82,000			—			—		—		—		—			(82,000	)		—			(82,000	)
Tax distributions to redeemable noncontrolling interest holders		(3,986	)		—			—		—		—		—			—			—			—
Foreign currency translation adjustment		—			—			—		—		—		—			—			(489	)		(489	)
Balance as of March 31, 2022	$	239,750			102,142,545		$	102		15,999,173	$	16	$	398,471		$	67,168		$	(892	)	$	464,865
Net (loss) income		(1,223	)		—			—		—		—		—			19,284			—			19,284
Stock–based compensation expense		—			—			—		—		—		14,697			—			—			14,697
Issuance of common stock upon exercise of stock options		—			23,240			—		—		—		25			—			—			25
Issuance of common stock upon vesting of restricted stock units		—			447,555			—		—		—		—			—			—			—
Payment of withholding taxes on net share settlements of equity awards		—			(147,533	)		—		—		—		(5,830	)		—			—			(5,830	)
Accretion of redeemable noncontrolling interest to redemption value		29,620			—			—		—		—		—			(29,620	)		—			(29,620	)
Tax distributions to redeemable noncontrolling interest holders		(3,642	)		—			—		—		—		—			—			—			—
Foreign currency translation adjustment		—			—			—		—		—		—