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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 March 31, 2023


☐	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)

(617) 354-0068

(Registrant’s telephone number, including area code)

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 May 4, 2023, the registrant had 97,319,091 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	20
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 4.	Controls and Procedures	39

PART II.	OTHER INFORMATION	41
Item 1.	Legal Proceedings	41
Item 1A.	Risk Factors	41
Item 6.	Exhibits	57
Signatures		58

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,” “goal,” “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 platform 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;

•

domestic economic conditions;

•

global economic conditions affecting us or our customers;

•

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

•

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

•

our expectation regarding the funding of our share repurchase program;

•

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

•

our revolving credit facility; and

•

our expected returns on investments.

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)


	As of March 31, 2023			As of December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	456,696		$	469,517
Accounts receivable, net of allowance for doubtful accounts of $1,054 and $1,809, respectively		42,395			46,817
Inventory		1,637			5,282
Prepaid expenses, prepaid income taxes and other current assets		18,114			21,972
Deferred contract costs		9,387			8,541
Restricted cash		14,985			5,237
Total current assets		543,214			557,366
Property and equipment, net		42,748			40,128
Intangible assets, net		45,552			53,054
Goodwill		157,689			157,467
Operating lease right-of-use assets		196,413			56,869
Restricted cash		—			9,378
Deferred tax assets		47,385			35,488
Deferred contract costs, net of current portion		10,446			8,853
Other non-current assets		8,132			8,499
Total assets	$	1,051,579		$	927,102
Liabilities, redeemable noncontrolling interest and stockholders’ equity
Current liabilities
Accounts payable	$	42,701		$	32,529
Accrued expenses, accrued income taxes and other current liabilities		45,010			39,193
Deferred revenue		20,808			12,249
Operating lease liabilities		15,480			14,762
Total current liabilities		123,999			98,733
Operating lease liabilities		194,931			51,656
Deferred tax liabilities		30			54
Other non–current liabilities		4,336			5,301
Total liabilities		323,296			155,744
Commitments and contingencies (Note 8)
Redeemable noncontrolling interest		32,475			36,749
Stockholders’ equity:
Preferred stock, $0.001 par value per share; 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; 98,278,975 and 101,636,649 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively		98			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 March 31, 2023 and December 31, 2022, respectively		16			16
Additional paid-in capital		357,748			413,092
Retained earnings		339,175			323,043
Accumulated other comprehensive loss		(1,229	)		(1,644	)
Total stockholders’ equity		695,808			734,609
Total liabilities, redeemable noncontrolling interest and stockholders’ equity	$	1,051,579		$	927,102

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,
	2023			2022
Revenue
Marketplace	$	167,127		$	163,289
Wholesale		25,186			90,994
Product		39,650			176,325
Total revenue		231,963			430,608
Cost of revenue (1)
Marketplace		15,533			12,209
Wholesale		22,068			58,182
Product		39,382			178,342
Total cost of revenue		76,983			248,733
Gross profit		154,980			181,875
Operating expenses:
Sales and marketing		75,577			87,581
Product, technology, and development		36,607			30,653
General and administrative		24,919			33,121
Depreciation and amortization		3,818			3,861
Total operating expenses		140,921			155,216
Income from operations		14,059			26,659
Other income (expense), net:
Interest income		3,743			37
Other income (expense), net		595			(156	)
Total other income (expense), net		4,338			(119	)
Income before income taxes		18,397			26,540
Provision for income taxes		6,531			7,702
Consolidated net income		11,866			18,838
Net loss attributable to redeemable noncontrolling interest		(4,266	)		(1,072	)
Net income attributable to CarGurus, Inc.		16,132			19,910
Accretion of redeemable noncontrolling interest to redemption value		—			82,000
Net income (loss) attributable to common stockholders	$	16,132		$	(62,090	)
Net income (loss) per share attributable to common stockholders: (Note 10)
Basic	$	0.14		$	(0.53	)
Diluted	$	0.10		$	(0.53	)
Weighted-average number of shares of common stock used in computing net income (loss) per share attributable to common stockholders:
Basic		115,358,475			118,031,325
Diluted		115,915,737			118,031,325

(1)

Includes depreciation and amortization expense for the three months ended March 31, 2023 and 2022 of $7,758 and $7,324, 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,
	2023			2022
Consolidated net income	$	11,866		$	18,838
Other comprehensive income:
Foreign currency translation adjustment		415			(489	)
Consolidated comprehensive income		12,281			18,349
Comprehensive loss attributable to redeemable noncontrolling interests		(4,266	)		(1,072	)
Comprehensive income attributable to CarGurus, Inc.	$	16,547		$	19,421

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			Equity
Balance as of December 31, 2022	$	36,749			101,636,649		$	102			15,999,173	$	16	$	413,092		$	323,043		$	(1,644	)		734,609
Net (loss) income		(4,266	)		—			—			—		—		—			16,132			—			16,132
Stock–based compensation expense		—			—			—			—		—		16,049			—			—			16,049
Issuance of common stock upon exercise of stock options		—			7,700			—			—		—		19			—			—			19
Issuance of common stock upon vesting of restricted stock units		—			959,935			—			—		—		—			—			—			—
Payment of withholding taxes on net share settlements of restricted stock units		—			(335,448	)		—			—		—		(5,652	)		—			—			(5,652	)
Repurchase of common stock		—			(3,989,861	)		(4	)		—		—		(65,760	)		—			—			(65,764	)
Accretion of redeemable noncontrolling interest to redemption value		—			—			—			—		—		—			—			—			—
Tax distributions to redeemable noncontrolling interest holders		(8	)		—			—			—		—		—			—			—			—
Foreign currency translation adjustment		—			—			—			—		—		—			—			415			415
Balance as of March 31, 2023	$	32,475			98,278,975		$	98			15,999,173	$	16	$	357,748		$	339,175		$	(1,229	)	$	695,808

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 restricted stock units		—			(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

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,
	2023			2022
Operating Activities
Consolidated net income	$	11,866		$	18,838
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Depreciation and amortization		11,576			11,185
Gain on sale of property and equipment		(460	)		—
Currency (gain) loss on foreign denominated transactions		(198	)		84
Deferred taxes		(11,921	)		(13,091	)
Provision for doubtful accounts		(300	)		150
Stock-based compensation expense		14,904			14,147
Amortization of deferred financing costs