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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, 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 August 3, 2023, the registrant had 97,499,021 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	22
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	48

PART II.	OTHER INFORMATION	51
Item 1.	Legal Proceedings	51
Item 1A.	Risk Factors	52
Item 6.	Exhibits	68
Signatures		69

SPECIAL NOTE REGARDING FORWARD‑LOOKING STATEMENTS

This Quarterly Report on Form 10-Q, or Quarterly 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 “aim,” “anticipates,” “believes,” “could,” “estimates,” “expects,” “goal,” “intends,” “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 Quarterly 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;

•

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;

•

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;

•

domestic and global economic conditions;

•

our ability to hire and retain necessary qualified employees to expand our operations;

•

our ability to adequately protect our intellectual property;

•

our expected returns on investments;

•

our expectations regarding our deferred tax assets;

•

our expectations regarding the funding of our share repurchase program;

•

our revolving credit facility;

•

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;

•

the impact of accounting pronouncements;

•

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;

•

the impact of litigation; and

•

the future trading prices of our Class A common stock.

iii

You should not rely upon forward‑looking statements as predictions of future events. We have based the forward‑looking statements contained in this Quarterly 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, including those that are described in the section titled “Risk Factors” and elsewhere in this Quarterly 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 Quarterly 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 Quarterly Report speak only as of the date of this Quarterly Report. We undertake no obligation to update any forward‑looking statement made in this Quarterly Report to reflect events or circumstances after the date of this Quarterly 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 June 30, 2023			As of December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	363,060		$	469,517
Short-term investments		90,490			—
Accounts receivable, net of allowance for doubtful accounts of $807 and $1,809, respectively		37,820			46,817
Inventory		541			5,282
Prepaid expenses, prepaid income taxes and other current assets		21,742			21,972
Deferred contract costs		10,078			8,541
Restricted cash		11,561			5,237
Total current assets		535,292			557,366
Property and equipment, net		48,243			40,128
Intangible assets, net		38,037			53,054
Goodwill		157,638			157,467
Operating lease right-of-use assets		189,905			56,869
Restricted cash		—			9,378
Deferred tax assets		51,888			35,488
Deferred contract costs, net of current portion		11,490			8,853
Other non-current assets		7,828			8,499
Total assets	$	1,040,321		$	927,102
Liabilities, redeemable noncontrolling interest and stockholders’ equity
Current liabilities
Accounts payable	$	39,260		$	32,529
Accrued expenses, accrued income taxes and other current liabilities		36,367			39,193
Deferred revenue		21,267			12,249
Operating lease liabilities		13,870			14,762
Total current liabilities		110,764			98,733
Operating lease liabilities		193,184			51,656
Deferred tax liabilities		43			54
Other non–current liabilities		5,611			5,301
Total liabilities		309,602			155,744
Commitments and contingencies (Note 8)
Redeemable noncontrolling interest		29,865			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; 97,426,273 and 101,636,649 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively		97			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, 2023 and December 31, 2022, respectively		16			16
Additional paid-in capital		346,494			413,092
Retained earnings		355,588			323,043
Accumulated other comprehensive loss		(1,341	)		(1,644	)
Total stockholders’ equity		700,854			734,609
Total liabilities, redeemable noncontrolling interest and stockholders’ equity	$	1,040,321		$	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 June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenue
Marketplace	$	170,950		$	163,926		$	338,077		$	327,215
Wholesale		31,952			75,937			57,138			166,931
Product		36,835			271,366			76,485			447,691
Total revenue		239,737			511,229			471,700			941,837
Cost of revenue (1)
Marketplace		15,474			13,257			31,007			25,466
Wholesale		24,428			46,518			46,496			104,700
Product		35,694			263,603			75,076			441,945
Total cost of revenue		75,596			323,378			152,579			572,111
Gross profit		164,141			187,851			319,121			369,726
Operating expenses:
Sales and marketing		77,838			95,605			153,415			183,186
Product, technology, and development		37,391			31,354			73,998			62,007
General and administrative		27,267			33,514			52,186			66,635
Depreciation and amortization		3,907			3,836			7,725			7,697
Total operating expenses		146,403			164,309			287,324			319,525
Income from operations		17,738			23,542			31,797			50,201
Other income (expense), net:
Interest income		4,333			311			8,076			348
Other income (expense), net		347			(467	)		942			(623	)
Total other income (expense), net		4,680			(156	)		9,018			(275	)
Income before income taxes		22,418			23,386			40,815			49,926
Provision for income taxes		8,601			5,325			15,132			13,027
Consolidated net income		13,817			18,061			25,683			36,899
Net loss attributable to redeemable noncontrolling interest		(2,596	)		(1,223	)		(6,862	)		(2,295	)
Net income attributable to CarGurus, Inc.		16,413			19,284			32,545			39,194
Accretion of redeemable noncontrolling interest to redemption value		—			29,620			—			111,620
Net income (loss) attributable to common stockholders	$	16,413		$	(10,336	)	$	32,545		$	(72,426	)
Net income (loss) per share attributable to common stockholders: (Note 10)
Basic	$	0.14		$	(0.09	)	$	0.28		$	(0.61	)
Diluted	$	0.12		$	(0.09	)	$	0.22		$	(0.61	)
Weighted-average number of shares of common stock used in computing net income (loss) per share attributable to common stockholders:
Basic		113,438,057			118,390,641			114,392,961			118,211,975
Diluted		114,490,651			118,390,641			115,197,890			118,211,975

(1)

Includes depreciation and amortization expense for the three months ended June 30, 2023 and 2022 and for the six months ended June 30, 2023 and 2022 of $7,760, $7,398, $15,518 and $14,722, 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,
	2023			2022			2023			2022
Consolidated net income	$	13,817		$	18,061		$	25,683		$	36,899
Other comprehensive income:
Foreign currency translation adjustment		(112	)		(1,586	)		303			(2,075	)
Consolidated comprehensive income		13,705			16,475			25,986			34,824
Comprehensive loss attributable to redeemable noncontrolling interests		(2,596	)		(1,223	)		(6,862	)		(2,295	)
Comprehensive income attributable to CarGurus, Inc.	$	16,301		$	17,698		$	32,848		$	37,119

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	)
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
Net (loss) income		(2,596	)		—			—			—		—		—			16,413		—			16,413
Stock–based compensation expense		—			—			—			—		—		15,895			—		—			15,895
Issuance of common stock upon exercise of stock options		—			1,480			—			—		—		10