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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 September 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 November 2, 2023, the registrant had 96,270,157 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	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50
Item 4.	Controls and Procedures	51

PART II.	OTHER INFORMATION	54
Item 1.	Legal Proceedings	54
Item 1A.	Risk Factors	55
Item 2.	Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities	70
Item 6.	Exhibits	71
Signatures		72

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;

•

the anticipated completion of the proposed acquisition of the additional equity interests in CarOffer, LLC, or CarOffer;

•

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.

NOTE REGARDING TRADEMARKS

CarGurus® is a registered trademark of CarGurus, Inc., and CarOffer® is a registered trademark of CarOffer, LLC. All other product names, trademarks, and registered trademarks are property of their respective owners.

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 September 30, 2023			As of December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	355,330		$	469,517
Short-term investments		91,824			—
Accounts receivable, net of allowance for doubtful accounts of $823 and $1,809, respectively		46,107			46,817
Inventory		323			5,282
Prepaid expenses, prepaid income taxes and other current assets		19,696			21,972
Deferred contract costs		10,465			8,541
Restricted cash		11,624			5,237
Total current assets		535,369			557,366
Property and equipment, net		54,700			40,128
Intangible assets, net		30,481			53,054
Goodwill		157,267			157,467
Operating lease right-of-use assets		183,774			56,869
Restricted cash		—			9,378
Deferred tax assets		67,623			35,488
Deferred contract costs, net of current portion		11,965			8,853
Other non-current assets		7,546			8,499
Total assets	$	1,048,725		$	927,102
Liabilities, redeemable noncontrolling interest and stockholders’ equity
Current liabilities
Accounts payable	$	37,481		$	32,529
Accrued expenses, accrued income taxes and other current liabilities		36,908			39,193
Deferred revenue		21,043			12,249
Operating lease liabilities		13,206			14,762
Total current liabilities		108,638			98,733
Operating lease liabilities		192,111			51,656
Deferred tax liabilities		60			54
Other non–current liabilities		4,386			5,301
Total liabilities		305,195			155,744
Commitments and contingencies (Note 8)
Redeemable noncontrolling interest		26,536			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; 96,877,765 and 101,636,649 shares issued and outstanding at September 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 September 30, 2023 and December 31, 2022, respectively		16			16
Additional paid-in capital		341,110			413,092
Retained earnings		377,890			323,043
Accumulated other comprehensive loss		(2,119	)		(1,644	)
Total stockholders’ equity		716,994			734,609
Total liabilities, redeemable noncontrolling interest and stockholders’ equity	$	1,048,725		$	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 September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Revenue
Marketplace	$	177,909		$	165,309		$	515,986		$	492,524
Wholesale		21,735			47,045			78,873			213,976
Product		19,775			214,100			96,260			661,791
Total revenue		219,419			426,454			691,119			1,368,291
Cost of revenue (1)
Marketplace		14,823			14,956			45,830			40,422
Wholesale		21,284			41,789			67,780			146,489
Product		19,014			218,924			94,090			660,869
Total cost of revenue		55,121			275,669			207,700			847,780
Gross profit		164,298			150,785			483,419			520,511
Operating expenses:
Sales and marketing		76,828			83,319			230,243			266,505
Product, technology, and development		35,434			30,208			109,432			92,215
General and administrative		24,904			4,760			77,090			71,395
Depreciation and amortization		4,037			3,842			11,762			11,539
Total operating expenses		141,203			122,129			428,527			441,654
Income from operations		23,095			28,656			54,892			78,857
Other income (expense), net:
Interest income		5,261			1,158			13,337			1,506
Other expense, net		(1,094	)		(958	)		(152	)		(1,581	)
Total other income (expense), net		4,167			200			13,185			(75	)
Income before income taxes		27,262			28,856			68,077			78,782
Provision for income taxes		8,289			10,032			23,421			23,059
Consolidated net income		18,973			18,824			44,656			55,723
Net loss attributable to redeemable noncontrolling interest		(3,329	)		(1,576	)		(10,191	)		(3,871	)
Net income attributable to CarGurus, Inc.		22,302			20,400			54,847			59,594
Accretion of redeemable noncontrolling interest to redemption value		—			(86,564	)		—			25,056
Net income attributable to common stockholders	$	22,302		$	106,964		$	54,847		$	34,538
Net income per share attributable to common stockholders: (Note 10)
Basic	$	0.20		$	0.90		$	0.48		$	0.29
Diluted	$	0.17		$	0.14		$	0.39		$	0.28
Weighted-average number of shares of common stock used in computing net income per share attributable to common stockholders:
Basic		113,223,711			118,683,642			113,998,928			118,370,925
Diluted		114,322,279			132,243,636			114,901,736			122,159,270

(1)

Includes depreciation and amortization expense for the three months ended September 30, 2023 and 2022 and for the nine months ended September 30, 2023 and 2022 of $8,433, $7,341, $23,951 and $22,063, 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 September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Consolidated net income	$	18,973		$	18,824		$	44,656		$	55,723
Other comprehensive income:
Foreign currency translation adjustment		(778	)		(1,519	)		(475	)		(3,594	)
Consolidated comprehensive income		18,195			17,305			44,181			52,129
Comprehensive loss attributable to redeemable noncontrolling interests		(3,329	)		(1,576	)		(10,191	)		(3,871	)
Comprehensive income attributable to CarGurus, Inc.	$	21,524		$	18,881		$	54,372		$	56,000

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			—		—			10
Issuance of common stock upon vesting of restricted stock units		—			697,879			—			—		—		—			—		—			—
Payment of withholding taxes on net share settlements of restricted stock units		—			(240,674	)		—			—		—		(5,196	)		—		—			(5,196	)
Repurchase of common stock		—			(1,311,387	)		(1	)		—		—		(21,963	)		—		—			(21,964	)
Tax distributions to redeemable noncontrolling interest holders		(14	)		—			—			—		—		—			—		—			—
Foreign currency translation adjustment		—			—			—			—		—		—			—		(112	)		(112	)
Balance at June 30, 2023	$	29,865			97,426,273		$	97			15,999,173	$	16	$	346,494		$	355,588	$	(1,341	)