10-Q
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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, 2024

OR

 

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

 

https://cdn.kscope.io/3b9601b8389f1c7b18c5a94a92612e49-img198335003_0.jpg 

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.)

55 Cambridge Parkway, 6th Floor

Cambridge, Massachusetts

02142

(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 2, 2024, the registrant had 88,193,268 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

39

Item 4.

 

Controls and Procedures

40

 

 

 

 

PART II.

 

OTHER INFORMATION

42

Item 1.

 

Legal Proceedings

42

Item 1A.

 

Risk Factors

42

Item 2.

 

Unregistered Sales of Equity Securities and Use of Proceeds

42

Item 5.

 

Other Information

43

Item 6.

 

Exhibits

44

Signatures

45

 

 

ii


 

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 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;
the ability of our combined suite of offerings to increase a dealer’s return on investment, add scale to our marketplace network, drive powerful network effects, create powerful synergies for dealers, transform the end-to-end car-shopping journey for both consumers and dealers and become the marketplace for all steps of the vehicle acquisition and sale processes;
our evolution to becoming a transaction-enabled platform where consumers can shop, buy, seek financing, and sell their cars and dealers can predict, source, market, and sell their cars;
our belief that certain of our strengths, including our trusted marketplace for consumers, our strong value proposition for dealers, and our data-driven approach, among other things, will lead to an advantage over our competitors;
the value proposition of the CarOffer, LLC, or 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 ability to deliver quality leads at a high volume for our dealer customers and to provide the highest return on a dealer’s investment;
our expectations for CarGurus Sell My Car (Instant Max Cash Offer and Top Dealer Offers) as well as our digital retail offerings and continued investments;
our ability to maintain and acquire new customers;
our ability to maintain and build our brand;
our belief that our partnerships with automotive lending companies provide more transparency to car shoppers and deliver highly qualified car shopper leads to participating dealers;
our belief that our Geo Expansion offering promotes participating dealers’ delivery capabilities and increases non-local vehicle detail page views;
our outlook for our Restricted Listings product;
the impact of competition in our industry and innovation by our competitors;
our ability to adapt to technological change and effectively enhance, innovate, and scale our platform and offerings;
our ability to realize benefits from our acquisitions and successfully implement the integration strategies in connection therewith;
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 expected returns on investments;
our expectations regarding our deferred tax assets;

iii


 

our expectations regarding our expenses generally, including our general and administrative, our product, technology, and development, and our sales and marketing expenses;
domestic and global economic conditions affecting us or our customers;
our expectations regarding the funding of our share repurchase program;
our revolving credit facility;
our ability to adequately protect our intellectual property;
our ability to hire and retain necessary qualified employees to expand our operations;
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.

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 that are described in this Quarterly Report. We have included important risk factors in the cautionary statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the U.S. Securities and Exchange Commission, or SEC, on February 26, 2024, or Annual Report, particularly in the section “Risk Factors” in Part I, Item 1A, that could cause actual results or events to differ materially from the forward-looking statements that we make. 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. We have omitted the ® and ™ designations, as applicable, for the trademarks used in this Quarterly Report.

 

iv


 

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,
2024

 

 

As of
December 31,
2023

 

Assets

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

Cash and cash equivalents

 

$

246,342

 

 

$

291,363

 

Short-term investments

 

 

 

 

 

20,724

 

Accounts receivable, net of allowance for doubtful accounts of $610
   and $
610, respectively

 

 

44,298

 

 

 

39,963

 

Inventory

 

 

391

 

 

 

331

 

Prepaid expenses, prepaid income taxes and other current assets

 

 

18,893

 

 

 

25,152

 

Deferred contract costs

 

 

11,106

 

 

 

11,095

 

Restricted cash

 

 

2,786

 

 

 

2,563

 

Total current assets

 

 

323,816

 

 

 

391,191

 

Property and equipment, net

 

 

108,143

 

 

 

83,370

 

Intangible assets, net

 

 

21,131

 

 

 

23,056

 

Goodwill

 

 

157,566

 

 

 

157,898

 

Operating lease right-of-use assets

 

 

153,711

 

 

 

169,682

 

Deferred tax assets

 

 

82,392

 

 

 

73,356

 

Deferred contract costs, net of current portion

 

 

13,015

 

 

 

12,998

 

Other non-current assets

 

 

11,029

 

 

 

7,376

 

Total assets

 

$

870,803

 

 

$

918,927

 

Liabilities, redeemable noncontrolling interest and stockholders’ equity

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

Accounts payable

 

$

46,471

 

 

$

47,854

 

Accrued expenses, accrued income taxes and other current liabilities

 

 

38,353

 

 

 

33,718

 

Deferred revenue

 

 

21,432

 

 

 

21,322

 

Operating lease liabilities

 

 

10,063

 

 

 

12,284

 

Total current liabilities

 

 

116,319

 

 

 

115,178

 

Operating lease liabilities

 

 

181,052

 

 

 

182,106

 

Deferred tax liabilities

 

 

42

 

 

 

58

 

Other non–current liabilities

 

 

5,028

 

 

 

4,733

 

Total liabilities

 

 

302,441

 

 

 

302,075

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

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;
89,075,845 and 92,175,243 shares issued and outstanding
   at March 31, 2024 and December 31, 2023, respectively

 

 

89

 

 

 

92

 

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, 2024 and December 31, 2023, respectively

 

 

16

 

 

 

16

 

Additional paid-in capital

 

 

194,309

 

 

 

263,498

 

Retained earnings

 

 

375,448

 

 

 

354,147

 

Accumulated other comprehensive loss

 

 

(1,500

)

 

 

(901

)

Total stockholders’ equity

 

 

568,362

 

 

 

616,852

 

Total liabilities, redeemable noncontrolling interest and stockholders’ equity

 

$

870,803

 

 

$

918,927

 

 

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

1


 

CarGurus, Inc.

Unaudited Condensed Consolidated Income Statements

(in thousands, except share and per share data)

 

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Revenue

 

 

 

 

 

 

Marketplace

 

$

187,219

 

 

$

167,127

 

Wholesale

 

 

16,125

 

 

 

25,186

 

Product

 

 

12,452

 

 

 

39,650

 

Total revenue

 

 

215,796

 

 

 

231,963

 

Cost of revenue (1)

 

 

 

 

 

 

Marketplace

 

 

14,385

 

 

 

15,533

 

Wholesale

 

 

14,224

 

 

 

22,068

 

Product

 

 

12,226

 

 

 

39,382

 

Total cost of revenue

 

 

40,835

 

 

 

76,983

 

Gross profit

 

 

174,961

 

 

 

154,980

 

Operating expenses:

 

 

 

 

 

 

Sales and marketing

 

 

82,274

 

 

 

75,577

 

Product, technology, and development

 

 

35,545

 

 

 

36,607

 

General and administrative

 

 

28,066

 

 

 

24,919

 

Depreciation and amortization

 

 

2,792

 

 

 

3,818

 

Total operating expenses

 

 

148,677

 

 

 

140,921

 

Income from operations

 

 

26,284

 

 

 

14,059

 

Other income, net:

 

 

 

 

 

 

Interest income

 

 

3,906

 

 

 

3,743

 

Other (expense) income, net

 

 

(505

)

 

 

595

 

Total other income, net

 

 

3,401

 

 

 

4,338

 

Income before income taxes

 

 

29,685

 

 

 

18,397

 

Provision for income taxes

 

 

8,384

 

 

 

6,531

 

Consolidated net income

 

 

21,301

 

 

 

11,866

 

Net loss attributable to redeemable noncontrolling interest

 

 

 

 

 

(4,266

)

Net income attributable to common stockholders

 

$

21,301

 

 

$

16,132

 

Net income per share attributable to common stockholders: (Note 10)

 

 

 

 

 

 

Basic

 

$

0.20

 

 

$

0.14

 

Diluted

 

$

0.20

 

 

$

0.10

 

Weighted-average number of shares of common stock used in
   computing net income per share attributable to common stockholders:

 

 

 

 

 

 

Basic

 

 

107,174,812

 

 

 

115,358,475

 

Diluted

 

 

108,632,159

 

 

 

115,915,737

 

(1)
Includes depreciation and amortization expense for the three months ended March 31, 2024 and 2023 of $4,689 and $7,758, respectively.

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

2


 

CarGurus, Inc.

Unaudited Condensed Consolidated Statements of Comprehensive Income

(in thousands)

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Consolidated net income

 

$

21,301

 

 

$

11,866

 

Other comprehensive income:

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

(599

)

 

 

415

 

Consolidated comprehensive income

 

 

20,702

 

 

 

12,281

 

Comprehensive loss attributable to redeemable noncontrolling interests

 

 

 

 

 

(4,266

)

Comprehensive income attributable to common stockholders

 

$

20,702

 

 

$

16,547

 

 

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

3


 

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, 2023

 

$

 

 

 

92,175,243

 

 

$

92

 

 

 

15,999,173

 

 

$

16

 

 

$

263,498

 

 

$

354,147

 

 

$

(901

)

 

$

616,852

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

21,301

 

 

 

 

 

 

21,301

 

Stock–based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

17,649

 

 

 

 

 

 

 

 

 

17,649

 

Issuance of common stock upon exercise of stock options

 

 

 

 

 

36,455

 

 

 

 

 

 

 

 

 

 

 

 

11

 

 

 

 

 

 

 

 

 

11

 

Issuance of common stock upon vesting of restricted stock units

 

 

 

 

 

615,383

 

 

 

1

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Payment of withholding taxes on net share settlements of restricted stock units

 

 

 

 

 

(213,042

)

 

 

 

 

 

 

 

 

 

 

 

(5,097

)

 

 

 

 

 

 

 

 

(5,097

)

Repurchase of common stock

 

 

 

 

 

(3,538,194

)

 

 

(4

)

 

 

 

 

 

 

 

 

(81,751

)

 

 

 

 

 

 

 

 

(81,755

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(599

)

 

 

(599

)

Balance as of March 31, 2024

 

$

 

 

 

89,075,845

 

 

$

89

 

 

 

15,999,173

 

 

$

16

 

 

$

194,309

 

 

$

375,448

 

 

$

(1,500

)

 

$

568,362

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

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

4


 

CarGurus, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

 

 

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Operating Activities

 

 

 

 

 

 

Consolidated net income

 

$

21,301

 

 

$

11,866

 

Adjustments to reconcile consolidated net income to net cash provided by operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

7,481

 

 

 

11,576

 

Gain on sale of property and equipment

 

 

 

 

 

(460

)

Currency loss (gain) on foreign denominated transactions

 

 

384

 

 

 

(198

)

Deferred taxes

 

 

(9,052

)

 

 

(11,921

)

Provision (Recoveries) for doubtful accounts

 

 

290

 

 

 

(300

)

Stock-based compensation expense

 

 

15,822

 

 

 

14,904

 

Amortization of deferred financing costs

 

 

129

 

 

 

129

 

Amortization of deferred contract costs

 

 

3,258

 

 

 

2,737

 

Impairment of long-lived assets

 

 

 

 

 

175

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

Accounts receivable

 

 

(4,182

)

 

 

6,858

 

Inventory

 

 

(319

)

 

 

3,645

 

Prepaid expenses, prepaid income taxes, and other assets

 

 

5,974

 

 

 

4,652

 

Deferred contract costs

 

 

(3,326

)

 

 

(5,138

)

Accounts payable

 

 

707

 

 

 

10,268

 

Accrued expenses, accrued income taxes, and other liabilities

 

 

681

 

 

 

4,542

 

Deferred revenue

 

 

120

 

 

 

8,557

 

Lease obligations

 

 

12,696

 

 

 

4,453

 

Net cash provided by operating activities

 

 

51,964

 

 

 

66,345

 

Investing Activities

 

 

 

 

 

 

Purchases of property and equipment

 

 

(28,665

)

 

 

(2,398

)

Capitalization of website development costs

 

 

(5,465

)

 

 

(3,489

)

Purchases of short-term investments

 

 

(494

)

 

 

 

Sale of short-term investments

 

 

21,218

 

 

 

 

Advance payments to customers, net of collections

 

 

259

 

 

 

 

Net cash used in investing activities

 

 

(13,147

)

 

 

(5,887

)

Financing Activities

 

 

 

 

 

 

Proceeds from issuance of common stock upon exercise of stock options

 

 

11

 

 

 

19

 

Payment of withholding taxes on net share settlements of restricted stock units

 

 

(5,115

)

 

 

(2,066

)

Repurchases of common stock

 

 

(77,442

)

 

 

(69,024

)

Payment of finance lease obligations

 

 

(18

)

 

 

(17

)

Payment of tax distributions to redeemable noncontrolling interest holders

 

 

 

 

 

(28

)

Change in gross advance payments received from third-party transaction processor

 

 

(474

)

 

 

(2,122

)

Net cash used in financing activities

 

 

(83,038

)

 

 

(73,238

)

Impact of foreign currency on cash, cash equivalents, and restricted cash

 

 

(577

)

 

 

329

 

Net decrease in cash, cash equivalents, and restricted cash

 

 

(44,798

)

 

 

(12,451

)

Cash, cash equivalents, and restricted cash at beginning of period

 

 

293,926

 

 

 

484,132

 

Cash, cash equivalents, and restricted cash at end of period

 

$

249,128

 

 

$

471,681

 

Supplemental disclosure of cash flow information:

 

 

 

 

 

 

Cash paid for income taxes

 

$

1,132

 

 

$

2,410

 

Cash paid for operating lease liabilities

 

$

4,788

 

 

$

4,129

 

Cash paid for interest

 

$

143

 

 

$

144

 

Supplemental noncash disclosure of cash flow information:

 

 

 

 

 

 

Unpaid purchases of property and equipment and capitalized hosting arrangements

 

$

16,329

 

 

$

1,822

 

Receivable from sale of property and equipment

 

$

 

 

$

460

 

Unpaid withholding taxes on net share settlement of restricted stock units

 

$

119

 

 

$

3,590

 

Unpaid repurchases of common stock

 

$

3,658

 

 

$

456

 

Unpaid excise tax on repurchases of common stock

 

$

2,239

 

 

$

574

 

Capitalized stock-based compensation expense in website development and
   internal-use software costs and hosting arrangements

 

$

1,827

 

 

$

1,145

 

Obtaining a right-of-use asset in exchange for an operating lease liability

 

$

(3,536

)

 

$

144,556

 

Accrued tax distributions to redeemable noncontrolling interest holders

 

$

 

 

$

(4

)

 

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

5


 

CarGurus, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(dollars in thousands, except share and per share data, unless otherwise noted)

1. Organization and Business Description

CarGurus, Inc. (the "Company") is a multinational, online automotive platform for buying and selling vehicles that is building upon its industry-leading listings marketplace with both digital retail solutions and the CarOffer, LLC ("CarOffer") online wholesale platform. The CarGurus platform gives consumers the confidence to purchase and/or sell a vehicle either online or in-person, and it gives dealerships the power to accurately price, effectively market, instantly acquire, and quickly sell vehicles, all with a nationwide reach. The Company uses proprietary technology, search algorithms, and data analytics to bring trust, transparency, and competitive pricing to the automotive shopping experience.

The Company operates principally in the United States (the "U.S."). In the U.S. it also operates as independent brands the Autolist online marketplace and the CarOffer online wholesale platform. In addition to the U.S., the Company operates online marketplaces under the CarGurus brand in Canada and the United Kingdom (the "U.K."). In the U.K. it also operates as an independent brand the PistonHeads online marketplace.

The Company has subsidiaries in the U.S., Canada, Ireland, and the U.K. and it has two reportable segments, U.S. Marketplace and Digital Wholesale. See Note 12 of the Unaudited Condensed Consolidated Financial Statements (as defined below) for further segment reporting and geographic information.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim condensed consolidated financial statements are unaudited (the “Unaudited Condensed Consolidated Financial Statements”). The Unaudited Condensed Consolidated Financial Statements and related disclosures have been prepared in conformity with accounting principles generally accepted in the U.S. (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update ("ASU") of the Financial Accounting Standards Board (“FASB”).

The Unaudited Condensed Consolidated Financial Statements have also been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. The Unaudited Condensed Consolidated Financial Statements reflect all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the Company’s financial statements for interim periods. These interim period results are not necessarily indicative of the results to be expected for any other interim period or the full year.

The Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, filed with the SEC on February 26, 2024 (the “Annual Report”).

While the Company disclosed unpaid excise tax on repurchases of common stock within unpaid repurchases of common stock in the Unaudited Condensed Consolidated Statements of Cash Flows in the Company's Quarterly Report on Form 10-Q for the quarter ended March 31, 2023, filed with the SEC on May 9, 2023, the accompanying Unaudited Condensed Consolidated Statements of Cash Flows for the quarter ended March 31, 2023 present unpaid excise tax on repurchases of common stock separately from unpaid repurchases of common stock to conform to the current year presentation.

Principles of Consolidation

The Unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

6


 

Subsequent Event Considerations

The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the Unaudited Condensed Consolidated Financial Statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. The Company has evaluated all subsequent events and determined that there are no material recognized or unrecognized subsequent events requiring disclosure.

Use of Estimates

The preparation of the Unaudited Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period.

Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. The Company bases its estimates on historical experience and various other assumptions that it believes to be reasonable under the circumstances. Actual results may differ from management’s estimates if these results differ from historical experience, or other assumptions do not turn out to be substantially accurate, even if such assumptions are reasonable when made. Changes in estimates are recognized in the period in which they become known.

Critical estimates relied upon in preparing the Unaudited Condensed Consolidated Financial Statements include the determination of sales allowance and variable consideration in the Company’s revenue recognition, allowance for doubtful accounts, the impairment of long-lived assets, the capitalization of product, technology, and development costs for website development, internal-use software, and hosting arrangements, the valuation of acquired assets and liabilities, the valuation and recoverability of intangible assets and goodwill, the valuation of redeemable noncontrolling interest, the recoverability of the Company’s net deferred tax assets and related valuation allowance, the valuation of inventory, and the valuation of liability-classified compensation awards. Accordingly, the Company considers these to be its critical accounting estimates, and believes that of the Company’s significant accounting policies, these involve the greatest degree of judgment and complexity. For the three months ended March 31, 2024, there were no estimates related to the valuation of redeemable noncontrolling interest and the valuation of liability-classified compensation awards.

Although no impairment was identified during the annual impairment test as of October 1, 2023, the excess of the fair value over the carrying value declined for the CarOffer reporting unit in the Digital Wholesale segment. If projected future operating results further decline, including as a result of economic conditions or operational challenges, the Company may need to record an impairment charge to reduce its goodwill at CarOffer, which could be material and negatively affect the Company's operations. During the three months ended March 31, 2024, the Company did not identify any triggering events that would require an interim impairment assessment.

Concentration of Credit Risk

The Company has no significant off-balance sheet risk, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, short-term investments, trade accounts receivable, and other receivables.

The Company maintains its cash and cash equivalents principally with accredited financial institutions of high credit standing. Although the Company deposits its cash and cash equivalents with multiple financial institutions, its deposits with each such financial institution exceed governmental insured limits.

The Company routinely assesses the creditworthiness of its customers and does not require collateral. The Company generally has not experienced any material losses related to receivables from individual customers or groups of customers.

7


 

The Company has had no material losses related to marketplace receivables as it was dispersed across a large number of customers. The Company has had no material losses related to wholesale and product receivables as the third-party transaction processor does not release the title to the vehicle until successfully collecting funds from the buying dealer. Titling is handled by the Company's third-party transaction processor and titles are held in escrow until it collects funds from the buying dealer (i.e., title is legally transferred from the selling party to the buying party upon signing of bill of sale, but title is held in escrow by the third-party transaction processor until payment is received). Due to these factors, no additional credit risk beyond amounts provided for collection losses was believed by management to be probable in the Company’s accounts receivable and other receivables.

As of March 31, 2024 and December 31, 2023, no customer accounted for more than 10% of net accounts receivable and other receivables. All of accounts receivable was dispersed among more than 1,000 customers. Therefore, there is no significant credit risk with respect to accounts receivable because credit risk is dispersed due to the large number of customers.

For the three months ended March 31, 2024 and 2023, no customer accounted for more than 10% of total revenue.

The Company is exposed to credit losses primarily through its trade accounts receivable, which includes receivables in transit, net of payables due, from a third-party transaction processor. The third-party transaction processor collects customer payments on the Company's behalf and remits them to the Company. Customer payments received by the third-party transaction processor, but not remitted to the Company as of period end, are deemed to be receivables in transit, net of payables due. Additionally, the third-party transaction processor provides payments in advance for certain selling dealers. If the third-party transaction processor does not receive buying dealer payments associated with the transaction paid in advance, the Company would guarantee losses incurred by the third-party transaction processor and the balance would be deducted from future remittances to the Company. To date, losses associated with these guarantees have not been material.

The Company offsets trade accounts receivables in transit, net of payables due, from the third-party transaction processor with payments received in advance from the third-party transaction processor as it has the right of offset. At any point in time, the Company could have amounts due from the third-party transaction processor for funds the third-party transaction processor has collected from buying dealers and has not yet remitted to the Company (i.e., receivables in transit, net of payables due), as well as amounts paid by the third-party transaction processor to the Company in advance of collecting payments from buying dealers (i.e., payments received in advance). Therefore, as the Company has the right to offset, the Company can either have a net receivable balance due from the third-party transaction processor which is recognized within accounts receivable, net in the Unaudited Condensed Consolidated Balance Sheets, or the Company can have a net liability which is recognized within accrued expenses, accrued income taxes, and other current liabilities in the Unaudited Condensed Consolidated Balance Sheets if the advance payments exceed the receivable position from the third-party transaction processor as of the balance sheet date. The change in payments received in advance from the third-party transaction processor is presented as cash flows from financing activities in the Unaudited Condensed Consolidated Statements of Cash Flows.

As of March 31, 2024, trade accounts receivable from receivables in transit, net of payables due, from the third-party transaction processor was $3,916, offset by payments received in advance of $1,541, which resulted in a net receivable of $2,375 recognized within accounts receivable, net in the Unaudited Condensed Consolidated Balance Sheets. As of December 31, 2023, trade accounts receivable from receivables in transit, net of payables due, from the third-party transaction processor was $2,868, offset by payments received in advance of $2,015, which resulted in a net receivable of $853 recognized within accounts receivable, net in the consolidated balance sheets.

As of March 31, 2024 and December 31, 2023, $10,401 and $9,581, respectively, was included in net accounts receivable, representing unbilled accounts receivable relating primarily to both advertising customers and dealers invoiced in the period subsequent to services rendered and revenue recognition adjustments for Company offered discounts given to dealers in accordance with ASC Topic 606, Revenue from Contracts with Customers ("ASC 606").

Significant Accounting Policies

The Unaudited Condensed Consolidated Financial Statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the Unaudited Condensed Consolidated Financial Statements. As of March 31, 2024, there have been no material changes in the Company’s significant accounting policies, which are detailed in the Annual Report.

8


 

Recent Accounting Pronouncements Not Yet Adopted

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company on or prior to the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption. As of March 31, 2024, there are no new accounting pronouncements that the Company is considering adopting, other than those described below.

In December 2023 the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures ("ASU 2023-09"). ASU 2023-09 is intended to enhance the transparency and decision usefulness of income tax disclosures. ASU 2023-09 addresses investor requests for enhanced income tax information primarily through changes to the rate reconciliation and income taxes paid information. Early adoption is permitted. A public entity should apply ASU 2023-09 prospectively to all annual periods beginning after December 15, 2024. The Company is currently evaluating the impact of ASU 2023-09 on its future consolidated financial statements and related disclosures.

In November 2023 the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures ("ASU 2023-07"). ASU 2023-07 is intended to enhance disclosures for significant segment expenses for all public entities required to report segment information in accordance with ASC Topic 280, Segment Reporting ("ASC 280"). ASC 280 requires a public entity to report for each reportable segment a measure of segment profit or loss that its chief operating decision maker (“CODM”) uses to assess segment performance and to make decisions about resource allocations. ASU 2023-07 is intended to improve financial reporting by requiring disclosure of incremental segment information on an annual and interim basis for all public entities to enable investors to develop more useful financial analyses. ASU 2023-07 is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Early adoption is permitted. A public entity should apply ASU 2023-07 retrospectively to all prior periods presented in the consolidated financial statements. The Company is currently evaluating the impact of ASU 2023-07 on its future consolidated financial statements and related disclosures.

In October 2023 the FASB issued ASU 2023-06, Disclosure Improvements – Codification Amendments in Response to the SEC's Disclosure Update and Simplification Initiative ("ASU 2023-06"). ASU 2023-06 modifies the disclosure and presentation requirements for a variety of topics in the ASC. The Company is currently evaluating the impact of ASU 2023-06 on its future consolidated financial statements and related disclosures.

3. Revenue Recognition

 

The following table summarizes revenue from contracts with customers by services and products for the three months ended March 31, 2024 and 2023:

 

 

 

Three Months Ended
March 31,

 

 

 

2024

 

 

2023

 

Marketplace

 

$

187,219

 

 

$

167,127

 

Dealer-to-Dealer

 

 

18,499

 

 

 

28,705

 

Sell My Car - Instant Max Cash Offer

 

 

10,078

 

 

 

36,131

 

Total

 

$

215,796

 

 

$

231,963

 

The Company provides disaggregation of revenue by services and products, by income statement presentation, by segment, and by geographic region.

Revenue by services and products is disaggregated by (i) marketplace services, (ii) Dealer-to-Dealer services and products, and (iii) Sell My Car - Instant Max Cash Offer ("IMCO") services and products as disclosed above.

Revenue by income statement presentation is disaggregated by (i) marketplace, (ii) wholesale, and (iii) product revenue sources as disclosed in the Unaudited Condensed Consolidated Income Statements. Marketplace services are included within marketplace revenue in the Unaudited Condensed Consolidated Income Statements. Dealer-to-Dealer and IMCO services and products are included within both wholesale revenue and product revenue in the Unaudited Condensed Consolidated Income Statements.

9


 

Revenue by segment is disaggregated by (i) U.S. Marketplace and (ii) Digital Wholesale segments as disclosed in Note 12 of the Unaudited Condensed Consolidated Financial Statements. Marketplace services are included in the U.S. Marketplace segment and in the Other category of segment reporting. Dealer-to-Dealer and IMCO services and products are included in the Digital Wholesale segment.

Revenue by geographic region is disaggregated by (i) U.S. and (ii) International regions as disclosed in Note 12 of the Unaudited Condensed Consolidated Financial Statements. Marketplace services are provided in the U.S. and International regions. Dealer-to-Dealer and IMCO services and products are provided in the U.S. region.

The Company believes these categories best depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

ASC 606 requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of the relevant quarter end.

For contracts with an original expected duration greater than one year, the aggregate amount of the transaction price allocated to the performance obligations that were unsatisfied as of March 31, 2024, was approximately $53.6 million, which the Company expects to recognize over the next twelve months.

For contracts with an original expected duration of one year or less, the Company has applied the practical expedient available under ASC 606 to not disclose the amount of transaction price allocated to unsatisfied performance obligations as of March 31, 2024. For performance obligations not satisfied as of March 31, 2024, and to which this expedient applies, the nature of the performance obligations, the variable consideration, and any consideration from contracts with customers not included in the transaction price is consistent with performance obligations satisfied as of March 31, 2024.

For the three months ended March 31, 2024 and 2023, revenue recognized from amounts included in deferred revenue at the beginning of the period was $21,322 and $12,249, respectively.

4. Fair Value of Financial Instruments

As of March 31, 2024 and December 31, 2023, assets measured at fair value on a recurring basis consist of the following:

 

 

 

As of March 31, 2024

 

 

 

Quoted Prices
in Active Markets
for Identical Assets
(Level 1 Inputs)

 

 

Significant Other
Observable Inputs
(Level 2 Inputs)

 

 

Significant
Unobservable Inputs
(Level 3 Inputs)

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Mutual funds

 

$

115,980

 

 

$

 

 

$

 

 

$

115,980

 

Total

 

$

115,980

 

 

$

 

 

$

 

 

$

115,980

 

 

 

 

As of December 31, 2023

 

 

 

Quoted Prices
in Active Markets
for Identical Assets
(Level 1 Inputs)

 

 

Significant Other
Observable Inputs
(Level 2 Inputs)

 

 

Significant
Unobservable Inputs
(Level 3 Inputs)

 

 

Total

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

Mutual funds

 

$

73,449

 

 

$

 

 

$

 

 

$

73,449

 

Short-term investments:

 

 

 

 

 

 

 

 

 

 

 

 

Mutual funds

 

$

20,724

 

 

 

 

 

 

 

 

 

20,724

 

Total

 

$

94,173

 

 

$

 

 

$

 

 

$

94,173

 

For the three months ended March 31, 2024, dividend income recognized within interest income in the Unaudited Condensed Consolidated Income Statements was immaterial. For the three months ended March 31, 2023, there was no dividend income as the Company did not hold any investments.

10


 

For the three months ended March 31, 2024, unrealized and realized gain on short-term investments in equity securities was immaterial. For the three months ended March 31, 2023, there was no gain or loss investments in equity securities as the Company did not hold any investments.

As of March 31, 2024, the Company did not have any short-term investments as all were sold during the three months ended March 31, 2024.

5. Property and Equipment, Net

As of March 31, 2024 and December 31, 2023, property and equipment, net consist of the following:

 

 

 

As of
March 31,
2024

 

 

As of
December 31,
2023

 

Capitalized equipment

 

$

1,081

 

 

$

1,326

 

Capitalized internal-use software

 

 

13,957

 

 

 

12,279

 

Capitalized website development

 

 

64,016

 

 

 

57,158

 

Furniture and fixtures

 

 

8,174

 

 

 

8,149

 

Leasehold improvements

 

 

23,336

 

 

 

23,308

 

Construction in progress

 

 

61,601

 

 

 

39,835

 

Finance lease right-of-use assets

 

 

254

 

 

 

288