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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 June 30, 2019

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

 

CARGURUS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Delaware

04-3843478

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

 

2 Canal Park, 4th Floor

Cambridge, Massachusetts

02141

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (617354-0068

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

Trading Symbol

Name of Exchange on Which Registered

Class A Common Stock, par value $0.001 per share

CARG

 

The Nasdaq Stock Market LLC (Nasdaq Global Select Market)

 

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     Yes      No    

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

  

Accelerated filer

 

Non-accelerated filer

 

  

Small reporting company

 

 

 

 

 

Emerging growth company

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  

As of July 31, 2019, the registrant had 111,581,300 shares of Class A common stock, $0.001 par value per share, and 20,702,084 shares of Class B common stock, par value $0.001 per share, outstanding.

 

  

 

 

 


 

Table of Contents

 

 

 

 

Page

PART I.

 

FINANCIAL INFORMATION

 

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 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

18

Item 3.

 

Quantitative and Qualitative Disclosures About Market Risk

33

Item 4.

 

Controls and Procedures

34

 

PART II.

 

 

OTHER INFORMATION

35

Item 1.

 

Legal Proceedings

35

Item 1A.

 

Risk Factors

35

Item 6.

 

Exhibits

54

Signatures

55

 


ii


 

SPECIAL NOTE REGARDING FORWARD‑LOOKING STATEMENTS

This report contains forward‑looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward‑looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward‑looking statements because they contain words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “likely,” “may,” “might,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms. Forward-looking statements contained in this report include, but are not limited to, statements about:

 

our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses, ability to generate cash flow, and ability to achieve, and maintain, future profitability;

 

our anticipated growth and growth strategies and our ability to effectively manage that growth;

 

our ability to maintain and build our brand;

 

our ability to continue to expand internationally;

 

our ability to realize benefits from our acquisition of PistonHeads and successfully implement the integration strategies in connection therewith;

 

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;

 

the migration of some of our data-hosting to a different third-party data-hosting facility;

 

our ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to our business;

 

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

 

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

 

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

 

 

iii


 

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

CarGurus, Inc.

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

 

 

 

At

June 30,

2019

 

 

At

December 31,

2018

 

Assets

 

 

 

 

 

 

 

 

Current assets

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

27,842

 

 

$

34,887

 

Investments

 

 

119,327

 

 

 

122,800

 

Accounts receivable, net of allowance for doubtful accounts of $303

   and $479 at June 30, 2019 and December 31, 2018, respectively

 

 

17,081

 

 

 

13,614

 

Prepaid expenses and prepaid income taxes

 

 

7,968

 

 

 

10,144

 

Deferred contract costs

 

 

7,382

 

 

 

5,253

 

Other current assets

 

 

8,991

 

 

 

7,410

 

Restricted cash

 

 

250

 

 

 

750

 

Total current assets

 

 

188,841

 

 

 

194,858

 

Property and equipment, net

 

 

28,638

 

 

 

24,269

 

Intangible assets

 

 

4,320

 

 

 

 

Goodwill

 

 

15,446

 

 

 

 

Operating lease right-of-use assets

 

 

50,025

 

 

 

 

Restricted cash

 

 

1,920

 

 

 

1,921

 

Deferred tax assets

 

 

44,483

 

 

 

38,886

 

Deferred contract costs, net of current portion

 

 

9,257

 

 

 

7,252

 

Other long–term assets

 

 

3,231

 

 

 

1,104

 

Total assets

 

$

346,161

 

 

$

268,290

 

Liabilities and stockholders’ equity

 

 

 

 

 

 

 

 

Current liabilities

 

 

 

 

 

 

 

 

Accounts payable

 

$

39,370

 

 

$

34,345

 

Accrued expenses, accrued income taxes and other current liabilities

 

 

14,805

 

 

 

18,654

 

Deferred revenue

 

 

8,479

 

 

 

8,811

 

Operating lease liabilities

 

 

7,738

 

 

 

1,693

 

Total current liabilities

 

 

70,392

 

 

 

63,503

 

Operating lease liability non-current

 

 

51,494

 

 

 

9,395

 

Deferred tax liabilities

 

 

281

 

 

 

 

Other non–current liabilities

 

 

1,608

 

 

 

1,281

 

Total liabilities

 

 

123,775

 

 

 

74,179

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

 

 

 

Class A common stock, $0.001 par value per share; 500,000,000 shares

   authorized; 90,744,921 and 89,728,223 shares issued and outstanding

   at June 30, 2019 and December 31, 2018, respectively

 

 

91

 

 

 

90

 

Class B common stock, $0.001 par value per share; 100,000,000 shares

   authorized; 20,702,084 and 20,702,084 shares issued and outstanding

   at June 30, 2019 and December 31, 2018, respectively

 

 

21

 

 

 

21

 

Additional paid-in capital

 

 

193,967

 

 

 

184,216

 

Retained earnings

 

 

28,304

 

 

 

9,713

 

Accumulated other comprehensive income

 

 

3

 

 

 

71

 

Total stockholders’ equity

 

 

222,386

 

 

 

194,111

 

Total liabilities and stockholders’ equity

 

$

346,161

 

 

$

268,290

 

 

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

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Revenue

 

$

145,031

 

 

$

110,296

 

 

$

280,301

 

 

$

208,871

 

Cost of revenue(1)

 

 

8,628

 

 

 

5,959

 

 

 

16,348

 

 

 

11,528

 

Gross profit

 

 

136,403

 

 

 

104,337

 

 

 

263,953

 

 

 

197,343

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales and marketing

 

 

101,789

 

 

 

78,395

 

 

 

193,105

 

 

 

147,240

 

Product, technology, and development

 

 

17,346

 

 

 

11,844

 

 

 

33,318

 

 

 

20,942

 

General and administrative

 

 

12,540

 

 

 

9,541

 

 

 

24,300

 

 

 

17,412

 

Depreciation and amortization

 

 

1,180

 

 

 

604

 

 

 

2,247

 

 

 

1,337

 

Total operating expenses

 

 

132,855

 

 

 

100,384

 

 

 

252,970

 

 

 

186,931

 

Income from operations

 

 

3,548

 

 

 

3,953

 

 

 

10,983

 

 

 

10,412

 

Other income, net:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

 

744

 

 

 

641

 

 

 

1,488

 

 

 

932

 

Other income, net

 

 

105

 

 

 

62

 

 

 

1,007

 

 

 

53

 

Total other income, net

 

 

849

 

 

 

703

 

 

 

2,495

 

 

 

985

 

Income before income taxes

 

 

4,397

 

 

 

4,656

 

 

 

13,478

 

 

 

11,397

 

Benefit from income taxes

 

 

(1,610

)

 

 

(28,687

)

 

 

(5,113

)

 

 

(27,441

)

Net income

 

$

6,007

 

 

$

33,343

 

 

$

18,591

 

 

$

38,838

 

Net income per share attributable to common stockholders:

   (Note 10)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.05

 

 

$

0.31

 

 

$

0.17

 

 

$

0.36

 

Diluted

 

$

0.05

 

 

$

0.29

 

 

$

0.16

 

 

$

0.34

 

Weighted-average number of shares of common

   stock used in computing net income per share

   attributable to common stockholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

111,299,345

 

 

 

108,500,802

 

 

 

111,051,070

 

 

 

107,726,105

 

Diluted

 

 

113,388,509

 

 

 

113,081,209

 

 

 

113,398,793

 

 

 

113,215,564

 

 

(1)

Includes depreciation and amortization expense for the three months ended June 30, 2019 and 2018 and for the six months ended June 30, 2019 and 2018 of $734, $616, $1,294 and $1,120, 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

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2019

 

 

2018

 

 

2019

 

 

2018

 

Net income

 

$

6,007

 

 

$

33,343

 

 

$

18,591

 

 

$

38,838

 

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

356

 

 

 

(152

)

 

 

(68

)

 

 

(80

)

Comprehensive income

 

$

6,363

 

 

$

33,191

 

 

$

18,523

 

 

$

38,758

 

 

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

 

 

3


 

CarGurus, Inc.

Unaudited Condensed Consolidated Statements of Stockholders’ Equity

(in thousands, except share data)

 

 

Class A

Common Stock

 

 

Class B

Common Stock

 

 

Additional

Paid–in

 

 

Accumulated

Other

Comprehensive

 

 

Retained

Earnings

(Accumulated

 

 

Total

Stockholders’

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Income (Loss)

 

 

Deficit)

 

 

Equity

 

Balance at December 31, 2018

 

89,728,223

 

 

$

90

 

 

 

20,702,084

 

 

$

21

 

 

$

184,216

 

 

$

71

 

 

$

9,713

 

 

$

194,111

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

12,584

 

 

 

12,584

 

Stock–based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

7,995

 

 

 

 

 

 

 

 

 

7,995

 

Issuance of common stock upon exercise of stock options

 

447,210

 

 

 

 

 

 

 

 

 

 

 

 

697

 

 

 

 

 

 

 

 

 

697

 

Issuance of common stock upon vesting

   of restricted stock units

 

297,374

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment of withholding taxes on net share

   settlements of equity awards

 

(102,034

)

 

 

 

 

 

 

 

 

 

 

 

(3,954

)

 

 

 

 

 

 

 

 

(3,954

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(424

)

 

 

 

 

 

(424

)

Balance at March 31, 2019

 

90,370,773

 

 

$

90

 

 

 

20,702,084

 

 

$

21

 

 

$

188,954

 

 

$

(353

)

 

$

22,297

 

 

$

211,009

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6,007

 

 

 

6,007

 

Stock–based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

9,260

 

 

 

 

 

 

 

 

 

9,260

 

Issuance of common stock upon exercise of stock options

 

133,838

 

 

 

 

 

 

 

 

 

 

 

 

391

 

 

 

 

 

 

 

 

 

391

 

Issuance of common stock upon vesting

   of restricted stock units

 

362,447

 

 

 

1

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Payment of withholding taxes and option costs on net share

   settlement of restricted stock units and stock options

 

(122,137

)

 

 

 

 

 

 

 

 

 

 

 

(4,637

)

 

 

 

 

 

 

 

 

(4,637

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

356

 

 

 

 

 

 

356

 

Balance at June 30, 2019

 

90,744,921

 

 

$

91

 

 

 

20,702,084

 

 

$

21

 

 

$

193,967

 

 

$

3

 

 

$

28,304

 

 

$

222,386

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

77,884,754

 

 

$

78

 

 

 

28,226,104

 

 

$

28

 

 

$

185,190

 

 

$

228

 

 

$

(58,499

)

 

$

127,025

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

5,495

 

 

 

5,495

 

Stock–based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

3,967

 

 

 

 

 

 

 

 

 

3,967

 

Issuance of common stock upon exercise of stock options

 

6,574

 

 

 

 

 

 

10,690

 

 

 

 

 

 

80

 

 

 

 

 

 

 

 

 

80

 

Cumulative adjustment from adoption of

   revenue recognition model

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3,042

 

 

 

3,042

 

Conversion of common stock

 

7,534,710

 

 

 

7

 

 

 

(7,534,710

)

 

 

(7

)

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

72

 

 

 

 

 

 

72

 

Balance at March 31, 2018

 

85,426,038

 

 

$

85

 

 

 

20,702,084

 

 

$

21

 

 

$

189,237

 

 

$

300

 

 

$

(49,962

)

 

$

139,681

 

Net income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

33,343

 

 

 

33,343

 

Stock–based compensation expense

 

 

 

 

 

 

 

 

 

 

 

 

 

5,666

 

 

 

 

 

 

 

 

 

5,666

 

Issuance of common stock upon exercise of stock options

 

2,466,744

 

 

 

3

 

 

 

 

 

 

 

 

 

2,302

 

 

 

 

 

 

 

 

 

2,305

 

Issuance of common stock upon vesting of restricted

   stock units

 

1,261,495

 

 

 

1

 

 

 

 

 

 

 

 

 

(1

)

 

 

 

 

 

 

 

 

 

Payment of withholding taxes on net share settlements of

   equity awards

 

(471,470

)

 

 

 

 

 

 

 

 

 

 

 

(17,488

)

 

 

 

 

 

 

 

 

(17,488

)

Foreign currency translation adjustment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(152

)

 

 

 

 

 

(152

)

Balance at June 30, 2018

 

88,682,807

 

 

$

89

 

 

 

20,702,084

 

 

$

21

 

 

$

179,716

 

 

$

148

 

 

$

(16,619

)

 

$

163,355

 

 

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)

 

 

 

Six Months Ended

June 30,

 

 

 

2019