10-Q 1 carg-20230930.htm 10-Q 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 September 30, 2023

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)

(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

 

 

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, 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.

 

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
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.

1


 

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.

2


 

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.

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, 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

)

 

$

700,854

 

Net (loss) income

 

 

(3,329

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

22,302

 

 

 

 

 

 

22,302

 

Stock–based compensation expense