CarGurus, Inc.

Good day and welcome to the Card Guru Think second quarter 2020 earnings results conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw from the question queue, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Scott Fredo, Senior Vice President of Financial Band Analysis. Please go ahead.

Thank you, Operator. Good afternoon and welcome to Cargill's second quarter 2020 earnings call. We'll be discussing the results announced in our press release issued today after the market closed and posted on our investor relations website. With me on the call today is Langley Steiner, Cargill's Founder and Chief Executive Officer, Jason Trevisan, Chief Financial Officer and President International, and Sam Zales, President and Chief Operating Officer. During the call, we will make statements regarding our business that may be considered forward-looking within applicable securities laws, including statements concerning our outlook for the third quarter and full year 2020 management expectations for our future financial and operational performance, our business growth and international strategies, the potential impact of the COVID-19 pandemic on our business and financial results, the impact of our enterprise system upgrade and overhaul of our data architecture, and other statements regarding our plans, prospects, and expectations. These statements are not promises or guarantees and are subject to risks and uncertainties which could cause them to differ materially from actual results. Information concerning those risks is available in our earnings press release distributed after market closed today and in our most recent reports on Forms 10-K and 10-Q which, along with other SEC filings, can be found on the SEC's website and in the investor relations section of our website. We undertake no obligation to update forward-looking statements except as required by law. Further, during the course of today's call, we will refer to certain non-GAAP financial measures. A reconciliation of GAAP and non-GAAP measures is included in our press release issued today. We will also refer to our paying dealer key performance indicator during today's call. As Jason will explain and as further disclosed in our press release issue today, we have revised our definition of paying dealer and completed a data reconciliation effort. As a result, we have revised certain prior period paying dealer metrics. All references to our paying dealer metric during today's call will reflect the revised definition. Our updated investor presentation can also be found on the investor relations section of our website. With that, I'll turn it over to Langley.

Thank you, Scott, and thanks to everyone joining us today. Although our industry and our business are facing unprecedented uncertainty amidst the COVID-19 pandemic, CarGurus generated strong results in the second quarter that demonstrate our business's flexibility and resilience. Over the last several months, our employees have produced remarkable successes, all while navigating work-from-home environments and often challenging circumstances. As a result of their hard work, we continue to deliver what we believe to be market-leading innovation and return on investment to our dealer customers. Our business showed several signs of recovery in the second quarter as consumer demand increased significantly in May and June, yielding strong lead generation and helping dealers rebuild their sales pipeline. We began a broad rollout of our real-time performance marketing suite, generated record engagement on our consumer financing platform, and continued to develop additional features of the online transaction to offer more digital retail elements in our marketplace. Although we saw traffic and leads decline in April as state and local governments mandated business shutdowns and sheltering in place, we saw strong consumer demand in our U.S. marketplace in May and June. In the second quarter, we significantly reduced our global advertising spend as we observed falling consumer demand and sought to maintain strong ROI with the traffic acquisition spend we did deploy in the quarter. The bulk of the reduction occurred in the U.S., in an effort to maintain business flexibility through the heightened uncertainty of the health crisis. Despite our reduced spend, we averaged 37 million monthly unique visitors and 93 million monthly sessions across May and June, a testament to the health of our funnel and growing brand recognition, and we generated a strong down-funnel conversion. Consistent with the last several years, our lead growth outpaced traffic growth as a result of high-quality consumer acquisition from unpaid channels high-efficiency algorithmic traffic acquisition spend, and enhancements in onsite conversion. Total leads rose 1% year-over-year in the second quarter despite sharp declines in April. Leads to paying dealers grew 6% in the second quarter compared to the first quarter. Most encouraging, the recovery in our traffic and lead generation has primarily been driven by our organic and direct channels, reflecting the growth of our brand and continued progress on-site optimization to improve organic traffic and on-site lead conversion. Traffic from our unpaid channels grew 15% and 23% year-over-year, respectively, in May and June. Second quarter total unpaid leads to paying dealers grew 40% quarter-over-quarter, a metric that will become increasingly important moving forward as we optimize our traffic both for efficient acquisition and improving monetization. With respect to paid channels, we began growing spend in May and June off of very low levels in April, and we intend to optimize our spend with a particular focus on high converting traffic that yields quality leads to our paying dealers, which we believe is the best way to demonstrate value and support, strong return on investment for our dealers. As traffic and leads rebounded in May and June, so did our dealer business. we led the industry in the U.S. as the first platform to provide fee reductions for all three months in the second quarter, helping dealers navigate an incredibly challenging environment. As we noted in our Q1 call, we did experience paying dealer account declines in the month of April, but we began to see stabilization and cancellations in May, and the rapid recovery in traffic and leads helped us win back a substantial amount of business over the last two months of the quarter. Although our U.S. paying dealer count fell 7.5% versus the end of the first quarter, we have since added a significant number of net new paying dealers to our core U.S. marketplace versus our lowest point in early May. And retention remains strong thus far in the second quarter. We continue to focus on expanding the value gap between our free and paid products to improve paying dealer acquisition and retention. On July 1, we ended the temporary suspended status offering in the U.S., that allowed non-paying dealers to maintain inventory visibility on our platform during the second quarter. In its place, we have rolled out a new version of our restricted offering, which limits the number of leads free dealers can accumulate in a 30-day period. After non-paying dealers reach their lead limit, we will remove their inventory from search results for the remainder of the period, but consumers will be able to view any saved vehicles from these dealers by navigating directly to the vehicle detail page. We believe this program preserves the consumer-centric nature of our platform, which provides superior selection over our largest competitors, while also enhancing what we believe is industry-leading ROI in our paid listings packages. We believe the quality of our consumer experience will continue to attract a large down-funnel audience to support a strong value proposition for our dealers. In June, third-party economic consulting firm Bates White published a research report comparing CarGurus to two of our U.S. competitors. The study empirically demonstrated our competitive advantage to both consumers and dealers. For consumers, the study found that CarGurus offers significantly more vehicle listings than dealers to shop with on our marketplace. And it also showcased our more precise deal rating system, where CarGurus rates vehicles from great to overpriced in a very balanced way, with fewer than three of 10 vehicles rated good or great deals. Our competitors rate more than six out of every 10 cards as good or great, while refraining from calling out deals with high prices. The study reinforces the superior selection we offer the consumer by virtue of our freemium model, as well as our foundation of trust and transparency for the consumer through our balanced deal ratings. In addition to industry-leading consumer benefits, this study also demonstrates that CarGarage is not only a high-efficiency marketing channel, but may be the only platform a dealer needs Based on the study, paying dealers listing only on CarGurus turn over their inventory 16% faster than if they were to be marketing only on the next closest competitor. Moreover, paying dealers listing on CarGurus would realize little improvement in inventory turnover if they were to pay for multiple platforms, which we believe is a direct result of our disproportionately large audience and the return on investment our platform generates. CarGurus paying dealers see only a 6% improvement in inventory terms if they pay for a second listing platform and no incremental improvement in adding a third. Yet dealers often spend more in competing platforms than CarGurus. We believe these findings demonstrate CarGurus' superior value proposition to both consumers and dealers alike and solidify our view that the U.S. automotive listings market can be a winner-take-most vertical over time, one that we believe CarGurus is poised to win. I'm extremely proud of how well all of our employees have adapted to a work-from-home environment, and our product and engineering teams continue to innovate in this challenging environment. We began a rollout of our real-time performance marketing suite in the second quarter and generated solid dealer adoption across late May and June with healthy average order size driven by RPM, Premier, and unlimited customers. We also continue to be encouraged by the increasing demand for our consumer financing platform. Our platform generated a record number of loan originations in May, only to break that record in June, yielding strong revenue performance in the quarter. In fact, roughly 10% of recent leads submitted to U.S. dealers from consumers with an active loan prequalification form from our platform, which we believe is yielding even higher quality leads with greater likelihood of conversion to sale for our dealers. We recently announced our third lending partner, GLS, expanding our consumer credit and dealer coverage, as well as improving the efficiency of our funnel. Our consumer financing platform is a key element of digital retail, and we now have financing available on over 85% of U.S. vehicle listings, with an increasing percentage including two or more lenders. In April, we launched Contactless Service. Nearly 8,500 of our U.S. paying dealers have opted into these services, which includes local delivery and other socially distanced sales practices. These dealers are helping fuel demand for our delivery product. We remain focused on building more elements of the vehicle transaction into our marketplace, as consumers are increasingly demanding to complete more of the transaction online before heading to a dealership. We are working on several pilots centered around digital retail, beginning with continued evolution in our consumer financing platform. Today, consumers can receive loan pre-qualification from three lenders on our U.S. site, yielding high-intent shoppers for our dealers. We recently launched a pilot program with leading F&I technology provider, RouteOne, where a consumer can share their pre-qualification application with the RouteOne system. With this program, a dealer can retrieve the consumer's application through their dealer management system and immediately resume the credit application and financing process. We believe this enhances the shopping process for both dealer and consumer. This integration allows the dealer to streamline the purchasing process in store and creating a seamless online to offline purchase experience for the consumer. In addition, we are actively developing pilots that will bring more ancillary products into our marketplace, as well as logistics pilots that will allow dealers to seamlessly transport vehicles from the store to the consumer's home, creating a more digitally-enabled transaction. Turning to our international business, we observed traffic patterns in both the UK and Canada that were similar to our US business, with traffic in Leeds bottoming in April before beginning to recover, driven primarily by strength in our unpaid channels. Much like our U.S. business, we significantly reduced our traffic acquisition spend in response to depressed consumer shopping activity and heightened uncertainty during the health crisis. In both our core Canadian and UK marketplaces, lead growth outpaced audience growth as our business rebounded in May and June. Totally unique visitors to our UK marketplace in June were within 1% of June 2019's total, while unique visitors to our Canadian site rose 6% year over year in the same period. We successfully rolled out WhatsApp in our UK marketplace, providing deals with a fully managed service so consumers can engage quickly and conveniently via text and live chat. We completed the shutdown of our German, Italian, and Spanish marketplaces in May, and we are now fully focused our international resources on developing our Canadian and the UK businesses. Similar to our US business, we began to see a recovery in our paying deal accounts in the UK and Canada as the second quarter progressed. In June, we added 356 net new paying dealers in our international business, driven primarily by strong wingbacks on our core UK marketplace. We rolled out a beta launch of our delivery product across Canada and the UK in the second quarter, and the initial adoption is promising. Much like our US business, we have generated strong adoption of our contactless service in the UK and Canada with nearly 2,300 dealers opting in, and we believe these dealers will help us build a strong pipeline for future delivery customers. Despite the challenges of the COVID pandemic and uncertainty ahead, our business is executing well, demonstrating its flexibility and resilience, and producing strong financial results on both the top and bottom lines. We are producing a number of efficiencies in our traffic acquisition funnel. We're making strategic investments in digital retail and other product adjacencies and continue to prove our value to our paying dealers with innovation scale and return on investment. I'm excited by our continued progress in areas such as RPM and consumer financing, and I'm looking forward to the launch of future pilots as we seek to offer more digital elements of the transaction in our marketplace and provide dealers with more robust products and tools to sell vehicles and manage their business. Our SWIFT Our swift, decisive action to implement fee reductions and roll out new products and features, as well as our unmatched audience scale, has allowed us to win back business and we believe sets us up well for a strong second half of 2020. With that, I'll turn the call over to Jason to discuss our financial results.