CarGurus, Inc.

Thank you for standing by. This is the conference operator. Welcome to the CarGurus Inc. 3rd Quarter 2020 Earnings Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press the 1 followed by the 4 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star and 0. I would now like to turn the conference over to Scott Spretto, Senior Vice President of Financial Planning and Analysis. Please go ahead.

Thank you, Operator. Good afternoon and welcome to Cargurus' third 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 are Langley Steinert, Cargurus founder and Chief Executive Officer, Jason Treveson, 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 fourth quarter and full year 2020, management's expectations for our future financial and operational performance, our business growth and international strategies, the potential impact of the COVID pandemic on our business and financial results, 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 the 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 to non-GAAP measures is included in our press release issued today. 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 very much, Scott, and thank you to all for joining us today. I'm pleased to share that Cargill has generated strong results in the third quarter. Despite the ongoing uncertainty amidst the COVID pandemic, our performance demonstrates the durability of our market leadership position and the flexibility and resilience of our business model. Since March, our employees have navigated work from home in often challenging circumstances, and I want to thank them for their tremendous effort and dedication. As a result of their hard work, Cargur's financial performance was well above both our revenue and profit guidance for the quarter, driven by improved dealer retention versus Q2 and outstanding audience acquisition efficiency. Before I discuss the business results, I also want to recognize our events marketing team for orchestrating our second annual automotive industry conference, Navigate. Needless to say, this year, it was a virtual conference. We had over 2,000 registrants from across the U.S., Canada, and the United Kingdom. Feedback has been extremely positive from attendees, and I want to thank all the gurus who supported this event for our dealer community. I look forward to Navigate 21 when we can hopefully convene in person again. Now onto the business performance. Back in Q2, consumer demand in the market was volatile and uncertain, so we led the way with proactive discounts for dealers and introduced contactless services on our platform to enable consumers and dealers to connect in a safe manner. We had over 8,000 U.S. dealers offering contactless services in Q2, which grew to over 9,500 dealers in Q3 plus over 2,700 dealers in our international markets. Through innovation like this, in addition to our continued audience leadership, deep account engagement, and consistently high ROI, we were able to retain dealers better during Q3 than we forecasted in our guidance for the quarter. As a result, in Q3, we grew the count of our subscribing franchise and large medium independent dealers, while declines among our smallest dealers created a slight overall decline. At the same time in Q3, there were macro factors affecting the U.S. dealer market in unique ways, and I'd like to take a moment to describe them. Early in the year when COVID lockdowns went into effect, sales for both new and used cars declined by well over 50% year over year. Additionally, OEM production of new vehicles stalled as factories were shut down. As the country emerged from lockdowns in Q2, several factors contributed to heightened demand for cars, including pent-up demand, an aversion to public transportation, suburban migration, and government stimulus checks. With new car inventory down, used car demand in the U.S. rebounded quickly and has grown stronger in Q3. That demand, coupled with a lingering bottleneck in the wholesale sector, has reduced for many dealers the number of cars that they typically have on their lots. This constrained supply amidst a high-demand environment has created a strong sales dynamic for dealers, leading some dealers, especially smaller dealers, with more volatile inventory levels to reduce their marketing budgets or, at a minimum, refrain from entering new marketing channels. We believe this is a temporary phenomenon that will abate when inventories return to more normal levels and dealers will place a higher value on the scale and ROI of our platform. Whether dealers are spending heavily or more modestly during this time, we remain confident that we offer the best combination of scale and value we're delivering ready-to-buy shoppers. Despite COVID-related market volatility, we're driving increasing value to our paying dealers, with U.S. leads to paying dealers up 10% sequentially from Q2 and up 15% versus Q3 2019. Furthermore, our lead growth skewed disproportionately to our franchise and large-medium independent segments, which grew over 21% year-over-year. These are far more valuable to our dealer customers than audience alone. So we optimized our site experience and marketing efforts to acquire high-quality leads. With this focus on maximizing leads of our audience, we are pleased with our lead growth, but we'll also note that on a consolidated basis, we grew monthly unique to 11% and monthly sessions 9% sequentially from QT. While monthly uniques were down 4% and sessions were down 13% year over year. Perhaps the most favorable development in Q3 has been our ability to drive this the strong lead growth to our dealers while spending considerably less than forecasted on consumer marketing. We aim to strike an appropriate balance between lead generation efficiency with quality lead growth to our paying dealers, delivering low funnel, high intent leads that drive high ROI for dealers. The efficiency of our consumer marketing spend in both Q2 and Q3 has been outstanding and is the primary driver in yielding profits that have significantly increased exceeded our guidance. Certainly, COVID has heightened consumer use of online sources and reinforced the value that a market-leading automotive shopping marketplace like ours offers consumers who may be reluctant to visit stores. At the same time, this positive trend is the manifestation of years of ongoing investment to optimize our data-driven consumer acquisition program, brand investment, and user experience. We believe that while COVID has accelerated some yield improvements, many of these factors will continue and contribute to a sustainable improvement in our business model efficiency. While our fourth quarter guidance indicates lower profitability than the third quarter, as we expect some of the COVID-related expense reductions to abate, we're optimistic about continued consumer marketing efficiency moving forward. We believe the continued improvement in user acquisition efficiency will allow us to accelerate our investment our platform and enable more elements of the complicated car buying process to occur on our site. In the current environment, these digital retail-oriented features are particularly valuable because they help consumers and dealers transact in safe and socially distanced ways. Our Area Boost product, formerly called Delivery, continues to gain traction, evidenced by higher attach rates in Q3 than last quarter. Additionally, consumer financing allows consumers to connect with a dealer as an already pre-qualified car buyer. This is a win-win as these consumers convert at higher rates for dealers and the shopper saves time at the dealership. More than 85% of our US paying dealer inventory is covered with at least one of our lending partners and more than 9% of our email leads are now pre-qualified. The growing consumer adoption of online financing and total loan funding is evidence that both consumers and dealers value this capability. So in Q3, we made the process even more seamless by populating existing dealer systems with the consumer's information before they enter the dealership. We're delivering this through an integration with Route 1, a leading F&I technology provider, which simplifies the dealer's ability to access pre-qualified applications submitted on CarGurus and eliminates a consumer's need to fill out a credit application in the dealership. These are unprecedented times for the automotive industry and the world at large. Amidst this market volatility and uncertainty, I'm so proud of how well our business is executing. It's a testament to our people, our passion, our products, the flexibility of our business model, and the commitment we make to dealers and consumers alike to offer the most transparent automotive marketplace in the world. Through these uncertain times, we continue producing strong financial results on both the top and bottom lines. Many efficiencies in our audience acquisition and user engagement are materializing. We're making strategic investments in digital retail and other product adjacencies, and we're continuing to prove our value to our paying dealers with innovation, scale, and superior return on investment. With that, I'll turn the call over to Jason to discuss our financial results.