CarGurus, Inc.

Greetings and welcome to CarGurus, Inc., first quarter 2022 earnings results conference call. At this time, all participants are in listen-only mode. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. And I'd like to turn the conference over to your host, Trindeep Singh, Vice President of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon. I'm delighted to welcome you to Cargrew's first quarter 2022 earnings call. We will 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 Jason Trevisan, Chief Executive Officer, Scott Freddo, Chief Financial Officer, Sam Zales, President and Chief Operating Officer, and Bruce Thompson, Founder and Chief Executive Officer of Car Offer. 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 second quarter 2022, management's expectations for future financial and operational performance, our business and growth strategies, our expectations for car offers, business, and acquisition synergies, the value proposition of our current product offerings and other product opportunities, the impact of the semiconductor chip shortage and other macro-level industry issues, and other statements regarding our plans, prospects, and expectations. These statements are not promises or guarantees and are subject to risk 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 our other SEC filings can be found on the SEC 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 gap to non-gap measures is included in our press release issued today, as well as in our updated investor presentation, which can be found on the investor relations section of our website. With that, I'll now turn it over to Jason.

Thank you very much, Kandeep, and thank you to all those joining us today. 2022 is off to a terrific start. While macroeconomic factors continue to challenge the automotive industry, CarGurus remains at the forefront of providing innovative solutions to both our dealer partners and consumer audience during these dynamic times. In 2021, we transformed our business by acquiring CarOffer, launching CarGurus Instant Max Cash Offer, and accelerating our digital retail capabilities. 2021 was the year of transformation for our business, and 2022 is the year of activation, in which we plan to execute on the potential built last year by activating digital deal on our platform, lighting up new geographies for CarGurus instant max cash offer, adding more dealers on car offers matrix and introducing new bundling options across our different offerings. As we initiate these new aspects of the business, we are also unlocking synergies that are made possible through the combined potential of our foundational listings business with the digital retail and digital wholesale businesses to create an end-to-end transaction-enabled marketplace for consumers and dealers alike. For consumers, this means a place to transparently shop, finance, buy, and sell from the largest selection of dealers' inventory in the U.S. And for dealers, it means the ability to efficiently source, market, and sell to the largest and highest intent consumer audience in the U.S. As we continue to make this vision a reality, I'm pleased to share CarGurus achieved exceptional results and exceeded our forecasted revenue guidance for the quarter. Revenue for the quarter from our car offer business, inclusive of our dealer-to-dealer business and instant max cash offer, was $267 million, growing 50% quarter-over-quarter and over 1,600% year-over-year. The industry's first instant trade platform for vehicle acquisition and disposition continues to garner dealer traction, as indicated by the dealer base expanding to 10,850 enrolled dealer rooftops at the end of Q1. The joint Car Offer and CarGuru sales teams added another 1,750 rooftops this past quarter. As we continue to grow the network, we're able to diversify the dealer base utilizing the matrix, and further enhance the types of vehicles transacting on our platform. Gross merchandise sales, or GMS, for our dealer-to-dealer business and instant max cash offer was approximately $2 billion, declining modestly quarter over quarter. Each quarter since the acquisition of Car Offer, we have gained a deeper understanding and appreciation for how fluctuations in wholesale and retail prices affect our dealer partners as they continue to navigate the ongoing semiconductor chip shortage. Two factors drove relatively more subdued dealer wholesale behavior in Q1. One, dealers witnessed wholesale prices start to retreat throughout Q1. And two, retail consumer demand continued to moderate as a result of historically high prices, rising auto loan rates, inflation, and delayed tax refunds. Nonetheless, our dealer-to-dealer business generated $105 million in revenue in the first quarter. growing approximately 12% quarter over quarter and over 575% year over year. The growth this quarter also included changes in our revenue mix. We saw a slight decline in transactions, but an increase in fee revenue as we increased our buy and sell fees at the beginning of March from $275 to $325, and increased inspection costs to $110 from $90. Additionally, we had an increase in transportation services revenue, which is low margin revenue relative to transactions through the assumption of transportation for a large customer who is experiencing a material backlog of vehicle pickups. In spite of continued unpredictability of the effects of the global pandemic and supply chain issues on the used and new car market, I'm pleased with the impressive growth and adoption of car offer to date. There remains a long runway for growth as we continue to further penetrate the U.S. dealer market and provide them with our unique solution to meet their inventory needs. Furthermore, the profitability of the car offer business during its infancy highlights the efficiency of the model. Of the $267 million in car offer revenue, our instant max cash offer business generated approximately $162 million, exceeding the high end of our forecasted guidance for the quarter and growing 92% quarter over quarter. In Q1, we expanded our coverage to five additional states, now covering approximately 80% of the U.S. While expansion primarily took place towards the end of the quarter, expansion into new markets accounted for 23% of the quarter-over-quarter growth, while growth in existing geographies accounted for 77% of the growth, largely driven by improved consumer conversions. This quarter, transactions more than doubled. Much like the last two quarters, we continue to optimize CarGuru's Instant Max cash offer, or Instant Max for short. We've added more self-service options as well as greater automation to further enhance the consumer experience. Our virtual inspection intake pilot allows consumers to set up a video call with a car offer specialist to improve our condition assessments. Our online appointment scheduling system allows consumers the flexibility to schedule driveway pickups online and was utilized by 85% of consumers. These enhancements provide users more optionality and convenience to complement receiving the highest and most competitive offer from thousands of dealers. As we approach national coverage, we will continue to optimize and refine the Instant Max experience for both our consumer and dealer partners. We believe over the long run, we are positioned to capture meaningful market share as CarGurus is the only U.S. marketplace where the largest network of dealers and the largest consumer audience can transact instantly and at scale using our instant trade technology. Turning to our foundational listings business, I'm thrilled to share we exceeded our forecasted marketplace revenue for the quarter. This robust performance was driven by healthy dealer additions and revenue expansions. In the U.S., our listings business had strong paying dealer additions in the quarter, up 359 from Q4, growing dealer counts across all our dealer segments. Net dealer ads this quarter were evenly split between new dealer additions as well as dealers who churned off our platform during the pandemic and the semiconductor chip shortage and have since rejoined. In addition to improving dealer counts, we saw growth in quarterly average revenue per subscribing dealer, or CARCIDs, This quarter, U.S. car SID grew approximately 5% year-over-year to $5,713. Car SID growth was primarily driven by higher-paying dealer additions, greater upsells, and increased adoption of RPM and area boosts. In addition to growing and innovating our listings business, we're also focused on continuously providing exceptional customer service to our dealer partners with a strategic emphasis on retention and growth. This focus has allowed us to grow our dealer base while witnessing materially lower churn in Q1 when compared to historical averages since the beginning of the pandemic and chip shortage. Internationally, we ended Q1 with 6,648 paying dealers, down modestly quarter over quarter. We saw car SID grow by 40% to $1,556 year over year. as a result of existing dealer revenue expansion and one-time discounts offered to select accounts during the lockdown last year. In Q1, we launched digital display in both the UK and Canada, also known as RPM in the US. The pilot demonstrated that dealers utilizing digital display were able to target low-funnel CarGurus customers who have not only visited their own listings, but viewed similar vehicles from other sellers and drive them back to their own websites. Since launching digital display, we're seeing very strong click-through rates to drive dealer adoption. We are thrilled to see strong receptivity for digital display and are excited for our international dealers to leverage the same capabilities that are available to our dealers in the U.S. It is through product innovation and outstanding service that will continue to drive growth in our listings business and provide our dealer base with the highest ROI in their markets. In the spirit of always innovating the core functionality of the listings business, in the fourth quarter, we tested and launched new digital retail pilots for deposits and hard-pull financing that allowed consumers even greater flexibility and optionality in completing their purchase. These pilots and existing offerings allow our dealer partners to offer our 31 million unique monthly visitors a convenient, self-selective journey, all while providing trust, transparency, and the best pricing from the largest selection of inventory in the U.S. Following the success of our pilots, at this year's NADA conference, we shared a preview of our upcoming digital retail offering, Digital Deal. Digital Deal is an evolution of our CG Convert offering, helping dealers close more business from the 60% of CarGurus auto shoppers who prefer to do more of the car buying process from home. Our digital deal solution provides dealers with high quality sales opportunities by moving shoppers further down the purchase funnel before a dealership visit by allowing them to build a near penny perfect deal online, including dealership finance and insurance offerings and scheduling an appointment to visit the dealership to finalize the sale. If enabled by the dealership, shoppers will also have the option to place a $500 credit card deposit to reserve the vehicle for 72 hours. Digital Deal has been made available to select dealers at NADA and will be available for all dealers to opt into later this month. This new product is designed to help dealers compete with online retailers. It empowers dealers to close more business with less time and effort. And Digital Deal leads are two times more likely to close than traditional leads. Combined with Area Boost, Digital Deal gives dealers the ability to sell online in both their local market and as far outside it as they would like. Not only does Digital Deal provide tremendous value to dealers, but car shopper satisfaction is two and a half times higher than standard CarGurus leads, creating a mutually beneficial offering for our consumer audience and dealer partners. We're excited to launch Digital Deal later this month, With this launch, we're closer to creating a full end-to-end digital retail solution and providing a unique offering to serve our consumers and dealers who wish to have a digital to in-store experience. We believe our digital retail capabilities will level the playing field for our dealer partners who are unable to provide these solutions to consumers on their own and or wish to utilize our largest consumer audience to sell additional inventory through the CarGurus digital retail platform to drive greater profitability. With innovative new solutions like Digital Deal and Instant Max Cash Offer, we've been able to realize the full benefits of the efficiencies and synergies that exist when you create a transaction-enabled marketplace. Formerly, the main value of each consumer came from their VDP lead submission. However, since expanding our business, we're able to increase the value of our shoppers as they interact with multiple products across our platform and thus increase our revenue per consumer. This allows us to gain leverage in our marketing spend as we grow the contribution from a consumer across multiple products. For example, approximately 50% of our instant max offer savers view a VDP for a new purchase. These consumers are high-intent shoppers at the bottom of our funnel who are interested in both selling their car and purchasing a new one. Increasingly, we're able to target these types of consumers and help them engage with even more of our product offerings. This heightened consumer activity creates leverage with our marketing, allowing us to capture synergies from a transaction-enabled marketplace that did not exist previously. Furthermore, as we create a stickier platform that services the full lifecycle for dealers as well as consumers, we are able to bundle our offerings to capture additional synergies and revenue. This past quarter, we began two small pilots designed to increase dealer engagement in our full product suite. The first is offering advantaged pricing to non-listing dealers who are utilizing our car offer platform, and the second is offering dealers that are on both CarGurus and CarOffer favorable pricing on their listing subscription by meeting monthly CarOffer transaction volume thresholds. Although we are in the early stages of tying our offerings into one cohesive product suite for our dealer partners, bundling incentivizes dealers to utilize more than just one of our many offerings to improve their business. All in all, we're thrilled with our first quarter results. We're proud of the growth of our foundational listings business, as well as the profitability of Car Offer, both driving incredibly strong top and bottom line results. While the semiconductor chip shortage continues to cause near-term inventory uncertainty and volatility, we continue to deliver tremendous shareholder value, all while pushing forward our vision of creating a full end-to-end transaction-enabled marketplace. We are combining our foundational listings business with digital wholesale and digital retail to create the only end-to-end automotive transaction-enabled marketplace in the U.S. for consumers to transparently and confidently shop, finance, buy, and sell from the largest network of dealers and for dealers to efficiently source, market, and sell to the largest and highest-intent consumer audience in the U.S. We are focused on increasing optionality and convenience for both dealers and consumers by providing consumers flexibility to complete a sale or purchase in a manner that works best for them and offering dealers more choice to tailor their product suite that best serves their individual business. Each transaction is unique. We are committed to creating solutions that mutually benefit the various needs of consumers and dealers. None of these incredible results or innovative ideas would be possible without each and every one of our team members. So I'd like to take a moment to express my gratitude and appreciation to our employees globally. After a little over two years, I'm excited to welcome our employees back to the office in June. The pandemic created new challenges and disrupted not only our work lives, but our personal lives as well. Nonetheless, over the past two years, our employees embodied our core values and continued to innovate and drive our vision forward. It's through their commitment and passion that we were able to turn our vision into a reality. Now I'll turn it over to Scott to discuss our financial results.