CarGurus, Inc.

Welcome to the CarGurus, Inc. second quarter 2024 earnings results conference call. All participants will be in a 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 a touchtone phone. To withdraw your question, please press star, then two. Please note this event is being recorded. I would now like to turn the conference over to Kandeep Singh, Vice President and Head of Investor Relations. Please go ahead.

Thank you, Operators. Good afternoon. I'm delighted to welcome you to CarGuru's second quarter 2024 earnings call. With me on the call today are Jason Trevisan, Chief Executive Officer, Sam Zales, President and Chief Operating Officer, and Aliza Palazzo, Chief Financial Officer. During the call, we will be making forward-looking statements, which are based on our current expectations and beliefs. These statements are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in such statements. Information concerning those risks and uncertainties is discussed in our SEC filings, which can be found on the SEC's website and in the investor relations section of our website. We undertake no obligation to update or revise forward-looking statements except as required by law. Further, during the course of our call today, we will refer to certain non-GAAP financial measures, A reconciliation of GAAP to comparable non-GAAP 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. We believe that these non-GAAP financial measures and other business metrics provide useful information about our operating results, enhance the overall understanding of past financial performance and future prospects, and allow for greater transparency as it relates to metrics used by our management in its financial and operational decision-making. With that, I'll now turn the call over to Jason.

Thank you, Kurndeep, and thanks to all of you for joining us today. We are very pleased with our second quarter performance. Our subscription-based marketplace business continued to accelerate, our margins expanded sequentially, and we executed well against our growth strategies. We further strengthened our partnership with dealers by embedding our services more deeply into their daily decision-making processes and deepened our connection with consumers by empowering them to complete a larger portion of their transactions online, enabled by the continued progress we made in upgrading and scaling our end-to-end transaction-enabled platform. Similar to last quarter, I will provide a high-level overview of our results and will then highlight the progress we made across our four drivers of value creation. We ended the second quarter at the high end of our forecasted revenue and above our adjusted EBITDA guidance range. Our non-GAAP consolidated adjusted EBITDA grew 23% year-over-year and margin expanded about 650 basis points year-over-year to 25%. Our marketplace business accelerated for the fifth consecutive quarter, delivering 14% year-over-year growth and Marketplace EBITDA grew 49% year-over-year, with margins expanding 735 basis points versus the prior year period. In the second quarter, we achieved the highest quarterly revenue increase since 2021, driven by growth in our global dealer base, increased adoption of add-on products, and migration toward higher subscription tiers. Notably, in the U.S., our customer base has increasingly shifted toward larger dealers with higher advertising budgets who have a greater demand for data insights and analytics. We are also seeing a sustained increase in wallet share across our dealer base as more dealers adopt additional value-added products, whether purchased a la carte or included in premium packages. This is evidenced by our double-digit year-over-year revenue growth while long-term advertising budgets for publicly traded dealers have increased at a mid-to-high single-digit rate. We continue to experience strong momentum in our international business, which grew revenue 21% year-over-year, with gross profitability in line with our domestic business. The outperformance was driven by sustained growth both in the UK and Canada, where we further expanded our traffic share and dealer base. Lastly, I am pleased to report that our OEM advertising business delivered strong year-over-year growth in the quarter, as new vehicle inventory levels continued to recover and the number of impressions on our website further increased. The impressive results we achieved in the second quarter reflect our ongoing progress against our four drivers of value creation. A steadfast commitment to delivering greater value to our dealer partners, continuously improving the consumer experience, further advancing transaction enablement, and rebuilding and integrating our wholesale business. Providing more value to dealers. This quarter, we further enriched our platform by expanding our predictive analytics product suite and leveraging our market-leading consumer audience to deliver increased lead and non-lead value to our dealer partners. Our efforts led to 15% year-over-year growth in listings revenues. As we strive to provide greater value to our dealer partners, the quality and quantity of our leads remain crucial drivers. In the second quarter, our platform delivered strong year over year lead growth and traffic to lead conversion rate also went up sequentially as we focused on engaging high intent shoppers and improving our lower funnel efficiency. In addition to our high intent audience leadership, We continue to invest in new tools and services that offer our dealers enhanced data with actionable insights, supporting their day-to-day decision-making process and automotive lifecycle needs. This quarter, we made significant advancements across three of our key data insights offerings. First, Next Best Deal Rating. This was our initial dealer data insights initiative and has achieved remarkable adoption with over 9,200 dealers in just three quarters since its launch. When dealers adjust their listing prices as suggested by our report, they experienced a median increase of 40% in daily vehicle description page views and decreased the turn time for these vehicles by 35%. Engagement remains strong with a nearly 50% weekly open rate and approximately 55% of dealers making at least one recommended price change within seven days. Second, our newest product, Maximize Margin, leverages similar data as next best deal rating to inform dealers how much they can increase the price of a vehicle without jeopardizing the current deal rating and associated VDP views and leads. This is especially important for vehicles with limited availability and in high demand. Third, acquisition insights report, which informs dealers about which vehicles to acquire to meet market demand, is now live with dealers in Featured Plus and Featured Priority Plus. we've developed a proprietary CarGurus index that measures demand based on our visitors' searches and availability of inventory, with the aim to ultimately help inform a dealer's inventory list on car offer. By prioritizing lead quality and quantity and pursuing relentless innovation to deliver unparalleled ROI, we are establishing ourselves as long-term partners for our dealers, capturing a greater share of the overall auto digital advertising market. Approximately 50% of our dealers who have subscribed to our services for more than a year have increased their spend with us through add-on products, listings upgrades, and renewals motions. 36% of all contracts signed this quarter were six months or longer. 54% of our renewals motions resulted in longer-term contracts, and 22% resulted in add-on products or higher listings tier migrations. Long-term contracts yield higher retention rates and predictable revenue from our customer base while facilitating new renewal opportunities at term end. Better consumer experience. This quarter, we continue to invest in elevating our consumer app, which contributed 28% of our leads. We simplified the vehicle search process and customized the experience for our returning users by offering more tailored results that incorporate elements from their previous sessions. This personalization provides continuity to the shopping journey and increases content relevance. As we've made these continuous app improvements, we saw the one month app use retention rate increase by 16%. Enhancing the consumer experience goes beyond our mobile app. This quarter, we continue to progress on our AI initiatives. We're leveraging AI in consumer content generation, conversational search, vehicle recommendations, and much more to streamline the shopping journey and provide consumers with key information and data at their fingertips. The investment in the app and AI are just two examples of our broader commitment to improving the consumer experience and engaging with our market leading consumer audience throughout their vehicle lifecycle. We ended the quarter as the most visited automotive marketplace with 56% more visits than our closest competitor. Additionally, 47% of our monthly unique visitors did not visit our leading competitors' websites, highlighting our strong market leadership among consumers and the unique and unrivaled audience we offer our dealers. These metrics do not factor in our sizable and highly engaged app user base, which primarily comes from organic channels. If we factor app in, our audience would likely be even larger. Enabling digital transactions. Our vision is to build an end-to-end transaction enabled platform that supports consumers and dealers throughout the entire car ownership journey, facilitating transacting online. As we have continued to advance and innovate our online retailing capabilities, we are becoming the digital partner of choice for dealers, enabling them to compete on a vast scale outside of their local demographic area and expand their reach. In the second quarter, we deepened the penetration of our digital retail product suite, which enables consumers to complete more of the shopping journey online, and advanced top dealer offers, which allows dealers to source high-quality cars from local consumer inventory. These efforts drove the adoption rate of add-on products up by 37% year over year in the U.S. In the second quarter, we saw continued strength in digital deal adoption, which has grown 22% quarter over quarter, and 157% year-over-year to 7,451 dealers. In a little over two years since its launch, Digital Deal has been adopted by 30% of our U.S. paying dealers. High-value actions, such as financing, can close up to three times higher than traditional leads, providing dealers with ready-to-purchase shoppers. With days on lot remaining elevated, dealers are especially interested in broadening their inventory's reach beyond local demographics, resulting in growth in digital deal with geographic expansion. With 238,000 deliverable vehicles, we offer consumers one of the largest selections of deliverable inventory with the greatest selection of options and prices that best meets their needs. In the second quarter, we also made progress on top dealer offers, our subscription-based consumer vehicle sourcing product, powered by CarOffers Matrix technology. We expanded the offering to 68 metro cities with 388 dealers participating in the program, and we rolled out our vehicle intake tool to all dealers, fostering greater transparency between dealers and consumers in the appraisal process. Since our launch, we've found that dealers are eager to access fresh consumer trade-ins, and nearly 35% of individuals who submit a lead to sell their car are actively looking to purchase, representing an important trade-in opportunity for dealers. Rebuilding and Integrating Digital Wholesale I will conclude by sharing the progress we've made in our digital wholesale business. In the last few months, we have been rebuilding Car Offer's leadership team and optimizing our go-to-market strategy in order to re-energize our commercial engines. We have also been further integrating wholesale and retail insights to enhance matrix functionality. In Q2, we strengthened our Salesforce leadership to overhaul Car Offer's commercial strategy, build an analytical backbone to inform decisions and actions, and implement an execution playbook that will advance sales effectiveness and efficiency. This will better equip our sales representatives to build stronger relationships with our dealer partners. We also recently bolstered our senior operations team to refine our logistics and inspection capabilities and elevate our dealer experience. We are focused on enhancing performance by improving consistency in the transaction experience and driving profitability in our operational capabilities. Our goal is to provide a better dealer experience, optimize conversion, and reduce churn in the transaction funnel. Another key area of investment is data. CarOffer is leveraging the largest collection of consumer retail data from car gurus to generate actionable insights for profitable buying and selling strategies. Metrics like market day supply, turn time, and profit per day empower dealers with greater control and confidence to bid competitively on ideal vehicles. Each dealership has access to a vast amount of curated data presented in a simple, easy-to-navigate dashboard. dealers can now create matrix rules based on these insights to optimize their bidding strategies. Our performance managers are using this data, along with the matrix analyzer, to help dealers adjust their bidding strategies and make recommendations to stay competitive in a dynamic pricing wholesale environment. Furthering our matrix functionality, we also re-engineered the matrix to be more targeted and accurate across an expanded set of vehicle options. Combined with the release of CarGurus-powered market insights, Car Offer is giving dealers increased confidence to buy and sell programmatically. As a result of these collective changes, dealer NPS has risen, and we expect these enhancements to increase customer retention and unlock new growth opportunities over time. While we're making significant strides in optimizing key aspects of our business, it is a slower rebuild than we anticipated it would be when we assumed control of the business in December 2023. The new leadership we've brought in is refining and elevating our commercial and operational initiatives, and we have made exciting product enhancements to integrate retail data with wholesale functionalities in ways that don't exist elsewhere in the market. Although the process has taken several quarters, we continue to believe in the value of combining wholesale and retail capabilities to offer a differentiated end-to-end transaction-enabled platform that allows dealers to predict, source, market, and sell cars with our integrated data and correspondingly elevated sophistication. To conclude, we are extremely pleased with our marketplace results and the progress we made against our strategic goals. Each quarter, through our value creation drivers, we have consistently introduced new products, valuable data and insights, and features that enhance our end-to-end capabilities, delivering even greater value to our customers. Our services are becoming an integral part of the dealer's daily workflow, increasing their engagement and long-term retention. We believe this will lead to continued earnings growth and a robust pipeline of products that will support sustained market share expansion over time. At every stage of our growth, we remain committed to prudent financial management, operational excellence, and efficient capital allocation. We believe these principles are key to driving greater profitability and creating lasting value for our shareholders. Now, let me turn the call over to Aliza to discuss our financial results.