CarGurus, Inc.

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, Kardeep, and thank you all for joining us today. In 2024, our North Star was intelligent acceleration, reigniting growth and expanding margins. we delivered consistent double-digit year-over-year marketplace revenue growth, accelerated new product introductions, and had stronger operating leverage. In 2025, we're building on that momentum in what we are calling the year of transformative innovation, innovation that's customer-centric, differentiated, heavily leveraging AI, and opens up new avenues of product and platform growth for us with both consumers and dealers. While innovation is not new to CarGurus, having pioneered a freemium model, instant market value, deal ratings, digital deal, and dealer data insights, to name just a few, we are innovating in even more profound ways today than we ever have. Our organization is better structured to solve customer needs. We're dedicating a higher percentage of resources to net new products and investing in AI to accelerate innovation. Our strategy for 2025 centers on three value creation drivers. One, expanding our suite of data-driven solutions across dealers' workflows to help them drive more profitable businesses. Two, meeting the evolving needs of car shoppers by powering a more intelligent and seamless journey. And three, enabling dealers and consumers to complete more of the transaction online, streamlining the final steps of the deal. These drivers have fueled meaningful progress in how we operate and the results we deliver. Now, turning to our first quarter performance. Marketplace revenue grew 13% year over year, adding $25 million, driven by dealer count growth, subscription tier upgrades, increased adoption of value-added products and services, and strong lead growth. Marketplace adjusted EBITDA grew 27% year over year, with margins improving more than 340 basis points to nearly 33%. International revenue expanded 20% year-over-year, driven by steady traffic growth, approximately 22% year-over-year aggregate lead growth in Canada and the UK, and continued product innovation. In Canada, these factors supported accelerated dealer adoption. In a recent survey of a select group of CarGurus dealers, 90% reported seeing better ROI on CarGurus compared to alternative platforms. Consumer engagement also remained strong. CarGurus was Canada's most downloaded auto app in Q1, contributing to an 85% year-over-year increase in direct traffic and reinforcing the strength of the brand. In the UK, a recent survey of a select group of CarGurus dealers ranked CarGurus number one in ROI compared to alternative platforms, a key input as we scale and grow market share. Double-digit year-over-year lead growth was underpinned by an 82% year-over-year increase in direct traffic, while lead quality also improved with stronger buyer signals. OEM advertising sustained healthy revenue growth in Q1, delivering double-digit gains year-over-year. This performance was driven by strong annual upfront commitments, which also grew at double-digit rates year-over-year. and set a solid foundation for momentum. Our continued impressive results demonstrate our leadership in the marketplace business and highlight the traction we're gaining across new areas of innovation, which we believe positions us to build on this momentum throughout the year. I will now outline our progress against each strategic driver. Driver number one, expanding our suite of data-driven solutions across dealers' workflows to help them drive more profitable businesses. In Q1, we advanced our existing tools to give dealers greater inventory control and predictive intelligence, empowering them to make more informed decisions. Backed by the industry's largest retail data and consumer insights moat, we are also delivering actionable recommendations that improve performance across the dealer workflow. We introduced VIN-level targeting to give dealers more granular control over how they price, manage, and promote inventory. This capability first launched with Highlight, enabling dealers to apply customizable strategies to feature their most compelling listings to more in-market shoppers. Highlight adoption grew 32% year over year, and average leads per day increased 115% year over year following the introduction of VIN-level targeting alongside further product optimizations. We're now extending this capability to our real-time performance marketing solution. allowing dealers to promote specific vehicles such as new arrivals, aged units, or high-value listings directly from their dashboards. Collectively, these enhancements enable dealers to respond rapidly to market changes and move inventory with greater speed and precision. Adoption across the Dealer Data Insights Suite accelerated. Next Best Deal Rating, our first product, is now used by over 17,000 dealers globally. with 74% taking action on our pricing recommendations in Q1. Merchandising Health optimized approximately 34,500 inventory units for nearly 6,400 dealers. And Maximize Margin usage rose 64% quarter over quarter. Dealers using it increased average listing prices by $747, with nearly half of those vehicles still turning within two weeks. Internationally, after introducing next best deal rating in Canada and the UK at the end of last year, we're now rolling out additional dealer data insights tools in these markets. In parallel, our in-person dealer engagement program expanded, driven by measurable performance improvements and strong satisfaction among US dealers. All national accounts now receive dedicated support focused on maximizing platform value, emphasizing practical guidance and data-driven best practices for systems integration, pricing, lead management, and customer experience, including customer connections. This approach has resulted in improvements across many dealerships. For example, a multi-franchise group increased CarGurus lead conversion by 200%. A medium-sized franchise doubled its digital deal conversion rate. And another multi-franchise group achieved over a 650% increase in consumer connection rates through Sell My Car. Following this success, we recently launched the same engagement model in Canada and the UK. These efforts, coupled with seven consecutive quarters of global year-over-year lead growth, supported nearly 1,200 net new global dealer additions year-over-year, a meaningful acceleration in platform adoption. Dealers have been adopting value-added products and services, migrating to higher subscription tiers, and extending contract durations. Retention rates have continued to improve. Over 40% of new contracts signed this quarter are classified as long-term commitments, underscoring dealer reliance on our platform despite macroeconomic uncertainty. Driver number two, meeting the evolving needs of car shoppers by powering a more intelligent and seamless journey. We are helping consumers navigate the car shopping journey with greater confidence through more intelligent, personalized experiences, extending our product capabilities from initial discovery to vehicle ownership. In early stage discovery, we launched CarGurus.com backslash discover, a conversational research and search AI experience that allows shoppers to describe what they want in a car and receive personalized recommendations tied directly to live inventory. This supports upper funnel discovery, makes it easier for shoppers to decide which car is right for them, and improves our understanding of consumer intent by feeding richer behavioral data back into our systems. While we're still in the initial stages of expanding this new experience, users who engage with the experience are spending two times more time on site. We focused on two key areas of optimization to improve usability and consistency across the platform. First, Enhancing the app with features like upgraded filtering and sorting, type ahead search on the search results page and streamlined lead form submission. The app now accounts for over 30% of total leads and monthly active users have grown 25% year over year. Second, refreshing the homepage and core shopping pages in Canada and the UK to align with the US experience. These changes are making it easier for shoppers to navigate and find the right vehicle. We expanded our reach further into the car ownership lifecycle. In Q1, we launched a redesigned car value experience, now integrated into Sell My Car. Consumers can view real-time valuations, drive to monthly car estimate updates, and receive offers creating an ongoing connection with CarGurus that extends beyond the initial shopping phase. With continued product improvements and a more consistent user experience, we are giving consumers more reasons to come directly to CarGurus. Combined with ongoing brand investments, this contributed to nearly 20% year-over-year growth in direct traffic and better lead conversion. This momentum continues to reinforce our position as the most visited listing site with 60% more traffic than our closest competitor. Driver number three, enabling dealers and consumers to complete more of the transaction online, streamlining the final steps of the deal. In Q1, we advanced our transaction capabilities through continued progress across digital deal, top dealer offers, and car offer. These offerings are delivering a more seamless online to offline journey for shoppers, while giving dealers more efficient ways to acquire and sell inventory. Digital transaction enablement blends online convenience with in-person engagement, helping dealers connect with more qualified shoppers. Digital Deal now supports over 11,000 dealers globally, with nearly 1 million vehicle listings enabled. Following strong pilot results, we broadly released a digital deal feature integrating credit applications directly into dealer finance management systems. This addresses dealers' challenges of overlapping lenders, eliminates manual data reentry, and provides immediate visibility into shopper financing eligibility, resulting in a faster, more streamlined workflow. Adoption reached 1,100 dealers at the end of the first quarter. Given the healthy uptake and higher consumer satisfaction relative to other financing options, this is now the default financing experience within Digital Deal. Through our Digital Deal flow, shoppers can take high-value steps like applying for financing, placing a deposit, or scheduling an appointment before visiting the dealership, helping them move further down the funnel with greater confidence. To drive more of these actions across the platform, we've embedded key digital deal capabilities directly into core site experiences, including trade-in and financing options within the lead submission flow, and are piloting a post-lead appointment scheduler designed to help dealers engage faster with high-intent buyers. As these enhancements roll out, we've seen encouraging improvements in consumer NPS and dealer responsiveness, reinforcing the value of more qualified transaction-ready leads. Digital Deal now accounts for over 25% of a dealer's email leads, with a growing share coming from shoppers further along in their decision-making process, resulting in higher quality engagement. Giving dealers better tools to source inventory more efficiently is critical to facilitating transactions. In Q1, we grew dealer adoption of top dealer offers, which enables dealers to acquire inventory directly from consumers. Demand remains strong, and our measured rollout has driven healthy growth and high consumer engagement. To support better dealer execution, our in-person engagement team provides onboarding and lead handling support. Dealers who complete this training have recently doubled lead conversion, improving outcomes for both dealers and consumers. At Car Offer, the continued rollout of insights driven by CarGuru's proprietary consumer demand data drove higher engagement and demonstrated the value of our retail demand signals, pricing trends, and appraisal intelligence in enabling smarter wholesale decisions. This helped reactivate previously inactive dealers, attract new ones, and led to the first year-over-year increase in both buying and selling dealers in over a year. Despite this progress, overall transaction volume declined as several large buyers and sellers were less active or off the platform. The car offer platform, which at its core is a matrix rules engine, lacks the flexibility for dealers to adapt to rapidly shifting market conditions and requires broader automation to streamline fulfillment and improve operational efficiency. While we made meaningful operational progress, rising market volatility has raised the bar, and those changes have not been sufficient in this environment. Over the past year, we focused on three areas of improvement, operations, product market fit, and go to market, and we made progress in each. However, the pace of macro change continues to expose structural limitations in the model. At the same time, our insights capabilities are delivering clear value by helping dealers make more intelligent wholesale decisions. As a result, we have initiated a broader strategic assessment of a CarGurus wholesale business model that would have more sustainable growth and profitability potential. This work includes assessing business models to identify core product functionality and revenue strategies that have the potential to support a more profitable, scalable wholesale business across market cycles. To conclude, the first quarter marked a strong start to our year of transformative innovation, continuing the momentum we built throughout 2024. We delivered solid financial results and made measurable progress across our three value creation drivers. These efforts are deepening engagement, expanding adoption, and reinforcing our market leadership in the U.S. While internationally, our growth signals meaningful share gains. As we look ahead, we remain focused on discipline execution, strategic investment and innovation, and embedding our products more deeply across the consumer and dealer journey. Now, let me walk through our financial results, followed by our guidance for the second quarter of 2025. First quarter revenue was $225 million, up 4% year-over-year, just below the midpoint of our guidance range as double-digit year-over-year growth in our marketplace business was partly offset by lower wholesale and product volumes. Marketplace revenue was $212 million for the first quarter, up 13% year-over-year, and just above the midpoint of our guidance range. Marketplace revenue growth was driven by continued strength in our subscription-based listings revenue bolstered by robust double-digit year-over-year growth in OEM advertising revenue. We grow revenue through two primary levers, adding paying dealers and increasing revenue per dealer, both of which contributed to our marketplace growth. The mix between these levers will vary over time. In Q1, we added 734 paying US dealers year-over-year, marking our highest dealer growth since pre-pandemic. Because CAR-SID is subscription revenue divided by average dealer count, and net dealer count adds more than doubled our recent historical average, rapid dealer growth can moderate the pace of CAR-SID expansion. Still, U.S. CAR-SID grew 10% year over year, driven by new dealers joining at market rates, subscription tier upgrades, broader adoption of value-added products and services, price increases, and higher lead quantity and quality. all contributing to strong revenue growth. The robust growth in our international business continued in the first quarter, with revenue up 20% year-over-year and international CARSID up 10% year-over-year. Wholesale revenue was about $8 million for the first quarter, down 52% year-over-year and down 21% sequentially, driven by a 26% sequential decline in total digital wholesale segment transaction volumes. below our expectations. Lastly, product revenue was $5 million for the first quarter, down 58% year over year and down 39% sequentially. I will now discuss our profitability and expenses on a non-GAAP basis. First quarter non-GAAP gross profit was $200 million, up 14% year over year. Non-GAAP gross margin was 89%, up approximately 720 basis points year over year, and up about 170 basis points sequentially. The meaningful margin expansion in both comparison periods was primarily due to the ongoing revenue mix shift toward our high-margin marketplace business. Marketplace non-GAAP gross profit was up 15% year over year, and non-GAAP gross margin expanded by about 100 basis points year over year to 93%. driven by modest operating efficiencies. In our digital wholesale business, non-GAAP gross margin was flat sequentially as we continued to make improvements to the platform. On a consolidated basis, adjusted EBITDA was 66.3 million, up 32% year over year. Margin was 29%, up about 610 basis points year over year, reflecting primarily the favorable mix shift to high margin marketplace revenue and operating leverage on our fixed cost base. Marketplace adjusted EBITDA grew 27% year-over-year to 69.5 million, with margin up approximately 350 basis points year-over-year, but down about 490 basis points sequentially. The sequentially lower margins were driven by seasonally higher media spend in the first quarter related to the February launch of our big deal ad campaigns. Digital wholesale adjusted EBITDA loss was approximately 3.2 million, a 0.4 million sequential decline driven primarily by lower volumes, partly offset by lower OPEX. Moving to OPEX, our first quarter consolidated non-GAAP operating expenses totaled 140 million, of 6% year-over-year and 8% sequentially, primarily reflecting the seasonally higher sales and marketing expenses. Non-GAAP diluted earnings per share attributable to common stockholders was $0.46 for the first quarter, up $0.12 or 35% year-over-year, reflecting primarily the increase in adjusted EBITDA and lower diluted share count. We ended the first quarter with $173 million in cash and cash equivalents, a decrease of $131 million from the end of the fourth quarter. The lower cash balance was primarily driven by $183 million in share repurchases and $8 million in capitalized website development costs, partly offset by adjusted EBITDA and networking capital inflows of about $9 million. I will now close my prepared remarks with our guidance and outlook for the second quarter of 2025. As always, our guidance factors in the most up-to-date information we have on our business and the evolving macro landscape. At present, while the market remains highly volatile, we have not seen a material impact on our business related to tariffs. We expect our second quarter total revenue to be in the range of $222 to $242 million, up between 2% and 11% year over year, respectively. We expect our second quarter marketplace revenue to be in the range of $219.5 to $224.5 million, up between 12% and 15% year-over-year, respectively. Looking ahead, given the momentum we have experienced year-to-date, we are more positive about our growth outlook for the remainder of the year. While we still expect growth to moderate in the second half of the year, we anticipate exiting the year at a low double-digit year-over-year growth rate. That said, shifts in market conditions may influence the exit rate. Moving to digital wholesale, we expect second quarter volumes to decrease sequentially. We expect our second quarter non-GAAP adjusted EBITDA to be in the range of $71.5 million to $79.5 million, up between 29% and 43% year-over-year, respectively. For digital wholesale, we expect segment EBITDA losses to be relatively flat sequentially as we expect lower transaction volumes to be in part offset by lower operating expenses. At the midpoint of guidance, we expect our Q2 adjusted EBITDA margin to be elevated, driven by stronger than expected growth and a deliberate pacing of commensurate marketing investments. Based on our current expectations, we are choosing to reinvest behind that momentum, particularly in marketing, international product innovation, so we do not expect the same sequential margin expansion trend through 2025 as we have seen over the past two years. That said, we do expect annualized margin expansion in 2025 relative to 2024. Finally, we expect second quarter non-GAAP earnings per share to be in the range of 52 cents to 58 cents and diluted weighted average common shares outstanding to be approximately 100 million. With that, let's open the call for Q&A.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. If you would like to ask a question, please press star and 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star and 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Ladies and gentlemen, we request you to limit to one question and one follow-up question per participant. One moment, please, while we poll for questions. The first question comes from the line of Tom White from DA Davidson. Please go ahead.