Good day, and welcome to the CarGurus Earnings Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Kirndeep Singh, Vice President and Head of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon. I'm delighted to welcome you to CarGurus' third quarter 2024 earnings call. With me on the call today are Jason Trevisan, Chief Executive Officer; Sam Zales, President and Chief Operating Officer; and Elisa 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, Kirndeep, and thanks to all of you for joining us today. We're extremely proud of our third quarter results. Our marketplace revenue growth further accelerated, and our impressive revenue performance combined with flat operating expenses drove consolidated adjusted EBITDA above the high end of our guidance range. We are executing well against our strategic priorities as we have continued to provide increasingly more value to our dealer partners. As a result, we are outperforming our competitors and gaining market share in the broader auto marketplace industry. We continue to build a transaction enabled platform that leverages our unique and extensive consumer data to deliver actionable insights, tools and functionalities for our dealer partners, supporting them in their daily decision-making processes. Simultaneously, we are deepening our connection with consumers and enhancing the shopper experience across our channels. Together, these efforts are growing our wallet share among dealers while leveraging our existing cost base to increase operational efficiency. Importantly, our strong execution this quarter allowed for continued robust investment in innovation and a new product pipeline while we delivered ongoing earnings growth. In the third quarter, we continue to strengthen our executive team, attracting exceptional talent to CarGurus. In September, we welcome Jennifer Hanson as our new Chief People Officer and Mike O'Hanlon as our new Chief Revenue Officer. We are thrilled to have Jennifer and Mike join us and contribute their expertise to our team. Like last quarter, I'll begin with a high level summary of our financials, followed by updates on the progress we've made across our four drivers of value creation. We ended the third quarter at the high end of our forecasted revenue range and exceeded consolidated adjusted EBITDA guidance range. Our non-GAAP consolidated adjusted EBITDA grew 33% year-over-year and margin expanded about 590 basis points…

Thank you, Jason, and thank you all for joining us today. My commentary will cover a detailed overview of our third quarter performance, followed by our guidance for the fourth quarter. Third quarter consolidated revenue was $231 million, up 5% year-over-year, driven by double-digit expansion of our marketplace business, partly offset by lower wholesale and product volume versus prior year. Marketplace revenue was $204 million for the third quarter, up 15% year-over-year and in line with the high end of our guidance range. The sustained acceleration of our marketplace business was driven by continued strength in subscription-based listings revenue, which grew $25 million year-over-year, reflecting net dealer ads at market rates, greater adoption of value-added products and services, as well as upgrades to higher subscription tiers. Our global paying dealer count was up 332 dealers this quarter, as we have continued to gain market share in a consolidating industry. This is a reflection of our customer-centric approach, which drives engagement and retention and fosters long-term relationships with our dealer partners. The impressive growth in our international business continued in the third quarter. Revenue was up 23% year-over-year, driven by expansion of our dealer base and car seat growth, which were up 4% and 20% year-over-year, respectively. Wholesale revenue was $12 million for the third quarter, down 44% year-over-year and down 8% sequentially, driven by a decline in dealer-to-dealer transaction volume as we continue to optimize unit economics and focus our efforts on improving transportation operations and customer experience. Lastly, product revenue was $15 million for the third quarter, down 23% year-over-year, but up 46% sequentially. We saw stronger volume in the third quarter due to favorable market conditions related to one of our origination partners. Volumes have normalized in October, and we expect fourth quarter activity to be slightly below…

We will now begin the question-and-answer session. [Operator Instructions] And our first question will come from Marvin Fong of BTIG. Please go ahead.

Great. Thanks for taking my questions. Congratulations on the quarter. Yeah, I guess I could kind of start, clearly the business is doing very well, especially the core marketplace and throwing off a lot of cash. Can you just kind of update us on how you're thinking about, investing in the brand, I think you had some various brand campaigns. But, should we kind of think about you possibly in next year leaning back into more brand marketing to kind of generate more consumer awareness and create a flywheel effect there? And the second question, I would just like to dive a little bit deeper into the decision to discontinue CG Buy Online. Was it something about the construction of the product or was it concerned about dealer acceptance or any other factors that left some more color on what you saw there that didn't seem like it was going to work? Thanks.

Thanks, Marvin. This is Jason. I'll take the first one. So, from a brand perspective and I would say more broadly marketing perspective, you heard in Elisa's remarks that there is seasonality to it and so you can expect an increase at the New Year. We are getting more and more sophisticated with our marketing and our advertising as we think about capturing bigger audience at different parts of the funnel, so to speak of their shopping journey. We have historically been very low funnel oriented and a lot of our brand effort is to go mid funnel and higher funnel and that's to grow our brand awareness. That's also supported or complemented by the fact that our product portfolio keeps growing and you heard also in the prepared remarks a number of ways in which we're improving the user experience on our site. And so it's not just advertising to pump out a message, but it's actually supported by the user experience with the product itself. And then lastly, I'd say we're trying new channels all the time and we found some success in a number of new brand channels that we're really excited about. So, we're going to continue to try to build brand as best and as quickly as we can so that we're not as focused in a handful of performance channels.

Yes, and I will take the financial part of CG Buy Online. So, Marvin, we have a very disciplined capital allocation process and approach. And so, we periodically undergo a review of our invested capital base and we assess opportunities based on a number of criteria, including financial return, strategic fit, our ability to execute in a differentiated way and end market demand. And so, in the third quarter, after careful consideration and a very detailed analysis, we concluded that it was appropriate for us to redeploy the resources of CG Buy Online pilots to other projects.

Okay, got it. Thanks so much. I'll get back in queue.

The next question comes from Nick Jones of Citizens JMP Securities. Please go ahead.

Great, thanks for taking the questions. I guess two just around Car Spend, as we think about Car Spend over time, how should we think about maybe the algorithm to driving growth here? I mean, what amount can you take maybe annually as it relates to inflation? Can you kind of do 100 bps, 200 bps above inflation with folks? And I guess, can you maybe speak to the product pipeline as also part of a way to continue to drive a catch rate to introduce new products? Do you feel like you have a robust enough product pipeline? And to the extent that folks maybe aren't adopting certain things as quickly, is there still a mechanism to kind of keep kicking price up there over time? Thank you.

Thank you, Nick. So I will comment on the growth pipeline that we are seeing at the moment. As the business performs well and continues to grow, comps are going to get more difficult into 2025. This said, we feel very good about the quality of our growth, as we believe that the drivers of expansion are durable. So we are seeing higher dealer engagement. They use more of our products and more frequently. And so they are increasing their level of spend with us. We are seeing higher adoption of value-added products and services and data insights that really help dealers run their business better on a daily basis. And so this is resulting in stronger retention and also long-term contracts becoming more prevalent. And so even if we don't expect the business to accelerate further in 2025, we do expect growth to be strong and we have visibility into that growth pipeline. And maybe Sam or Jason wanted to comment on the product.

Sure. Hey, Nick. It's Jason. From a product standpoint, it's both products and features and we do feel really good about our pipeline. I would think of it in two buckets, upsells and cross-sells from a product standpoint. From an upsell perspective, we, as you know, continue to pack more and more value and features into our higher-tier packages. So that's things around dealer data insights and brand exposure on our site and new marketing channels in our marketplace and off-site as well. From a cross-sell perspective, there's a lot of other marketing products that we have introduced already and we'll continue to introduce those. But I think what is even more exciting than that, though, is that as we're leveraging data more and more to inform dealers how they can run ever improving dealerships, we're starting to help them with more aspects of their workflow beyond just marketing. And so that is stretching as early as sourcing in their workflow with top dealer offer and car offer and so forth, but it also now includes insights around pricing, merchandising, clearly more and more around marketing, and then also selling so that they can convert the leads that we deliver them even better. And so as we're getting our foot in the door in those different aspects of their workflow, that opens up opportunities for us to introduce new features and products there as well.

Great. Thank you both.

The next question comes from Rajat Gupta of J.P. Morgan. Please go ahead.

Great. Thanks for taking the question. I had a couple of quick ones on the international business, pretty good sequential improvement there in the Car Spend as well as dealer count. Maybe if you could speak to the initiatives in the region a bit more, what innings of growth would you say the company is in, how should we think about the growth trajectory? And I also noticed that the OpEx went up a little more than revenue sequentially. I don't know if there's just more leaning into marketing to accelerate growth there. Any color you can give on that as well would be helpful. And I have just one follow-up?

Rajat, it's Sam Zales. I'll take the first part of the question. We couldn't be more proud of the results in the international businesses, both the UK and Canada, growing fast, profitable and adding to our bottom line and it's no longer de minimis. These are big businesses for us, and we're really proud of where we are on that front. We're following the playbook from the US, which is we gain adoption of dealers because we go in at a price point that we know versus the very large competitors in their market are adaptive, and we're winning customer acquisition. As you can see, those numbers going up in new dealer counts tremendously in the international market. And then we're following that same playbook of Car Spend growth. The Car Spend growth comes from the factors of that new business coming in at the right price point, upselling those dealers to our premium packages, cross-selling products to them, and then doing our ABR process for those dealers who are underpriced. So all of those motions are working effectively and driving that growth in that market, in both of those markets. And then you heard that we launched some of the products in the US into the Canada market with Digital Deal being launched. Think about transaction enabled platform, you want to be able to drive the consumers down the funnel, and then your dealers are saying those are tremendous high-close-rate consumers coming down the funnel and either providing some financial information, in many cases trade-in information or appointment setting, and those are just tremendously high-value actions for our dealers to close business with. And we launched Next Best Deal Rating, the first of the dealer data insights to those customers, which leads to better retention of your customers and a differentiated offering that is a profit-maximization platform dealers can use to price more effectively. So with all of those tools in the markets, we're finding both new customer growth, Car Spend growth and the retention of our customers at record rates for us, and that's driving both revenue growth and profitability in those markets.

And Rajat, on the OpEx, we have a one-off related to sales tax in Canada, which is causing the OpEx to step up this quarter. It should normalize going into the next quarter. We are seeing a lot of traction in terms of traffic share gains, and so we are also investing in the international business.

Got it. Yeah, that's clear on the tax impact. And then maybe just on your dealer count, I think in the past you've indicated that the mix of franchise dealer customers has trended higher on the platform. Could you maybe elaborate on just incremental monetization opportunities or any low hanging fruit opportunity available with the manufacturers as the marketplaces just gradually transform in terms of the dealer count mix? Thanks.

Rajat, it's Sam. On the dealer count, I'm assuming you're talking globally or US focused. But in the US, all of the dealer segments are moving well for us. We've had tremendous growth in the franchise arena that's been really strong and driven, some of that Car Spend growth you've heard about. You know that we have small dealers because we offer a broader set of inventory to our consumers than any of our competitors in the market. And for those consumers who are searching for the $5,000 or $8,000 vehicle, we want to serve that market for both our consumers' and dealers' success. So all of those segments have been successful for us, both independent and franchise. But franchise, the larger dealers, have been more and more successful for us. And you see us taking more wallet share. And both wallet share and market share is both winning customers and having plus net dealer ads and growing Car Spend and doing that faster than the rest of the market. You also asked about the OEM customer base. You see growth in our advertising business. That's really nice to see. It comes two quarters worth of double-digit growth. It comes because supply is coming back in the new car arena. Days on market is lengthening. And for both EVs and ICE vehicles, they're turning to the best down funnel shoppers and saying, this platform is the one to work for. And so we've won back both domestic and import brands when the last couple of years have been slow for their investments in the market. We'll always be focused on leads more than advertising, but we're really proud of the highly profitable advertising business we have. And some of those OEM relationships drive a lead generation program for their dealers. And so it's a win-win and synergistic opportunity for us. And we're really proud of that growth.

Got it. Makes sense. Thanks for all the color.

The next question comes from Doug Arthur of Huber Research Partners. Please go ahead.

Yeah, thanks. This question may have been asked in a slightly different form already. But, Jason, obviously, the Car Spend numbers have been terrific really for the last five or six quarters. When you think about the comparison for Car Spend in 2025, do you -- are you confident that the value added, the new products, the digital deal, penetration etc. will continue to drive that at a pretty stout rate or are you going to face a tough comp there?

Sure. Well, as you heard Elisa say, we do have tougher comps, no question. But in 2025. But, I mean, I think if you look at the drivers of Car Spend, you see that, and I'll just quickly take through some examples, you see that they don't really have an imminent ceiling in any way. You know, the more value that we pack into higher tiers with insights that we have a really robust pipeline on, that's going to continue to entice dealers to move up. Because they are able to be much more successful on our platform when they have access to those insights. And so that is unlimited because we can just keep adding more insights there. Other products, I spoke about those just a few minutes ago in terms of some of the other cross-sell opportunities that we have that start to span across dealer workflows and are not just limited to marketing, which is where we've kind of lived in the past. Lead quality, in addition to lead quantity, but lead quality, I think is probably an underestimated factor for a lot of dealers that are looking at Car Spend rather than a lot of dealers really focus on. And while it's hard to measure exact quality and attribution, we work very hard at making sure that the quality is better so that the ROI is better for dealers so that they can be excited about investing more with us. So, we're very focused on these different levers of Car Sid. It's all predicated on ensuring that we deliver a great ROI. And so, we're never going to get over our skis on that. And you heard us talk about even more surveys that validated that. And so we feel pretty good that as long as we're ROI focused, we will have a runway in Car Spend.

Great, thank you.

The next question comes from Joseph Stack of UBS. Please go ahead.

Hi, it's [Zach] (ph) on for Joe Stack today. So I have two quick questions. So one is, how does pricing kind of work in the business today? Do we -- is it a kind of seasonal aspect or is it kind of linear, especially I heard a comment earlier about customers are signing like longer term contracts within six months. Like, is there opportunity to price the middle or kind of with the end? How do we think about that? And then just a quick follow up, you know, versus 90 days ago, you know, how would you assess the health of the consumer and, you know, activity you're seeing at your dealer customers? Thank you.

Hey, Zach, it's Sam Zales. I'll try to take the first and can weigh in with thoughts on the consumer. And Jason, you may have more for that one. Pricing works in a way that we look at our lead volume and the quality of our leads and assess the value we think we're going to drive to that dealer from the extensive years of experience we've had now growing that business and producing for our customers. I want to reference that market probe survey with customers saying that we're by far the number one provider in ROI in the market and almost three times chosen over our closest competitor. And with that, it gives you more price leverage. So, we're looking at our close rates, knowing what we think we can drive to that dealer. It's not seasonally based. It's based on their inventory and the expected volume of leads and what the close rate we've known has been at the success rate we've had. And that drives the price point for those dealers. So those numbers, as we've said, are moving all in the right direction. Car Spend grows first because we bring in dealers at the right price point in the market and a higher price point. And so over time, you've heard us talk about our ABRs, our Annual Business Reviews, that's taking the dealers who are underpriced against the market and raising those over time. So we're really proud of what we're doing on that front that's driven that Car Spend growth. You asked about consumer demand. I think the third quarter was interesting. We saw a stronger used retail market and wholesale market, partly because we know interest rates came down at the very end of the quarter. But the third quarter is typically down for the industry and used car sales. And it was a little bit stronger. I hope the interest rates will help that continue to be a success for our dealer community. We still know that inventory is sitting on lots longer than it has previously. And so we hope our product we know is the best ROI in the marketplace. Dealers are saying, I have to be on the CarGurus program. That's my biggest and fastest way to get to that consumer who's in the market. Q4 is typically more weak, the weakest time of the four quarters in terms of used vehicle sales. And in those times when it's hard to sell, dealers will turn first to the biggest audience, the most down funnel audience, and the largest quantity and quality of leads. And that makes us the first choice. I hope that answers your question.

Thank you so much.

This concludes our question-and-answer session. I would like to turn the call over to Jason Trevisan for any closing remarks.

Thank you very much. We'd just like to thank everyone for joining us this evening. And as always, I want to thank all of our colleagues at CarGurus for your dedication and passion and these outstanding results. I hope everyone has a nice evening.

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.