# CarGurus, Inc.: Form 10-Q for the period ended Sep 30, 2024 - Company: [CarGurus, Inc.](/companies/carg.md) (CIK 1494259) - Form: 10-Q - Filed: 2024-11-07 - Accepted by EDGAR: Nov 7, 2024, 16:15 ET - Period: 2024-09-30 - Accession: 0000950170-24-123371 - Inline XBRL: yes - Main document: https://www.sec.gov/Archives/edgar/data/1494259/000095017024123371/carg-20240930.htm - All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1494259/000095017024123371/ ## Figures reported in this filing Standardized XBRL line items for the period ended 2024-09-30. | Line item | Period | Value | XBRL concept | | --- | --- | ---: | --- | | Revenue | 3 months, 2024-07-01 to 2024-09-30 | $231.4m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax | | Revenue | 9 months, 2024-01-01 to 2024-09-30 | $665.8m | us-gaap:RevenueFromContractWithCustomerExcludingAssessedTax | | Cost of revenue | 9 months, 2024-01-01 to 2024-09-30 | $125.9m | us-gaap:CostOfGoodsAndServicesSold | | Gross profit | 3 months, 2024-07-01 to 2024-09-30 | $182.6m | us-gaap:GrossProfit | | Gross profit | 9 months, 2024-01-01 to 2024-09-30 | $540.0m | us-gaap:GrossProfit | | Research and development | 3 months, 2024-07-01 to 2024-09-30 | $36.4m | us-gaap:ResearchAndDevelopmentExpense | | Research and development | 9 months, 2024-01-01 to 2024-09-30 | $108.5m | us-gaap:ResearchAndDevelopmentExpense | | Operating income | 3 months, 2024-07-01 to 2024-09-30 | $27.4m | us-gaap:OperatingIncomeLoss | | Operating income | 9 months, 2024-01-01 to 2024-09-30 | −$39.9m | us-gaap:OperatingIncomeLoss | | Income tax | 3 months, 2024-07-01 to 2024-09-30 | $7.5m | us-gaap:IncomeTaxExpenseBenefit | | Income tax | 9 months, 2024-01-01 to 2024-09-30 | −$5.8m | us-gaap:IncomeTaxExpenseBenefit | | Net income | 3 months, 2024-07-01 to 2024-09-30 | $22.5m | us-gaap:NetIncomeLoss | | Diluted EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.21 | us-gaap:EarningsPerShareDiluted | | Diluted EPS | 9 months, 2024-01-01 to 2024-09-30 | −$0.24 | us-gaap:EarningsPerShareDiluted | | Basic EPS | 3 months, 2024-07-01 to 2024-09-30 | $0.22 | us-gaap:EarningsPerShareBasic | | Basic EPS | 9 months, 2024-01-01 to 2024-09-30 | −$0.24 | us-gaap:EarningsPerShareBasic | | Diluted shares (weighted) | 3 months, 2024-07-01 to 2024-09-30 | 105,059,283 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Diluted shares (weighted) | 9 months, 2024-01-01 to 2024-09-30 | 104,769,518 shares | us-gaap:WeightedAverageNumberOfDilutedSharesOutstanding | | Operating cash flow | 9 months, 2024-01-01 to 2024-09-30 | $179.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities | | Capital expenditure | 9 months, 2024-01-01 to 2024-09-30 | $64.9m | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment | | Share repurchases | 9 months, 2024-01-01 to 2024-09-30 | $146.2m | us-gaap:PaymentsForRepurchaseOfCommonStock | | Cash and equivalents | at 2024-09-30 | $246.7m | us-gaap:CashAndCashEquivalentsAtCarryingValue | | Current assets | at 2024-09-30 | $326.6m | us-gaap:AssetsCurrent | | Total assets | at 2024-09-30 | $778.2m | us-gaap:Assets | | Current liabilities | at 2024-09-30 | $110.6m | us-gaap:LiabilitiesCurrent | | Total liabilities | at 2024-09-30 | $294.7m | us-gaap:Liabilities | | Long-term debt | at 2024-09-30 | $0 | us-gaap:LongTermDebt | | Shareholders' equity | at 2024-09-30 | $483.5m | us-gaap:StockholdersEquity | ## Management's discussion and analysis As filed, 101,266 characters. *You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited interim condensed consolidated financial statements, or the Unaudited Condensed Consolidated Financial Statements, and the related notes thereto, included elsewhere in this Quarterly Report, and our consolidated financial statements and the related notes and other financial information included in our Annual Report. Some of the information contained in this discussion and analysis or elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business and our performance and future success, includes forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements.” For a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis you should review our Annual Report, including those cautionary statements set forth under Part I, Item 1A “Risk Factors,” and in Part II, Item 1A, “Risk Factors,” of this Quarterly Report. We qualify all of our forward-looking statements by such cautionary statements.* *In this discussion, we use financial measures that are considered non-GAAP financial measures under SEC rules. These rules regarding non-GAAP financial measures require supplemental explanation and reconciliation, which are included elsewhere in this Quarterly Report. Investors should not consider non-GAAP financial measures in isolation from or in substitution for, financial information presented in compliance with United States, or U.S., generally accepted accounting principles, or GAAP.* *This section of this Quarterly Report discusses 2024 and 2023 items and period-to-period comparisons between 2024 and 2023. The period‑to‑period comparison of financial results is not necessarily indicative of future results.* ### Company Overview CarGurus, Inc. is a multinational, online automotive platform for buying and selling vehicles that is building upon its industry-leading listings marketplace with both digital retail solutions and the CarOffer online wholesale platform. The CarGurus platform gives consumers the confidence to purchase and/or sell a vehicle either online or in person, and it gives dealerships the power to accurately price, effectively market, instantly acquire, and quickly sell vehicles, all with a nationwide reach. We use proprietary technology, search algorithms, and data analytics to bring trust, transparency, and competitive pricing to the automotive shopping experience. We operate principally in the U.S. In the U.S., we also operate as independent brands the Autolist online marketplace and the CarOffer online wholesale platform. In addition to the U.S., we operate online marketplaces under the CarGurus brand in Canada and the United Kingdom, or U.K. In the U.K., we also operate as an independent brand the PistonHeads online marketplace. We have subsidiaries in the U.S., Canada, Ireland, and the U.K. and we have two reportable segments, U.S. Marketplace and Digital Wholesale. See Note 13 of the Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for further segment reporting and geographic information. We derive our revenue from marketplace revenue, wholesale revenue, and product revenue. Marketplace revenue is included in the U.S. Marketplace segment and Other category of segment reporting. Wholesale revenue and product revenue are included in the Digital Wholesale segment. We generate marketplace revenue primarily from (i) dealer subscriptions to our Listings packages and Real-time Performance Marketing, or RPM, digital advertising suite, Digital Retail, and Sell My Car - Top Dealer Offers, or TDO, (ii) advertising revenue from auto manufacturers and other auto-related brand advertisers, and (iii) revenue from partnerships with financing services companies. We generate wholesale revenue primarily from (x) transaction fees earned from the purchase and sale of vehicles between dealers, or Dealer-to-Dealer transactions, (y) transaction fees earned from the sale of vehicles to dealers that we acquire at other marketplaces, and (z) transaction fees earned from performing inspection and transportation services, inclusive of Dealer-to-Dealer transactions, other marketplace-to-dealer transactions, and IMCO transactions (as defined below). We generate product revenue primarily from (A) aggregate proceeds received from the sale of vehicles to dealers that were acquired directly from customers, or Sell My Car - Instant Max Cash Offer, or IMCO transactions and (B) proceeds received from the sale of vehicles that were acquired through arbitration. For the three months ended September 30, 2024, we generated revenue of $231.4 million, a 5% increase from $219.4 million of revenue for the three months ended September 30, 2023. For the three months ended September 30, 2024, we generated consolidated net income of $22.5 million and Consolidated Adjusted EBITDA of $64.9 million, compared to consolidated net income of $19.0 million and Consolidated Adjusted EBITDA of $48.6 million for the three months ended September 30, 2023. For the nine months ended September 30, 2024, we generated revenue of $665.8 million, a 4% decrease from $691.1 million of revenue for the nine months ended September 30, 2023. For the nine months ended September 30, 2024, we generated consolidated net loss of $24.9 million and Consolidated Adjusted EBITDA of $170.8 million, compared to consolidated net income of $44.7 million and Consolidated Adjusted EBITDA of $134.6 million for the nine months ended September 30, 2023. See below for more information regarding our use and reconciliation of these non-GAAP financial measures. ### Key Business Metrics We regularly review a number of metrics, including the key metrics listed below, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections, and make operating and strategic decisions. We believe it is important to evaluate these metrics for the U.S. and International geographic regions. The International region derives revenue from marketplace revenue from customers outside of the U.S. International markets perform differently from the U.S. market due to a variety of factors, including our operating history in each market, our rate of investment, market size, market maturity, competition, and other dynamics unique to each country. Historically, we have used data from Google Universal Analytics, or Google Analytics, to measure two of our key business metrics: monthly unique users and monthly sessions. Effective July 1, 2024, Google Analytics 4, or GA4, replaced Google Analytics. The methodologies used in GA4 are different and not comparable to the methodologies used in Google Analytics. As discussed below, we also make certain adjustments to the GA4 data in order to improve the accuracy of the reported monthly unique users and monthly sessions. Due to this change in methodology, we are unable to provide comparable monthly unique user and monthly session information for prior periods, including any periods prior to June 30, 2024. ### Monthly Unique Users For each of our websites (excluding the CarOffer website), we define a monthly unique user as an individual who has visited any such website and taken a visitor action (as defined below) within a calendar month, based on data as measured by GA4. We calculate average monthly unique users as the sum of the monthly unique users of each of our websites in a given period, divided by the number of months in that period. Effective July 1, 2024, we count a unique user the first time a computer or mobile device with a unique device identifier accesses any of our websites or application during a calendar month and takes an action on such website or in such application, such as performing a search, visiting vehicle detail pages, and connecting with a dealer, which we refer to as a visitor action. If an individual accesses a website or application using a different device within a given month, the first visitor action taken by each such device is counted as a separate unique user. If an individual uses multiple browsers on a single device and/or clears their cookies and returns to our website or application and takes a visitor action within a calendar month, each such visitor action is counted as a separate unique user. We eliminate any duplicate unique users that may arise when users visit a webview within our native application. We view our average monthly unique users as a key indicator of the quality of our user experience, the effectiveness of our advertising and traffic acquisition, and the strength of our brand awareness. Measuring unique users is important to us and we believe it provides useful information to our investors because our marketplace revenue depends, in part, on our ability to provide dealers with connections to our users and exposure to our marketplace audience. We define connections as interactions between consumers and dealers on our marketplace through phone calls, email, managed text and chat, and clicks to access the dealer’s website or map directions to the dealership. *(in thousands)* *(in thousands)* | Average Monthly Unique Users | Three Months Ended September 30, 2024 | 2023(1) | Nine Months Ended September 30, 2024(1) | 2023(1) | | --- | ---: | --- | --- | --- | | United States | 32,279 | N/A | N/A | N/A | | International | 9,861 | N/A | N/A | N/A | | Total | 42,140 | N/A | N/A | N/A | (1) As a result of the change from Google Analytics to GA4, we are unable to provide comparable monthly unique user information for this period. ### Monthly Sessions We define monthly sessions as the number of distinct visits to our websites (excluding the CarOffer website) that include a visitor action that take place each month within a given time frame, as measured and defined by GA4. We calculate average monthly sessions as the sum of the monthly sessions in a given period, divided by the number of months in that period. Effective July 1, 2024, a session is defined as beginning with the first visitor action from a computer or mobile device and ending at the earliest of when a user closes their browser window or after 30 minutes of inactivity. We eliminate any duplicate monthly sessions that may arise when users visit a webview within our native application. We believe that measuring the volume of sessions in a time period, when considered in conjunction with the number of unique users in that time period, is an important indicator to us of consumer satisfaction and engagement with our marketplace, and we believe it provides useful information to our investors because the more satisfied and engaged consumers we have, the more valuable our service is to dealers. *(in thousands)* *(in thousands)* | Average Monthly Sessions | Three Months Ended September 30, 2024 | 2023(1) | Nine Months Ended September 30, 2024(1) | 2023(1) | | --- | ---: | --- | --- | --- | | United States | 80,370 | N/A | N/A | N/A | | International | 20,423 | N/A | N/A | N/A | | Total | 100,793 | N/A | N/A | N/A | (1) As a result of the change from Google Analytics to GA4, we are unable to provide comparable monthly sessions information for this period. ### Number of Paying Dealers We define a paying dealer as a dealer account with an active, paid marketplace subscription at the end of a defined period. The number of paying dealers we have is important to us and we believe it provides valuable information to investors because it is indicative of the value proposition of our marketplace products, as well as our sales and marketing success and opportunity, including our ability to retain paying dealers and develop new dealer relationships. | Number of Paying Dealers | As of September 30, 2024 | 2023 | | --- | ---: | ---: | | United States | 24,561 | 24,368 | | International | 7,123 | 6,823 | | Total | 31,684 | 31,191 | ### Transactions We define Transactions within the Digital Wholesale segment as the number of vehicles processed from car dealers, consumers, and other marketplaces through the CarOffer website within the applicable period. Transactions consists of each unique vehicle (based on vehicle identification number) that reaches "sold and invoiced" status on the CarOffer website within the applicable period, including vehicles sold to car dealers, vehicles sold at third-party auctions, vehicles ultimately sold to a different buyer, and vehicles that are returned to their owners without completion of a sale transaction. We exclude vehicles processed within CarOffer's intra-group trading solution (Group Trade) from the definition of Transactions, and we only count any unique vehicle once even if it reaches sold status multiple times. Digital Wholesale includes Dealer-to-Dealer transactions and IMCO transactions. We view Transactions as a key business metric, and we believe it provides useful information to investors, because it provides insight into growth and revenue for the Digital Wholesale segment. Transactions drive a significant portion of Digital Wholesale segment revenue. We believe growth in Transactions demonstrates consumer and dealer utilization and our market share penetration in the Digital Wholesale segment. | Transactions | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 | | --- | ---: | ---: | ---: | ---: | | Transactions | 8,249 | 13,562 | 27,329 | 51,860 | 27 ### Quarterly Average Revenue per Subscribing Dealer (QARSD) We define QARSD, which is measured at the end of a fiscal quarter, as the marketplace revenue primarily from subscriptions to our Listings packages and RPM, our digital advertising suite, and other digital add-on products during that trailing quarter divided by the average number of paying dealers in that marketplace during the quarter. We calculate the average number of paying dealers for a period by adding the number of paying dealers at the end of such period and the end of the prior period and dividing by two. This information is important to us, and we believe it provides useful information to investors, because we believe that our ability to grow QARSD is an indicator of the value proposition of our products and the return on investment, or ROI, that our paying dealers realize from our products. In addition, increases in QARSD, which we believe reflect the value of exposure to our engaged audience in relation to subscription cost, are driven in part by our ability to grow the volume of connections to our users and the quality of those connections, which result in increased opportunity to upsell package levels and cross-sell additional products to our paying dealers. | Quarterly Average Revenue per Subscribing Dealer (QARSD) | As of September 30, 2024 | 2023 | | --- | ---: | ---: | | United States | $7,177 | $6,332 | | International | $2,057 | $1,721 | | Consolidated | $6,038 | $5,317 | ### Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest To provide investors with additional information regarding our financial results, we have presented within this Quarterly Report Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest, each of which is a non‑GAAP financial measure. These non‑GAAP financial measures are not based on any standardized methodology prescribed by GAAP, and are not necessarily comparable to any similarly titled measures presented by other companies. We define Consolidated Adjusted EBITDA as consolidated net income (loss), adjusted to exclude: depreciation and amortization, goodwill and other asset impairment, stock‑based compensation expense, stock-based compensation expense for CarOffer, LLC Units (as defined below), transaction-related expenses, other income, net, and provision for (benefit from) income taxes. We define Adjusted EBITDA as Consolidated Adjusted EBITDA adjusted to exclude: Adjusted EBITDA attributable to redeemable noncontrolling interest. We define Adjusted EBITDA attributable to redeemable noncontrolling interest as net loss attributable to redeemable noncontrolling interest, adjusted to exclude: depreciation and amortization, other long-lived asset impairment, stock‑based compensation expense, stock-based compensation expense for CarOffer, LLC Units, other expense, net, and provision for income taxes. These exclusions are adjusted for redeemable noncontrolling interest of 38% by taking the noncontrolling interest's full financial results and multiplying each line item in the reconciliation by 38%. We note that we use 38%, versus 49%, to allocate the share of loss because it represents the portion attributable to the redeemable noncontrolling interest. The 38% is exclusive of CO Incentive Units, Subject Units, and 2021 Incentive Units (as each term is defined in Note 2 to our consolidated financial statements contained within our Annual Report), which are liability-classified awards that do not participate in the share of loss. Adjusted EBITDA attributable to redeemable noncontrolling interest is reflective of our acquisition of the remaining minority equity interests in CarOffer completed on December 1, 2023, or the 2023 CarOffer Transaction. Following the 2023 CarOffer Transaction there was no redeemable noncontrolling interest as of December 1, 2023, and as a result, Consolidated Adjusted EBITDA is equivalent to Adjusted EBITDA for the three and nine months ended September 30, 2024. We have presented Consolidated Adjusted EBITDA and Adjusted EBITDA within this Quarterly Report because they are key measures used by our management and Board of Directors to understand and evaluate our operating performance, generate future operating plans, and make strategic decisions regarding the allocation of capital. In particular, we believe that the exclusion of certain items in calculating Consolidated Adjusted EBITDA and Adjusted EBITDA can produce a useful measure for period‑to‑period comparisons of our business. We have presented Adjusted EBITDA attributable to redeemable noncontrolling interest because it is used by our management to reconcile Consolidated Adjusted EBITDA to Adjusted EBITDA. It represents the portion of Consolidated Adjusted EBITDA that is attributable to our redeemable noncontrolling interest. Adjusted EBITDA attributable to redeemable noncontrolling interest is not intended to be reviewed on its own. We use Consolidated Adjusted EBITDA and Adjusted EBITDA to evaluate our operating performance and trends and make planning decisions. We believe Consolidated Adjusted EBITDA and Adjusted EBITDA help identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude. Accordingly, we believe that Consolidated Adjusted EBITDA and Adjusted EBITDA provide useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects, and allowing for greater transparency with respect to key financial metrics used by our management in its financial and operational decision‑making. We use Adjusted EBITDA attributable to redeemable noncontrolling interest to reconcile Consolidated Adjusted EBITDA to Adjusted EBITDA. It enables an investor to gain a clearer understanding of the portion of Consolidated Adjusted EBITDA that is attributable to our redeemable noncontrolling interest. Our Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest are not prepared in accordance with GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest rather than consolidated net income and net loss attributable to redeemable noncontrolling interest, respectively, which are the most directly comparable GAAP equivalents. Some of these limitations are: - Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest exclude depreciation and amortization expense and, although these are non‑cash expenses, the assets being depreciated may have to be replaced in the future; - Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest exclude goodwill and other asset impairment, which include non-cash one-time expenses associated with the impairment of the CarOffer reporting unit as well as other long-lived asset impairments, certain of which may have to be replaced in the future; - Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest exclude stock‑based compensation expense, which will be, for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy; - Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest exclude stock‑based compensation expense for CarOffer, LLC Units, which consists of one-time modifications and expense associated with our CO Incentive Units and Subject Units (as defined in Note 2 to the consolidated financial statements contained within our Annual Report) and Noncontrolling Interest Units (as defined in Note 4 to the consolidated financial statements contained within our Annual Report); - Consolidated Adjusted EBITDA and Adjusted EBITDA exclude transaction-related expenses incurred by us during a reporting period, which are inclusive of certain transaction and integration costs associated with the 2023 CarOffer Transaction and which may not be reflective of our operational performance during such period, for acquisitions that have been completed as of the filing date of our annual or quarterly report (as applicable) relating to such period; - Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest exclude other income, net, which consists primarily of interest income earned on our cash, cash equivalents, and short-term investments, and foreign exchange gains and losses; - Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest exclude the provision for (benefit from) income taxes; - Adjusted EBITDA excludes Adjusted EBITDA attributable to redeemable noncontrolling interest, which is calculated as the net loss attributable to redeemable noncontrolling interest, adjusted for all exclusions used to calculate Consolidated Adjusted EBITDA as described above; and - other companies, including companies in our industry, may calculate Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest differently, which reduces their usefulness as a comparative measure. Because of these limitations, we consider, and you should consider, Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest together with other operating and financial performance measures presented in accordance with GAAP. For the three months ended September 30, 2024 and 2023 and for the nine months ended September 30, 2024 and 2023, the following table presents a reconciliation of Consolidated Adjusted EBITDA and Adjusted EBITDA to consolidated net (loss) income, the most directly comparable measure calculated in accordance with GAAP for each of the periods presented. *(in thousands)* *(in thousands)* | Reconciliation of Consolidated Adjusted EBITDA and Adjusted EBITDA: | Three Months Ended September 30, 2024 | 2023(1) | Nine Months Ended September 30, 2024 | 2023(1) | | --- | ---: | ---: | ---: | ---: | | Consolidated net income (loss) | $22,511 | $18,973 | $(24,909) | $44,656 | | Depreciation and amortization | 5,178 | 12,470 | 18,322 | 35,713 | | Goodwill and other asset impairment (2) | 16,776 | — | 144,431 | 184 | | Stock-based compensation expense | 15,455 | 14,263 | 46,834 | 43,842 | | Stock-based compensation expense for CarOffer, LLC Units | — | (1,225) | — | — | | Transaction-related expenses | 39 | — | 1,115 | — | | Other income, net | (2,623) | (4,167) | (9,185) | (13,185) | | Provision for (benefit from) income taxes | 7,546 | 8,289 | (5,772) | 23,421 | | Consolidated Adjusted EBITDA | 64,882 | 48,603 | 170,836 | 134,631 | | Adjusted EBITDA attributable to redeemable noncontrolling interest | — | (527) | — | 386 | | Adjusted EBITDA | $64,882 | $49,130 | $170,836 | $134,245 | (1) During the three months ended December 31, 2023, we updated the table to separately disclose the stock-based compensation expense for CarOffer, LLC Units; the three and nine months ended September 30, 2023 have been updated for comparison purposes. (2) During the nine months ended September 30, 2024, we recognized a goodwill impairment charge of $127.5 million and presented it with other asset impairments. The remaining charges related to other asset impairments. During the three months ended September 30, 2024 and the three and nine months ended September 30, 2023, we did not have a goodwill impairment. For the three months ended September 30, 2024 and 2023 and for the nine months ended September 30, 2024 and 2023, the following table presents a reconciliation of Adjusted EBITDA attributable to redeemable noncontrolling interest to net loss attributable to redeemable noncontrolling interest, the most directly comparable measure calculated in accordance with GAAP, for each of the periods presented. *(in thousands)* *(in thousands)* | Reconciliation of Adjusted EBITDA attributable to redeemable noncontrolling interest: | Three Months Ended September 30, 2024 | 2023(2) | Nine Months Ended September 30, 2024 | 2023(2) | | --- | ---: | ---: | ---: | ---: | | Net loss attributable to redeemable noncontrolling interest | $— | $(3,329) | $— | $(10,191) | | Depreciation and amortization (1) | — | 2,975 | — | 8,874 | | Other long-lived asset impairment (1) | — | — | — | 67 | | Stock-based compensation expense (1) | — | 210 | — | 639 | | Stock-based compensation expense for CarOffer, LLC Units (1) | — | (467) | — | — | | Other expense, net (1) | — | 84 | — | 972 | | Provision for income taxes (1) | — | — | — | 25 | | Adjusted EBITDA attributable to redeemable noncontrolling interest | $— | $(527) | $— | $386 | (1) These exclusions are adjusted to reflect the noncontrolling interest of 38% for the period prior to the 2023 CarOffer Transaction. (2) During the three months ended December 31, 2023, we updated the table to separately disclose the stock-based compensation expense for CarOffer, LLC Units; the three and nine months ended September 30, 2023 have been updated for comparison purposes. ### Components of Unaudited Condensed Consolidated Income Statements ### Revenue We derive our revenue from marketplace revenue, wholesale revenue, and product revenue. Marketplace revenue is included in the U.S. Marketplace segment and Other category of segment reporting. Wholesale revenue and product revenue are included in the Digital Wholesale segment. We generate marketplace revenue primarily from (i) dealer subscriptions to our Listings packages, RPM, digital advertising suite, Digital Retail, and TDO, (ii) advertising revenue from auto manufacturers and other auto‑related brand advertisers, and (iii) revenue from partnerships with financing services companies. We generate wholesale revenue primarily from (x) transaction fees earned from Dealer-to-Dealer transactions, (y) transaction fees earned from the sale of vehicles to dealers that we acquire at other marketplaces, and (z) transaction fees earned from performing inspection and transportation services, inclusive of Dealer-to-Dealer transactions, other marketplace-to-dealer transactions, and IMCO transactions. We generate product revenue primarily from (A) aggregate proceeds received from the sale of vehicles that were acquired through IMCO transactions and (B) proceeds received from the sale of vehicles that were acquired through arbitration. #### Marketplace Revenue We offer multiple types of marketplace Listings packages to our dealers for our CarGurus U.S. platform (availability varies on our other marketplaces): Restricted Listings, which is free; and various levels of Listings packages, which each require a paid subscription under a monthly, quarterly, semiannual, or annual subscription basis. Our subscriptions for customers generally auto-renew on a monthly basis and are cancellable by dealers with 30 days' advance notice prior to the commencement of the applicable renewal term. Subscription pricing is determined based on a dealer’s inventory size, region, and our assessment of the connections and ROI the platform will provide them and is subject to discounts and/or fee reductions that we may offer from time to time. We also offer all dealers on the platform access to our Dealer Dashboard, which includes a performance summary, Dealer Insights tool, and user review management platform. Only dealers subscribing to a paid Listings package have access to the Pricing Tool, Market Analysis tool, and Instant Market Value, or IMV, Scan tool. For details on the Dealer Dashboard and these merchandising tools, refer to “Our Products and Services – U.S. Marketplace and Other – Dealer Offerings – Dealer Dashboard and Merchandising Tools” in Part I, Item 1 in our Annual Report. We also offer paid Listings packages for the Autolist and PistonHeads websites. In addition to displaying inventory in our marketplace and providing access to the Dealer Dashboard, we offer dealers subscribing to certain of our Listings packages other subscription advertising and customer acquisition products and enhancements marketed under RPM and our digital advertising suite. Through RPM, dealers can buy advertising that appears in our marketplace, on other sites on the internet, and/or on high-converting social media platforms. Such advertisements can be targeted by the user’s geography, search history, CarGurus website activity, and a number of other targeting factors, allowing dealers to increase their visibility with in-market consumers and drive qualified traffic for dealers. We also offer dealer advertising products for the PistonHeads website. We also offer dealers subscribing to certain of our Listings packages other subscription advertising and customer acquisition products and enhancements such as Digital Retail, which allows shoppers to complete much of the vehicle-purchase process online through the Dealers’ Listings page. Digital Retail is comprised of (i) the Digital Deal Platform, which gives dealers higher quality leads through upfront consumer-provided information, (ii) Geo Expansion, which expands the visibility of a dealer’s inventory in the search results beyond its local market, and (iii) Hard Pull Financing, which provides loan information. We also offer dealers subscribing to certain of our Listings packages other subscription advertising and customer acquisition products and enhancements such as TDO, which allows dealers to pay for leads to receive direct access to shoppers actively looking to sell their vehicles. Dealers can acquire inventory from shoppers who are looking to sell directly through the CarGurus Sell My Car page. Marketplace revenue also consists of non-dealer advertising revenue from auto manufacturers and other auto-related brand advertisers sold on a cost-per-thousand impressions basis, or CPM basis. An impression is an advertisement loaded on a web page. In addition to advertising sold on a CPM basis, we also have advertising sold on a cost-per-click basis. Pricing is primarily based on advertisement size and position on our websites and mobile applications. Auto manufacturers and other brand advertisers can execute advertising campaigns that are targeted across a wide variety of parameters, including demographic groups, behavioral characteristics, specific auto brands, categories such as Certified Pre-Owned, and segments such as hybrid vehicles. We do not provide minimum impression guarantees or other types of minimum guarantees in our contracts with customers. Advertising is also sold indirectly through revenue sharing arrangements with advertising exchange partners. We also offer non-dealer advertising products for the Autolist and PistonHeads websites. Marketplace revenue also includes revenue from partnerships with certain financing services companies pursuant to which we enable eligible consumers on our CarGurus U.S. website to pre-qualify for financing on cars from dealerships that offer financing through such companies. We primarily generate revenue from these partnerships based on the number of funded loans from consumers who pre-qualify with our lending partners through our site. #### Wholesale Revenue The CarOffer Matrix enables buying dealers to create standing buy orders and provides instant offers to selling dealers. Wholesale revenue includes transaction fees earned from Dealer-to-Dealer transactions, where we collect fees from both the buying and selling dealers. We also sell vehicles to dealers that we acquire at other marketplaces, where we collect a transaction fee from the buying dealers. Wholesale revenue also includes fees earned from performing inspection and transportation services, where we collect fees from the buying dealer. Inspection and transportation service revenue is inclusive of Dealer-to-Dealer transactions, other marketplace-to-dealer transactions, and IMCO transactions. Wholesale revenue also includes arbitration in which the vehicle is rematched to a new buyer and not acquired by us. Arbitration is the process by which we investigate and resolve claims from buying dealers. Wholesale revenue also includes fees earned from certain guarantees offered to dealers (which include 45-Day Guarantee and OfferGuard products), where we collect fees from the buying dealer or selling dealer, as applicable. #### Product Revenue The CarOffer Matrix enables consumers who are selling vehicles to be instantly presented with an offer. Product revenue includes the aggregate proceeds received from the sale of vehicles through IMCO transactions, including vehicle sale price and transaction fees collected from the buying dealers. Product revenue also includes proceeds received from the sale of vehicles acquired through arbitration, including vehicle sale price and transaction fees collected from buying dealers. Arbitration is the process by which we investigate and resolve claims from buying dealers. We control the vehicle in these transactions and therefore act as the principal. ### Cost of Revenue #### Marketplace Cost of Revenue Marketplace cost of revenue includes expenses related to supporting and hosting marketplace service offerings. These expenses include personnel and related expenses for our customer support team, including salaries, benefits, incentive compensation, and stock-based compensation; third-party service provider expenses such as advertising, data, and hosting expenses; amortization of developed technology; amortization and impairment of capitalized website development; amortization of capitalized hosting arrangements; and allocated overhead expenses. We allocate overhead expenses, such as rent and facility expenses, software expense, and employee benefit expense, to all departments based on headcount. As such, general overhead expenses are reflected in cost of revenue and each operating expense category. #### Wholesale Cost of Revenue Wholesale cost of revenue includes expenses related to supporting and hosting Digital Wholesale service offerings, including Dealer-to-Dealer transactions and vehicles sold to dealers acquired at other marketplaces on the CarOffer Matrix. These expenses include vehicle transportation and inspection expenses; net losses on vehicles related to guarantees offered to dealers through Dealer-to-Dealer transactions; personnel and related expenses for employees directly involved in the fulfillment and support of transactions, including salaries, benefits, incentive compensation, and stock-based compensation; third-party service provider expenses; amortization of developed technology; amortization and impairment of capitalized website development; and allocated overhead expenses. We allocate overhead expenses, such as rent and facility expenses, software expense, and employee benefit expense, to all departments based on headcount. As such, general overhead expenses are reflected in cost of revenue and each operating expense category. #### Product Cost of Revenue Product cost of revenue includes expenses related to vehicles sold to dealers through IMCO transactions and vehicles sold to dealers acquired through arbitration. These expenses include the cost of the vehicle and transportation expenses. ### Operating Expenses #### Sales and Marketing Sales and marketing expenses consist primarily of personnel and related expenses for our sales and marketing team, including salaries, benefits, incentive compensation, commissions, and stock-based compensation; expenses associated with consumer marketing, such as traffic acquisition, brand building, and public relations activities; expenses associated with dealer marketing, such as content marketing, customer and promotional events, and industry events; consulting services; software subscription expenses; travel expenses; amortization of capitalized hosting arrangements; and allocated overhead expenses. A portion of our commissions that are related to obtaining a new contract are capitalized and amortized over the estimated benefit period of customer relationships. All other sales and marketing expenses are expensed as incurred. We expect sales and marketing expenses to fluctuate from quarter to quarter due to seasonality and as we respond to changes in the macroeconomic and competitive landscapes affecting our existing dealers, consumer audience, and brand awareness. #### Product, Technology, and Development Product, technology, and development expenses consist primarily of personnel and related expenses for our research and development team, including salaries, benefits, incentive compensation, and stock-based compensation; software subscription expenses; consulting services; and allocated overhead expenses. Other than website development, internal-use software, and hosting arrangement expenses, research and development expenses are expensed as incurred. We expect product, technology, and development expenses to remain relatively flat for the remainder of the year. #### General and Administrative General and administrative expenses consist primarily of personnel and related expenses for our executive, finance, legal, people & talent, and administrative teams, including salaries, benefits, incentive compensation, and stock-based compensation; expenses associated with professional fees for audit, tax, external legal, and consulting services; payment processing and billing expenses; insurance expenses; software subscription expenses; and allocated overhead expenses. General and administrative expenses are expensed as incurred. We expect general and administrative expenses to remain relatively flat for the remainder of the year. #### Goodwill and Other Asset Impairment During the three months ended June 30, 2024, we identified a triggering event for goodwill and other assets impairment testing purposes at the CarOffer reporting unit due to recent organizational changes and Transaction volume declines, which resulted in revisions to our financial projections for the CarOffer reporting unit. As a result, we performed an updated fair value analysis of the CarOffer reporting unit, and subsequently recognized impairment losses of $4.7 million, $7.6 million, and $115.2 million for right-of-use assets, intangible assets, and goodwill, respectively. For the three months ended September 30, 2024, there were no impairment losses recognized related to the CarOffer reporting unit. For the nine months ended September 30, 2024, we recognized Digital Wholesale segment impairment charges related to the CarOffer reporting unit of $127.5 million as goodwill and other asset impairment operating expense. During the three months ended September 30, 2024, we decided to end our CG Buy Online pilot in order to redirect those resources toward other investment opportunities, including continued product innovation and development across our business. The CG Buy Online pilot was a one of the initiatives that allowed consumers to purchase vehicles online. As a result, we recognized impairment losses of $15.8 million, $0.5 million and $0.5 million for property and equipment, net, prepaid expenses, prepaid income taxes and other current assets, and other non-current assets, respectively. For both the three and nine months ended September 30, 2024, we recognized Digital Wholesale segment impairment charges related to the CG Buy Online reporting unit of $9.8 million and $7.0 million as wholesale cost of revenue and goodwill and other asset impairment operating expense, respectively. For further discussion of goodwill and other asset impairments, see Note 6 of the Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report. #### Depreciation and Amortization Depreciation and amortization expenses consist of depreciation on property and equipment and amortization of intangible assets and internal-use software. ### Other Income, Net Other income, net consists primarily of interest income earned on our cash, cash equivalents, and short-term investments and foreign exchange gains and losses. ### Provision for (Benefit from) Income Taxes We are subject to federal and state income taxes in the U.S. and taxes in foreign jurisdictions in which we operate. For the three months ended September 30, 2024, a provision for income taxes was recognized as a result of the consolidated taxable income position. For the nine months ended September 30, 2024, a benefit from income taxes was recognized as a result of the discrete tax benefit associated with the impairment charges and our consolidated taxable loss position. For the three and nine months ended September 30, 2023, a provision for income taxes was recognized as a result of the consolidated taxable income position. We recognize deferred tax assets and liabilities based on temporary differences between the financial reporting and income tax bases of assets and liabilities using enacted tax rates in effect for the year in which the temporary differences are expected to be recovered or settled. We regularly assess the need to recognize a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. As of September 30, 2024 and December 31, 2023, valuation allowances were immaterial. We assess our income tax positions and recognize an income tax benefit or expense based upon our evaluation of the facts, circumstances, and information available at the reporting date. For the three and nine months ended September 30, 2024, income tax expense recognized related to uncertain tax provisions was immaterial. An immaterial amount of the reserve relating to uncertain tax positions was released as we would be more-likely-than-not to prevail should these tax positions be challenged by the respective tax authorities. As of September 30, 2024, the income tax liability related to uncertain tax positions, exclusive of immaterial interest or penalties related to uncertain tax provisions, was $0.9 million, which would have favorably affected our effective tax rate, if recognized. For the three and nine months ended September 30, 2023, we did not recognize income tax expense related to uncertain tax provisions. As of December 31, 2023, the income tax liability related to uncertain tax positions, exclusive of immaterial interest or penalties related to uncertain tax provisions, was $0.8 million, which would have favorably affected our effective tax rate, if recognized. The Organisation for Economic Co-operation and Development introduced an international tax framework under Pillar Two, which includes a global minimum tax of 15%. Pillar Two legislation has been enacted or substantively enacted in certain jurisdictions where we operate. The Pillar Two legislation became effective for our fiscal year beginning January 1, 2024. We have performed an assessment of its potential exposure to Pillar Two income taxes based on our most recent tax filings, country-by-country reporting, and financial statements for our constituent entities. Based on the assessment performed, we meet the Pillar Two transitional safe harbor effective tax rate relief as all jurisdictions in which we operate are above 15%. We do not expect any material exposure to Pillar Two income taxes in any jurisdictions. ### Results of Operations For the three months ended September 30, 2024 and 2023 and for the nine months ended September 30, 2024 and 2023, the Unaudited Condensed Consolidated Income Statements are as follows: *(dollars in thousands)* *(dollars in thousands)* | Revenue: | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 | | --- | ---: | ---: | ---: | ---: | | Marketplace | $204,019 | $177,909 | $586,405 | $515,986 | | Wholesale | 12,107 | 21,735 | 41,351 | 78,873 | | Product | 15,232 | 19,775 | 38,090 | 96,260 | | Total revenue | 231,358 | 219,419 | 665,846 | 691,119 | | Cost of revenue: | | | | | | Marketplace | 13,521 | 14,823 | 41,051 | 45,830 | | Wholesale | 20,415 | 21,284 | 47,272 | 67,780 | | Product | 14,871 | 19,014 | 37,567 | 94,090 | | Total cost of revenue | 48,807 | 55,121 | 125,890 | 207,700 | | Gross profit | 182,551 | 164,298 | 539,956 | 483,419 | | Operating expenses: | | | | | | Sales and marketing | 81,216 | 76,828 | 245,801 | 230,243 | | Product, technology, and development | 36,359 | 35,434 | 108,484 | 109,432 | | General and administrative | 28,187 | 24,904 | 83,682 | 77,090 | | Goodwill and other asset impairment | 7,026 | — | 134,501 | — | | Depreciation and amortization | 2,329 | 4,037 | 7,354 | 11,762 | | Total operating expenses | 155,117 | 141,203 | 579,822 | 428,527 | | Income from operations | 27,434 | 23,095 | (39,866) | 54,892 | | Other income, net: | | | | | | Interest income | 2,717 | 5,261 | 9,063 | 13,337 | | Other income, net | (94) | (1,094) | 122 | (152) | | Total other income, net | 2,623 | 4,167 | 9,185 | 13,185 | | Income (loss) before income taxes | 30,057 | 27,262 | (30,681) | 68,077 | | Provision for (benefit from) income taxes | 7,546 | 8,289 | (5,772) | 23,421 | | Consolidated net income (loss) | 22,511 | 18,973 | (24,909) | 44,656 | | Net loss attributable to redeemable noncontrolling interest | — | (3,329) | — | (10,191) | | Net income (loss) attributable to common stockholders | $22,511 | $22,302 | $(24,909) | $54,847 | 35 For the three months ended September 30, 2024 and 2023 and for the nine months ended September 30, 2024 and 2023, our segment revenue and our segment income (loss) from operations are as follows: *(dollars in thousands)* *(dollars in thousands)* | Segment Revenue: | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 | | --- | ---: | ---: | ---: | ---: | | U.S. Marketplace | $187,253 | $164,323 | $540,293 | $478,387 | | Digital Wholesale | 27,339 | 41,510 | 79,441 | 175,133 | | Other | 16,766 | 13,586 | 46,112 | 37,599 | | Total | $231,358 | $219,419 | $665,846 | $691,119 | | **Segment Income (Loss) from Operations:** | | | | | | U.S. Marketplace | $50,410 | $33,285 | $126,670 | $84,443 | | Digital Wholesale | (25,317) | (11,652) | (173,815) | (29,184) | | Other | 2,341 | 1,462 | 7,279 | (367) | | Total | $27,434 | $23,095 | $(39,866) | $54,892 | For the three months ended September 30, 2024 and 2023 and for the nine months ended September 30, 2024 and 2023, the Unaudited Condensed Consolidated Income Statements as a percentage of total revenue are as follows (amounts in the table below may not sum due to rounding): | Revenue: | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 | | --- | ---: | ---: | ---: | ---: | | Marketplace | 88% | 81% | 88% | 75% | | Wholesale | 5 | 10 | 6 | 11 | | Product | 7 | 9 | 6 | 14 | | Total revenue | 100 | 100 | 100 | 100 | | Cost of revenue: | | | | | | Marketplace | 6 | 7 | 6 | 7 | | Wholesale | 9 | 10 | 7 | 10 | | Product | 6 | 9 | 6 | 14 | | Total cost of revenue | 21 | 25 | 19 | 30 | | Gross profit | 79 | 75 | 81 | 70 | | Operating expenses: | | | | | | Sales and marketing | 35 | 35 | 37 | 33 | | Product, technology, and development | 16 | 16 | 16 | 16 | | General and administrative | 12 | 11 | 13 | 11 | | Goodwill and other asset impairment | 3 | — | 20 | — | | Depreciation and amortization | 1 | 2 | 1 | 2 | | Total operating expenses | 67 | 64 | 87 | 62 | | Income from operations | 12 | 11 | (6) | 8 | | Other income, net: | | | | | | Interest income | 1 | 2 | 1 | 2 | | Other income, net | (0) | (0) | 0 | (0) | | Total other income, net | 1 | 2 | 1 | 2 | | Income (loss) before income taxes | 13 | 12 | (5) | 10 | | Provision for (benefit from)income taxes | 3 | 4 | (1) | 3 | | Consolidated net income (loss) | 10 | 9 | (4) | 6 | | Net loss attributable to redeemable noncontrolling interest | — | (2) | — | (1) | | Net income (loss) attributable to common stockholders | 10% | 10% | (4)% | 8% | 36 For the three months ended September 30, 2024 and 2023 and for the nine months ended September 30, 2024 and 2023, our segment revenue as a percentage of total revenue and our segment income (loss) from operations as a percentage of segment revenue are as follows (amounts in the table below may not sum due to rounding): | Segment Revenue: | Three Months Ended September 30, 2024 | 2023 | Nine Months Ended September 30, 2024 | 2023 | | --- | ---: | ---: | ---: | ---: | | U.S. Marketplace | 81% | 75% | 81% | 69% | | Digital Wholesale | 12 | 19 | 12 | 25 | | Other | 7 | 6 | 7 | 5 | | Total | 100% | 100% | 100% | 100% | | **Segment Income (Loss) from Operations:** | | | | | | U.S. Marketplace | 27% | 20% | 23% | 18% | | Digital Wholesale | (93) | (28) | (219) | (17) | | Other | 14 | 11 | 16 | (1) | | Total | 12% | 11% | (6)% | 8% | ### For the three months ended September 30, 2024 and 2023 ### Revenue #### Revenue by Source *(dollars in thousands)* | Revenue: | Three Months Ended September 30, 2024 | 2023 | Change Amount% | | | --- | ---: | ---: | ---: | ---: | | Marketplace | $204,019 | $177,909 | $26,110 | 15% | | Wholesale | 12,107 | 21,735 | (9,628) | (44) | | Product | 15,232 | 19,775 | (4,543) | (23) | | Total | $231,358 | $219,419 | $11,939 | 5% | | **Percentage of total revenue:** | | | | | | Marketplace | 88% | 81% | | | | Wholesale | 5 | 10 | | | | Product | 7 | 9 | | | | Total | 100% | 100% | | | Overall revenue increased $11.9 million, or 5%, in the three months ended September 30, 2024, compared to the three months ended September 30, 2023. Marketplace revenue increased $26.1 million, or 15%, in the three months ended September 30, 2024, compared to the three months ended September 30, 2023, and represented 88% of total revenue for the three months ended September 30, 2024, compared to 81% of total revenue for the three months ended September 30, 2023. The increase was due primarily to an increase in Listings revenue, inclusive of certain digital add-on products, as a result of growth in QARSD, which was driven by signing on new dealers with higher average subscription revenue and revenue expansion through product adoption or upgrades and price increases for existing dealers. The increase was also due in part to an increase in TDO revenue as we expanded into more geographies following the completion of the TDO pilot and an increase in advertising revenue due primarily to increased spend by advertisers related to new and existing campaigns. Wholesale revenue decreased $9.6 million, or 44%, in the three months ended September 30, 2024, compared to the three months ended September 30, 2023, and represented 5% of total revenue for the three months ended September 30, 2024, compared to 10% of total revenue for the three months ended September 30, 2023. The decrease was due primarily to a 39% decrease in Transactions, which includes Dealer-to-Dealer transactions and IMCO transactions, to 8,249 for the three months ended September 30, 2024, from 13,562 for the three months ended September 30, 2023. Product revenue decreased $4.5 million, or 23%, in the three months ended September 30, 2024, compared to the three months ended September 30, 2023, and represented 7% of total revenue for the three months ended September 30, 2024, compared to 9% of total revenue for the three months ended September 30, 2023. The decrease was due primarily to a decrease in proceeds received from the sale of vehicles through IMCO transactions, driven by a decrease in Transactions. The decrease in product revenue was offset in part by an increase in proceeds received from the sale of vehicles acquired through arbitration. #### Segment Revenue *(dollars in thousands)* | Revenue: | Three Months Ended September 30, 2024 | 2023 | Change Amount% | | | --- | ---: | ---: | ---: | ---: | | U.S. Marketplace | $187,253 | $164,323 | $22,930 | 14% | | Digital Wholesale | 27,339 | 41,510 | (14,171) | (34) | | Other | 16,766 | 13,586 | 3,180 | 23 | | Total | $231,358 | $219,419 | $11,939 | 5% | | **Percentage of total revenue:** | | | | | | U.S. Marketplace | 81% | 75% | | | | Digital Wholesale | 12 | 19 | | | | Other | 7 | 6 | | | | Total | 100% | 100% | | | U.S. Marketplace segment revenue increased $22.9 million, or 14%, in the three months ended September 30, 2024, compared to the three months ended September 30, 2023, and represented 81% of total revenue for the three months ended September 30, 2024, compared to 75% of total revenue for the three months ended September 30, 2023. The increase was due primarily to a $26.1 million increase in marketplace revenue, as described above. Digital Wholesale segment revenue, which is comprised of wholesale revenue and product revenue, decreased $14.2 million, or 34%, in the three months ended September 30, 2024, compared to the three months ended September 30, 2023, and represented 12% of total revenue for the three months ended September 30, 2024, compared to 19% of total revenue for the three months ended September 30, 2023. The decrease in Digital Wholesale segment revenue was due to a $9.6 million decrease in wholesale revenue and a $4.5 million decrease in product revenue, as described above. ### Cost of Revenue *(dollars in thousands)* | Cost of Revenue: | Three Months Ended September 30, 2024 | 2023 | Change Amount% | | | --- | ---: | ---: | ---: | ---: | | Marketplace | $13,521 | $14,823 | $(1,302) | (9)% | | Wholesale | 20,415 | 21,284 | (869) | (4) | | Product | 14,871 | 19,014 | (4,143) | (22) | | Total | $48,807 | $55,121 | $(6,314) | (11)% | | **Percentage of total revenue:** | | | | | | Marketplace | 6% | 7% | | | | Wholesale | 9 | 10 | | | | Product | 6 | 9 | | | | Total | 21% | 25% | | | Overall cost of revenue decreased $6.3 million, or 11%, in the three months ended September 30, 2024, compared to the three months ended September 30, 2023. Marketplace cost of revenue decreased $1.3 million, or 9%, in the three months ended September 30, 2024, compared to the three months ended September 30, 2023, and represented 6% of total revenue for the three months ended September 30, 2024, compared to 7% of total revenue for the three months ended September 30, 2023. The decrease was due primarily to a $1.4 million decrease in fees related to provisioning advertising campaigns on our websites. Wholesale cost of revenue decreased $0.9 million, or 4%, in the three months ended September 30, 2024, compared to the three months ended September 30, 2023, and represented 9% of total revenue for the three months ended September 30, 2024, compared to 10% of total revenue for the three months ended September 30, 2023. The decrease was due primarily to a $5.2 million decrease in amortization related to the CarOffer acquired developed technology intangible asset as it became fully amortized during the first quarter of 2024. The decrease was also due in part to a $3.6 million decrease in transportation expense and a $0.8 million decrease in inspection expense as a result of lower Transaction volume, and a $0.5 million decrease in employee-related expenses. The decrease in wholesale cost of revenue was offset in part by a $9.8 million increase in impairment of capitalized website development costs due to the end of the CG Buy Online pilot. Product cost of revenue decreased $4.1 million, or 22%, in the three months ended September 30, 2024, compared to the three months ended September 30, 2023, and represented 6% of total revenue for the three months ended September 30, 2024, compared to 9% of total revenue for the three months ended September 30, 2023. The decrease was due primarily to a decrease in expenses related to vehicles sold to dealers through IMCO transactions as a result of lower Transaction volume. The decrease in product cost of revenue was offset in part by an increase in expenses related to vehicles sold to dealers acquired through arbitration. ### Operating Expenses #### Sales and Marketing Expense *(dollars in thousands)* | | Three Months Ended September 30, 2024 | 2023 | Change Amount% | | | --- | ---: | ---: | ---: | ---: | | Sales and marketing | $81,216 | $76,828 | $4,388 | 6% | | Percentage of total revenue | 35% | 35% | | | Sales and marketing expense increased $4.4 million, or 6%, in the three months ended September 30, 2024, compared to the three months ended September 30, 2023. The increase was due primarily to a $3.3 million increase in advertising and marketing expense for strategic advertising spend with our performance marketing vendors to maintain year-over-year lead volume and grow with the market, as well as our brand awareness campaigns. The increase in sales and marketing expense was also due in part to a $1.1 million increase in salaries and employee-related expenses due primarily to an increase in commissions expense as a result of higher sales, and merit increases. #### Product, Technology, and Development Expense *(dollars in thousands)* | | Three Months Ended September 30, 2024 | 2023 | Change Amount% | | | --- | ---: | ---: | ---: | ---: | | Product, technology, and development | $36,359 | $35,434 | $925 | 3% | | Percentage of total revenue | 16% | 16% | | | Product, technology, and development expense increased $0.9 million, or 3%, in the three months ended September 30, 2024, compared to the three months ended September 30, 2023. The increase was due primarily to a $1.9 million increase in salaries and employee-related expenses due primarily to merit increases. The increase in product, technology, and development expense was offset in part by a $0.8 million decrease in expense as a result of increased capitalized website development and a $0.8 million decrease in rent and facilities expense due to the expiration of the lease of office space at 2 Canal Park and a portion of our office space at 55 Cambridge Parkway. #### General and Administrative Expense *(dollars in thousands)* | | Three Months Ended September 30, 2024 | 2023 | Change Amount% | | | --- | ---: | ---: | ---: | ---: | | General and administrative | $28,187 | $24,904 | $3,283 | 13% | | Percentage of total revenue | 12% | 11% | | | General and administrative expense increased $3.3 million, or 13%, in the three months ended September 30, 2024, compared to the three months ended September 30, 2023. The increase was due primarily to a $3.6 million increase in salaries and employee-related expenses, inclusive of a $1.9 million increase in stock-based compensation expense, due primarily to an 8% increase in headcount and merit increases. The increase was also due in part to a $0.5 million increase in tax expense related to the accrual for the non-income tax-related expense. The increase in general and administrative expense was offset in part by a $1.3 million decrease in legal expenses. #### Goodwill and Other Asset Impairment *(dollars in thousands)* | | Three Months Ended September 30, 2024 | 2023 | Change Amount% | | | --- | ---: | ---: | ---: | --- | | Goodwill and other asset impairment | $7,026 | $— | $7,026 | NM (1) | | Percentage of total revenue | 3% | 0% | | | (1) Not meaningful Goodwill and other asset impairment increased $7.0 million in the three months ended September 30, 2024, compared to the three months ended September 30, 2023. The increase was due to a $7.0 impairment due to the end of the CG Buy Online pilot. For further discussion of goodwill and other asset impairments, see Note 6 of the Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report. #### Depreciation and Amortization Expense *(dollars in thousands)* | | Three Months Ended September 30, 2024 | 2023 | Change Amount% | | | --- | ---: | ---: | ---: | ---: | | Depreciation and amortization | $2,329 | $4,037 | $(1,708) | (42)% | | Percentage of total revenue | 1% | 2% | | | Depreciation and amortization expense decreased $1.7 million, or 42%, in the three months ended September 30, 2024, compared to the three months ended September 30, 2023. The decrease was due primarily to the CarOffer customer relationships intangible asset becoming fully amortized during the first quarter of 2024. ### Other Income, net *(dollars in thousands)* | Other income, net: | Three Months Ended September 30, 2024 | 2023 | Change Amount% | | | --- | ---: | ---: | ---: | ---: | | Interest income | $2,717 | $5,261 | $(2,544) | (48)% | | Other expense, net | (94) | (1,094) | 1,000 | 91 | | Total other income, net | $2,623 | $4,167 | $(1,544) | (37)% | | **Percentage of total revenue:** | | | | | | Interest income | 1% | 2% | | | | Other expense, net | (0) | (0) | | | | Total other income, net | 1% | 2% | | | 40 Total other income, net decreased $1.5 million, or 37%, in the three months ended September 30, 2024, compared to the three months ended September 30, 2023. The $2.5 million decrease in interest income was due primarily to the sale of interest-bearing short-term investments during the first quarter of 2024 as well as a decrease in cash equivalents to fund the share repurchase program pursuant to which we may, from time to time, purchase shares of our Class A common stock for an aggregate purchase price not to exceed $250.0 million, which we refer to as the 2024 Share Repurchase Program. The $1.0 million decrease in other expense, net was due primarily to an increase in foreign currency gains in the current year compared to foreign currency losses in the prior year. ### Provision for Income Taxes *(dollars in thousands)* | | Three Months Ended September 30, 2024 | 2023 | Change Amount% | | | --- | ---: | ---: | ---: | ---: | | Provision for income taxes | $7,546 | $8,289 | $(743) | (9)% | | Percentage of total revenue | 3% | 4% | | | Provision for income taxes decreased $0.7 million, or 9%, in the three months ended September 30, 2024, compared to the three months ended September 30, 2023. The decrease was due primarily to increased federal and state research development tax credits and a $4.1 million discrete deferred tax benefit in association with the CG Buy Online reporting unit impairment charges recognized during the three months ended September 30, 2024 offset by the higher tax expense as a result of the prorated pre-tax profit as determined under Accounting Standards Codification Topic 740, *Income Taxes.* ### Segment Income (Loss) from Operations *(dollars in thousands)* | Segment Income (Loss) from Operations: | Three Months Ended September 30, 2024 | 2023 | Change Amount% | | | --- | ---: | ---: | ---: | ---: | | U.S. Marketplace | $50,410 | $33,285 | $17,125 | 51% | | Digital Wholesale | (25,317) | (11,652) | (13,665) | (117) | | Other | 2,341 | 1,462 | 879 | 60 | | Total | $27,434 | $23,095 | $4,339 | 19% | | **Percentage of segment revenue:** | | | | | | U.S. Marketplace | 27% | 20% | | | | Digital Wholesale | (93) | (28) | | | | Other | 14 | 11 | | | | Total | 12% | 11% | | | U.S. Marketplace segment income from operations increased $17.1 million, or 51%, in the three months ended September 30, 2024, compared to the three months ended September 30, 2023, and represented 27% of U.S. Marketplace segment revenue for the three months ended September 30, 2024, compared to 20% of U.S. Marketplace segment revenue for the three months ended September 30, 2023. The increase was due to an increase in revenue of $22.9 million, a decrease in cost of revenue of $1.9 million, and an increase in operating expenses of $7.7 million. Digital Wholesale segment loss from operations increased $13.7 million, or 117%, in the three months ended September 30, 2024, compared to the three months ended September 30, 2023, and represented (93)% of Digital Wholesale segment revenue for the three months ended September 30, 2024, compared to (28)% of Digital Wholesale segment revenue for the three months ended September 30, 2023. The increase was due primarily to a $16.8 million impairment due to the end of the CG Buy Online pilot. For further discussion of goodwill and other asset impairments see Note 6 of the Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report. ### For the nine months ended September 30, 2024 and 2023 ### Revenue #### Revenue by Source *(dollars in thousands)* | Revenue: | Nine Months Ended September 30, 2024 | 2023 | Change Amount% | | | --- | ---: | ---: | ---: | ---: | | Marketplace | $586,405 | $515,986 | $70,419 | 14% | | Wholesale | 41,351 | 78,873 | (37,522) | (48) | | Product | 38,090 | 96,260 | (58,170) | (60) | | Total | $665,846 | $691,119 | $(25,273) | (4)% | | **Percentage of total revenue:** | | | | | | Marketplace | 88% | 75% | | | | Wholesale | 6 | 11 | | | | Product | 6 | 14 | | | | Total | 100% | 100% | | | Overall revenue decreased $25.3 million, or 4%, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. Marketplace revenue increased $70.4 million, or 14%, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, and represented 88% of total revenue for the nine months ended September 30, 2024, compared to 75% of total revenue for the nine months ended September 30, 2023. The increase was due primarily to an increase in Listings revenue, inclusive of certain digital add-on products, as a result of growth in QARSD, which was driven by signing on new dealers with higher average subscription revenue and revenue expansion through product adoption or upgrades and price increases for existing dealers. The increase was also due in part to an increase in TDO revenue as we expanded into more geographies following the completion of the TDO pilot and an increase in advertising revenue due primarily to increased spend by advertisers related to new and existing campaigns. Wholesale revenue decreased $37.5 million, or 48%, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, and represented 6% of total revenue for the nine months ended September 30, 2024, compared to 11% of total revenue for the nine months ended September 30, 2023. The decrease was due primarily to a 47% decrease in Transactions, which includes Dealer-to-Dealer transactions and IMCO transactions, to 27,329 for the nine months ended September 30, 2024, from 51,860 for the nine months ended September 30, 2023. Product revenue decreased $58.2 million, or 60%, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, and represented 6% of total revenue for the nine months ended September 30, 2024, compared to 14% of total revenue for the nine months ended September 30, 2023. The decrease was due primarily to a decrease in proceeds received from the sale of vehicles through IMCO transactions, driven by a decrease in Transactions. The decrease in product revenue was also due in part to a decrease in proceeds received from the sale of vehicles acquired through arbitration as a result of decreased arbitration claims due primarily to lower Transaction volume. #### Segment Revenue *(dollars in thousands)* | Revenue: | Nine Months Ended September 30, 2024 | 2023 | Change Amount% | | | --- | ---: | ---: | ---: | ---: | | U.S. Marketplace | $540,293 | $478,387 | $61,906 | 13% | | Digital Wholesale | 79,441 | 175,133 | (95,692) | (55) | | Other | 46,112 | 37,599 | 8,513 | 23 | | Total | $665,846 | $691,119 | $(25,273) | (4)% | | **Percentage of total revenue:** | | | | | | U.S. Marketplace | 81% | 69% | | | | Digital Wholesale | 12 | 25 | | | | Other | 7 | 5 | | | | Total | 100% | 100% | | | U.S. Marketplace segment revenue increased $61.9 million, or 13%, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, and represented 81% of total revenue for the nine months ended September 30, 2024, compared to 69% of total revenue for the nine months ended September 30, 2023. The increase was due primarily to a $70.4 million increase in marketplace revenue, as described above. Digital Wholesale segment revenue, which is comprised of wholesale revenue and product revenue, decreased $95.7 million, or 55%, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, and represented 12% of total revenue for the nine months ended September 30, 2024, compared to 25% of total revenue for the nine months ended September 30, 2023. The decrease in Digital Wholesale segment revenue was due to a $37.5 million decrease in wholesale revenue and a $58.2 million decrease in product revenue, as described above. ### Cost of Revenue *(dollars in thousands)* | Cost of Revenue: | Nine Months Ended September 30, 2024 | 2023 | Change Amount% | | | --- | ---: | ---: | ---: | ---: | | Marketplace | $41,051 | $45,830 | $(4,779) | (10)% | | Wholesale | 47,272 | 67,780 | (20,508) | (30) | | Product | 37,567 | 94,090 | (56,523) | (60) | | Total | $125,890 | $207,700 | $(81,810) | (39)% | | **Percentage of total revenue:** | | | | | | Marketplace | 6% | 7% | | | | Wholesale | 7 | 10 | | | | Product | 6 | 14 | | | | Total | 19% | 30% | | | Overall cost of revenue decreased $81.8 million, or 39%, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. Marketplace cost of revenue decreased $4.8 million, or 10%, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, and represented 6% of total revenue for the nine months ended September 30, 2024, compared to 7% of total revenue for the nine months ended September 30, 2023. The decrease was due primarily to a $3.9 million decrease in fees related to provisioning advertising campaigns on our websites. Wholesale cost of revenue decreased $20.5 million, or 30%, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, and represented 7% of total revenue for the nine months ended September 30, 2024, compared to 10% of total revenue for the nine months ended September 30, 2023. The decrease was due primarily to a $12.9 million decrease in transportation expense and a $3.3 million decrease in inspection expense as a result of lower Transaction volume. The decrease was also due in part to a $12.2 million decrease in amortization related to the CarOffer acquired developed technology intangible asset as it became fully amortized during the first quarter of 2024 and a $1.6 million decrease in employee-related expenses. The decrease in wholesale cost of revenue was offset in part by a $9.8 million increase in impairment of capitalized website development costs due to the end of the CG Buy Online pilot. Product cost of revenue decreased $56.5 million, or 60%, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, and represented 6% of total revenue for the nine months ended September 30, 2024, compared to 14% of total revenue for the nine months ended September 30, 2023. The decrease was due primarily to a decrease in expenses related to vehicles sold to dealers through IMCO transactions as a result of lower Transaction volume. The decrease in product cost of revenue was also due in part to a decrease in expenses related to vehicles sold to dealers acquired through arbitration as a result of decreased arbitration claims due primarily to lower Transaction volume. ### Operating Expenses #### Sales and Marketing Expense *(dollars in thousands)* | | Nine Months Ended September 30, 2024 | 2023 | Change Amount% | | | --- | ---: | ---: | ---: | ---: | | Sales and marketing | $245,801 | $230,243 | $15,558 | 7% | | Percentage of total revenue | 37% | 33% | | | Sales and marketing expense increased $15.6 million, or 7%, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The increase was due primarily to a $14.0 million increase in advertising and marketing expense for strategic advertising spend with our performance marketing vendors to maintain year-over-year lead volume and grow with the market, as well as our brand awareness campaigns. The increase in sales and marketing expense was also due in part to a $1.2 million increase in software subscriptions. #### Product, Technology, and Development Expense *(dollars in thousands)* | | Nine Months Ended September 30, 2024 | 2023 | Change Amount% | | | --- | ---: | ---: | ---: | ---: | | Product, technology, and development | $108,484 | $109,432 | $(948) | (1)% | | Percentage of total revenue | 16% | 16% | | | Product, technology, and development expense decreased $0.9 million, or 1%, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The decrease was due primarily to a $5.4 million decrease in expenses as a result of increased capitalized website development, and a $1.5 million decrease in consulting expenses due to the conclusion of consulting services. The decrease in product, technology, and development expense was offset in part by a $4.4 million increase in salaries and employee-related expenses due primarily to merit increases and a $1.2 million increase in software subscriptions. #### General and Administrative Expense *(dollars in thousands)* | | Nine Months Ended September 30, 2024 | 2023 | Change Amount% | | | --- | ---: | ---: | ---: | ---: | | General and administrative | $83,682 | $77,090 | $6,592 | 9% | | Percentage of total revenue | 13% | 11% | | | General and administrative expense increased $6.6 million, or 9%, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The increase was due primarily to a $7.0 million increase in salaries and employee-related expenses, inclusive of a $2.6 million increase in stock-based compensation expense, due primarily to an 8% increase in headcount and merit increases. The increase was also due in part to a $1.3 million increase in bad debt expense and a $1.0 million increase in payment processing expenses. The increase in general and administrative expense was offset in part by a $1.7 million decrease in legal expenses and a $1.5 million decrease in consulting and recruiting expenses. #### Goodwill and Other Asset Impairment *(dollars in thousands)* | | Nine Months Ended September 30, 2024 | 2023 | Change Amount% | | | --- | ---: | ---: | ---: | --- | | Goodwill and other asset impairment | $134,501 | $— | $134,501 | NM (1) | | Percentage of total revenue | 20% | 0% | | | (1) Not meaningful Goodwill and other asset impairment increased $134.5 million in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The increase was due to a $127.5 million CarOffer reporting unit impairment and a $7.0 million impairment due to the end of the CG Buy Online pilot. For further discussion of goodwill and other asset impairments, see Note 6 of the Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report. #### Depreciation and Amortization Expense *(dollars in thousands)* | | Nine Months Ended September 30, 2024 | 2023 | Change Amount% | | | --- | ---: | ---: | ---: | ---: | | Depreciation and amortization | $7,354 | $11,762 | $(4,408) | (37)% | | Percentage of total revenue | 1% | 2% | | | Depreciation and amortization expense decreased $4.4 million, or 37%, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The decrease was due primarily to the CarOffer customer relationships intangible asset becoming fully amortized during the first quarter of 2024. ### Other Income, net *(dollars in thousands)* | Other income, net: | Nine Months Ended September 30, 2024 | 2023 | Change Amount% | | | --- | ---: | ---: | ---: | ---: | | Interest income | $9,063 | $13,337 | $(4,274) | (32)% | | Other income (expense), net | 122 | (152) | 274 | 180 | | Total other income, net | $9,185 | $13,185 | $(4,000) | (30)% | | **Percentage of total revenue:** | | | | | | Interest income | 1% | 2% | | | | Other income, net | 0 | (0) | | | | Total other income, net | 1% | 2% | | | Total other income, net decreased $4.0 million, or 30%, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The $4.3 million decrease in interest income was due primarily to the sale of interest-bearing short-term investments during the first quarter of 2024 as well as a decrease in cash equivalents to fund the 2024 Share Repurchase Program. Other income (expense), net was relatively flat during the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. ### (Benefit from) Provision for Income Taxes *(dollars in thousands)* | | Nine Months Ended September 30, 2024 | 2023 | Change Amount% | | | --- | ---: | ---: | ---: | ---: | | (Benefit from) provision for income taxes | $(5,772) | $23,421 | $(29,193) | (125)% | | Percentage of total revenue | (1)% | 3% | | | (Benefit from) provision for income taxes changed $29.2 million, or 125%, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023. The change was due primarily to increased federal and state research and development tax credits, a $31.5 million discrete deferred tax benefit in association with the goodwill and long-term asset impairment charges related to the CarOffer reporting unit, and a $4.1 million discrete deferred tax benefit in association with the CG Buy Online reporting unit impairment charges, offset by an aggregated $0.9 million shortfalls on the taxable compensation of stock-based awards and the Section 162(m) excess officer compensation limitation recognized during the nine months ended September 30, 2024, compared to an aggregated $4.4 million shortfalls on the taxable compensation of stock-based awards and the Section 162(m) excess officer compensation limitation recognized during the nine months ended September 30, 2023. ### Segment Income (Loss) from Operations *(dollars in thousands)* | Segment Income (Loss) from Operations: | Nine Months Ended September 30, 2024 | 2023 | Change Amount% | | | --- | ---: | ---: | ---: | ---: | | U.S. Marketplace | $126,670 | $84,443 | $42,227 | 50% | | Digital Wholesale | (173,815) | (29,184) | (144,631) | (496) | | Other | 7,279 | (367) | 7,646 | 2,083 | | Total | $(39,866) | $54,892 | $(94,758) | (173)% | | **Percentage of segment revenue:** | | | | | | U.S. Marketplace | 23% | 18% | | | | Digital Wholesale | (219) | (17) | | | | Other | 16 | (1) | | | | Total | (6)% | 8% | | | 46 U.S. Marketplace segment income from operations increased $42.2 million, or 50%, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, and represented 23% of U.S. Marketplace segment revenue for the nine months ended September 30, 2024, compared to 18% of U.S. Marketplace segment revenue for the nine months ended September 30, 2023. The increase was due to an increase in revenue of $61.9 million, a decrease in cost of revenue of $5.3 million, and an increase in operating expenses of $25.0 million. Digital Wholesale segment loss from operations increased $144.6 million, or 496%, in the nine months ended September 30, 2024, compared to the nine months ended September 30, 2023, and represented (219)% of Digital Wholesale segment revenue for the nine months ended September 30, 2024, compared to (17)% of Digital Wholesale segment revenue for the nine months ended September 30, 2023. The increase was due primarily to a $127.5 million CarOffer reporting unit impairment and a $16.8 million impairment due to the end of the CG Buy Online pilot. For further discussion of goodwill and other asset impairments, see Note 6 of the Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report. ### Liquidity and Capital Resources ### Cash, Cash Equivalents, Short-term Investments, and Borrowing Capacity As of September 30, 2024, our principal sources of liquidity were cash and cash equivalents of $246.7 million. As of December 31, 2023, our principal sources of liquidity were cash and cash equivalents of $291.4 million and short-term investments of $20.7 million. As of September 30, 2024, our borrowing capacity under the 2022 Revolver (as defined below) was $390.1 million. ### Sources and Uses of Cash During the nine months ended September 30, 2024 and 2023, our cash flows from operating, investing, and financing activities, as reflected in the Unaudited Condensed Consolidated Statements of Cash Flows, were as follows: *(dollars in thousands)* | | Nine Months Ended September 30, 2024 | 2023 | | --- | ---: | ---: | | Net cash provided by operating activities | $179,757 | $122,031 | | Net cash used in investing activities | (59,268) | (115,017) | | Net cash used in financing activities | (164,256) | (123,686) | | Impact of foreign currency on cash | 582 | (506) | | Net decrease in cash, cash equivalents, and restricted cash | $(43,185) | $(117,178) | Our operations have been financed primarily from operating activities. During the nine months ended September 30, 2024 and 2023, we generated cash from operating activities of $179.8 million and $122.0 million, respectively. We believe that our existing sources of liquidity, including access to the 2022 Revolver, will be sufficient to fund our operations for at least the next 12 months from the date of the filing of this Quarterly Report. Our future capital requirements will depend on many factors, including our revenue; expenses associated with our sales and marketing activities and the support of our product, technology, and development efforts; expenses associated with the completion of our facilities buildout under our 1001 Boylston Street lease in excess of tenant improvement allowance; payments received in advance from a third-party transaction processor; activity under the 2024 Share Repurchase Program; and our investments in international markets. Cash from operations could also be affected by various risks and uncertainties, including, but not limited to, macroeconomic effects and other risks detailed more specifically in the “Risk Factors” section in Part I, Item 1A in our Annual Report and in the “Risk Factors” section in Part II, Item 1A in this Quarterly Report. On September 26, 2022, we entered into a Credit Agreement with PNC Bank, National Association, as administrative agent and collateral agent and an L/C Issuer (as defined in the Credit Agreement), and the other lenders, L/C Issuers and parties thereto from time to time, or the Credit Agreement. The Credit Agreement consists of a revolving credit facility, or the 2022 Revolver, which allows us to borrow up to $400.0 million, $50.0 million of which may be comprised of a letter of credit sub-facility. The borrowing capacity under the Credit Agreement may be increased in accordance with the terms and subject to the adjustments as set forth in the Credit Agreement. Specifically, the borrowing capacity may be increased by an amount up to the greater of $250.0 million or 100% of Four Quarter Consolidated EBITDA (as defined in the Credit Agreement) if certain criteria are met and subject to certain restrictions. Any such increase requires lender approval. Proceeds of any borrowings may be used for general corporate purposes. The 2022 Revolver is scheduled to mature on September 26, 2027. As of September 30, 2024, there were no borrowings and $9.9 million in letters of credit outstanding under the 2022 Revolver, which reduced the borrowing capacity under the 2022 Revolver to $390.1 million. As of December 31, 2023, there were no borrowings and $9.6 million in letters of credit outstanding under the 2022 Revolver, which reduced the borrowing capacity under the 2022 Revolver to $390.4 million. In connection with the 1001 Boylston Street lease, we expect to incur an additional $5.6 million of costs to complete our buildout, of which $4.6 million has been committed, but not incurred, as of September 30, 2024. We expect future costs to complete the buildout to be less than the remaining tenant improvement allowance. On November 7, 2023, we announced that our Board of Directors authorized the 2024 Share Repurchase Program, pursuant to which we may, from time to time, purchase shares of our Class A common stock for an aggregate purchase price not to exceed $250.0 million. Share repurchases under the 2024 Share Repurchase Program may be made through a variety of methods, including but not limited to open market purchases, privately negotiated transactions, and transactions that may be effected pursuant to one or more plans under Rule 10b5-1 and/or Rule 10b-18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act. The 2024 Share Repurchase Program does not obligate us to repurchase any minimum dollar amount or number of shares. The 2024 Share Repurchase Program has an effective date of January 1, 2024, and an expiration date of December 31, 2024, and prior to its expiration may be modified, suspended, or discontinued by our Board of Directors at any time without prior notice. All repurchased shares of our Class A common stock under the 2024 Share Repurchase Program will be retired. We have funded share repurchases and expect to continue to fund any additional share repurchases under the 2024 Share Repurchase Program through cash on hand and cash generated from operations. During the three months ended September 30, 2024, we repurchased and retired 164,301 shares for $3.7 million, exclusive of commissions and excise tax, at an average cost of $22.52 per share under the 2024 Share Repurchase Program. During the nine months ended September 30, 2024, we repurchased and retired 6,357,302 shares for $146.1 million, exclusive of commissions and excise tax, at an average cost of $22.98 per share under the 2024 Share Repurchase Program. As of September 30, 2024, we had remaining authorization to purchase up to $103.9 million of our Class A common stock under the 2024 Share Repurchase Program. On November 7, 2024, we announced that our Board of Directors authorized a share repurchase program, or the 2025 Share Repurchase Program, pursuant to which we may, from time to time, purchase shares of our Class A common stock for an aggregate purchase price not to exceed $200.0 million. Share repurchases under the 2025 Share Repurchase Program may be made through a variety of methods, including but not limited to open market purchases, privately negotiated transactions, and transactions that may be effected pursuant to one or more plans under Rule 10b5-1 and/or Rule 10b-18 of the Exchange Act. The 2025 Share Repurchase Program does not obligate us to repurchase any minimum dollar amount or number of shares. The 2025 Share Repurchase Program has an effective date of January 1, 2025, and an expiration date of December 31, 2025, and prior to its expiration may be modified, suspended, or discontinued by our Board of Directors at any time without prior notice. All repurchased shares under the 2025 Share Repurchase Program will be retired. We expect to fund share repurchases under the 2025 Share Repurchase Program through cash on hand and cash generated from operations. To the extent that our operating income, existing cash, cash equivalents, and our borrowing capacity under the 2022 Revolver are insufficient to fund our future activities, we may need to raise additional funds through a public or private equity or debt financing. Additional funds may not be available on terms favorable to us, or at all. See “*Risk Factors—Risks Related to Our Business and Industry—We may require additional capital to pursue our business objectives and respond to business opportunities, challenges, or unforeseen circumstances. If we are unable to generate sufficient cash flows or if capital is not available to us, our business, operating results, financial condition, and prospects could be adversely affected.”* in Part I, Item 1A in our Annual Report. ### Operating Activities Net cash provided by operating activities of $179.8 million during the nine months ended September 30, 2024 was due primarily to consolidated net loss of $24.9 million, adjusted for $144.4 million of goodwill and other asset impairment due to the CarOffer reporting unit impairment and the end of the CG Buy Online pilot, as discussed in Note 6 of the Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report, $47.3 million of deferred taxes, $46.6 million of stock-based compensation expense for equity classified awards to employees, and depreciation and amortization expense of $18.3 million. Net cash provided by operating activities was also attributable to a $32.2 million increase in lease obligations primarily related to tenant improvement allowance costs incurred and amortization reducing the right-of-use asset related to 1001 Boylston Street, partially offset by typical rent payments decreasing the lease liability. Net cash provided by operating activities of 122.0 million during the nine months ended September 30, 2023 was due primarily to consolidated net income of $44.7 million, adjusted for $43.8 million of stock-based compensation expense for equity classified awards, $35.7 million of depreciation and amortization, and $8.6 million of amortization of deferred contract costs, partially offset by $32.1 million of deferred taxes. Net cash provided by operating activities was also attributable to a $12.0 million increase in lease obligations, a $8.8 million increase in deferred revenue, a $6.0 million decrease in prepaid expenses, prepaid income taxes, and other assets, a $5.0 million decrease in inventory, a $1.2 million increase in accounts payable, and a $1.0 million increase in accrued expenses, accrued income taxes, and other liabilities. The increase in cash flow from operations was partially offset by a $13.7 million increase in deferred contract costs. ### Investing Activities Net cash used in investing activities of $59.3 million during the nine months ended September 30, 2024 was due primarily to $64.9 million in purchases of property and equipment primarily related to our new headquarters at 1001 Boylston Street and $15.3 million in capitalized website development costs due to continued investment on our product offerings, offset in part by $21.2 million in sales of short-term investments. Net cash used in investing activities of $115.0 million during the nine months ended September 30, 2023 was due to $96.7 million in purchases of short-term investments, $11.8 million of capitalization of website development costs, $9.0 million of purchases of property and equipment, and $2.9 million in advance payments to customers, offset in part by $5.0 million of sales of short-term investments and $0.5 million in proceeds from the sale of property and equipment. ### Financing Activities Net cash used in financing activities of $164.3 million during the nine months ended September 30, 2024 was due primarily to $146.2 million related to the repurchase of our Class A common stock under the 2024 Share Repurchase Program and $17.4 million related to the payment of withholding taxes on net share settlements of restricted stock units. Net cash used in financing activities of $123.7 million during the nine months ended September 30, 2023 was due primarily to $107.4 million of payment for the repurchase of our Class A common stock under the share repurchase program announced by our Board of Directors in December 2022, pursuant to which we could, from time to time, purchase of shares of our Class A common stock for an aggregate purchase price not to exceed $250.0 million, $11.7 million of payment of withholding taxes on net share settlements of restricted stock units, and $4.5 million of change in gross advance payments received from third-party transaction processor. ### Contractual Obligations and Known Future Cash Requirements As of September 30, 2024, there were no material changes in our contractual obligations and commitments from those disclosed in our Annual Report, other than those appearing in the notes to the Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report, which are hereby incorporated by reference. ### Seasonality Across the retail automotive industry, consumer purchases are typically greatest in the first three quarters of each year, due in part to the introduction of new vehicle models from manufacturers and the seasonal nature of consumer spending. Additionally, the volume of wholesale vehicle sales can fluctuate from quarter to quarter driven by several factors, including the timing of used vehicles available for sale from selling customers, the seasonality of the retail market for used vehicles, and/or inventory challenges in the automotive industry, which affect the demand side of the wholesale industry. Macroeconomic conditions, such as slower growth or recession, higher interest rates, unemployment, consumer confidence in the economy, consumer debt levels, labor, disruptions, work stoppages, or strikes, the ongoing military conflict between Russia and Ukraine, the conflict in Israel and surrounding areas and the possible expansion of such conflict, foreign currency exchange rate fluctuations, and other matters that influence consumer spending and preferences, can also impact the volume of wholesale vehicle sales, as was evidenced by the global semiconductor chip shortage and other supply related shortages. The Digital Wholesale segment operating results have reflected the general seasonality of the wholesale vehicle sales market and macroeconomic conditions of the automotive industry. The U.S. Marketplace segment operating results have reflected the macroeconomic conditions of the automotive industry. However, to date, the U.S. Marketplace segment operating results have not been materially impacted by the general seasonality of the automotive industry. This could possibly change as our business and markets mature. As a result, revenue and cost of revenue related to volume will fluctuate accordingly on a quarterly basis. Typical seasonality trends may not be observed in periods where other external factors more significantly impact the wholesale industry. ### Off-Balance Sheet Arrangements As of September 30, 2024 and December 31, 2023, we did not have any off-balance sheet arrangement or material leases that are less than 12 months in duration that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures, or capital resources. ### Critical Accounting Estimates The preparation of the Unaudited Condensed Consolidated Financial Statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Although we regularly assess these estimates, actual results could differ materially from these estimates. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from management's estimates if these results differ from historical experience, or other assumptions do not turn out to be substantially accurate, even if such assumptions are reasonable when made. Changes in estimates are recognized in the period in which they become known. Critical estimates relied upon in preparing the Unaudited Condensed Consolidated Financial Statements include the determination of sales allowance and variable consideration in our revenue recognition, allowance for doubtful accounts, the impairment of assets, the capitalization of product, technology, and development costs for website development, internal-use software and hosting arrangements, the valuation of acquired assets and liabilities, the valuation and recoverability of intangible assets and goodwill, the valuation of redeemable noncontrolling interest, the recoverability of our net deferred tax assets and related valuation allowance, the valuation of inventory, and the valuation of liability-classified compensation awards. Accordingly, we consider these to be our critical accounting estimates and believe that of our significant accounting policies, these involve the greatest degree of judgment and complexity. For the three and nine months ended September 30, 2024, there were no estimates related to the valuation of redeemable noncontrolling interest. During the three months ended June 30, 2024, we identified a triggering event for goodwill and other long-lived assets impairment testing purposes at the CarOffer reporting unit due to recent organizational changes and Transaction volume declines, which resulted in revisions to our financial projections for the CarOffer reporting unit. During the three months ended June 30, 2024, we performed an updated fair value analysis of the CarOffer reporting unit, resulting in an excess of carrying value over fair value of the CarOffer reporting unit, which led to the impairment of the CarOffer reporting unit, as discussed in Note 6 of the Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report. During the three months ended September 30, 2024, there was no additional impairment related to the CarOffer reporting unit. Due to the partial impairment of the CarOffer reporting unit goodwill and other long-term assets during the three months ended June 30, 2024, in which the CarOffer reporting unit was reduced to its fair value, there remains a risk for future impairment charges if projected future operating results further decline, including as a result of economic conditions or operational challenges, which could be material and negatively affect our operations. For further discussion of goodwill and other asset impairments, see Note 6 of the Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report. For a detailed explanation of the judgments made in these areas, see Note 2 of the Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report. ### Recently Issued Accounting Pronouncements Information concerning recently issued accounting pronouncements may be found in Note 2 of the Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report. ## Market risk As filed, 3,406 characters. Market risk represents the risk of loss that may affect our financial position due to adverse changes in financial market prices and rates. We are exposed to market risks as described below. ### Interest Rate Risk As of September 30, 2024, our exposure to market risk associated with changes in interest rates relates primarily to the 2022 Revolver, which allows us to borrow up to $400.0 million. The applicable interest rate is, at our option, based on a number of different benchmark rates and applicable spreads, as determined by the Consolidated Secured Net Leverage Ratio (as defined in Note 8 of the Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report). A fluctuation in interest rates does not have an impact on interest expense unless the 2022 Revolver is drawn upon. Such impact would also be dependent on the amount of the draw. As of September 30, 2024, there were no borrowings and $9.9 million in letters of credit outstanding under the 2022 Revolver, which reduced the borrowing capacity under the 2022 Revolver to $390.1 million. As of December 31, 2023, there were no borrowings and $9.6 million in letters of credit outstanding under the 2022 Revolver, which reduced the borrowing capacity under the 2022 Revolver to $390.4 million. As of September 30, 2024, we had cash and cash equivalents of $246.7 million, which consisted of bank deposits, money market accounts, and mutual funds. As of December 31, 2023, we had cash, cash equivalents, and short-term investments of $312.1 million, which consisted of bank deposits, money market accounts, and mutual funds. Such interest-earning instruments carry a degree of interest rate risk. Given recent changes in the interest rate environment and in an effort to ensure liquidity, we expect variable returns from our cash equivalents for the foreseeable future. For the three months ended September 30, 2024 and 2023 and for the nine months ended September 30, 2024 and 2023, fluctuations resulting from changes in the interest rate environment in interest income have not been material to the operations of the business. We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure. ### Inflation Risk We do not believe that inflation has had a material effect on our business, financial condition, or results of operations to date. However, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, operating results, and financial condition. Additionally, inflationary pressures could negatively impact vehicle purchasing behavior, which could have an adverse impact on our financial results. ### Foreign Currency Exchange Risk As of September 30, 2024 and December 31, 2023, we had immaterial foreign currency exposures in the British pound, the Euro, and the Canadian dollar. Historically, because our operations and sales have been primarily in the U.S., we have not faced any material foreign currency risk. As we seek to grow our international operations in Canada and the U.K., our risks associated with fluctuation in currency rates may become greater, and we will continue to reassess our approach to managing these risks. ## Controls and procedures As filed, 7,267 characters. ### Evaluation of Disclosure Controls and Procedures Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As described below, based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report, management identified a material weakness in our internal control over financial reporting. As a result of the material weakness, our Principal Executive Officer and Principal Financial Officer have concluded that, as of such date, our disclosure controls and procedures were not effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized, and reported as and when required. Notwithstanding this material weakness noted above, our management, including our Principal Executive Officer and Principal Financial Officer, has concluded that our financial statements included in this Quarterly Report present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented in accordance with GAAP. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis. The control deficiencies, which, in the aggregate, were assessed as a material weakness as disclosed in our Annual Report, have not yet been fully remediated. At December 31, 2023, we had unremediated operational control deficiencies at CarOffer associated with the operation of logical access and change management of information technology, or IT General Controls, around program change and logical access in certain IT systems. Therefore, we were not able to demonstrate consistent, effective operation of manual controls that rely on data produced by and maintained within these affected IT systems. As of September 30, 2024, management has not concluded on the consistent, effective operation of IT General Controls and manual controls that rely on data produced by and maintained within affected IT systems. As a result, we did not have effective operation of internal controls over financial reporting to address the risks of material misstatement of various financial statement accounts at September 30, 2024. Management has determined that the impact of the previously identified deficiencies continue to aggregate into a material weakness at September 30, 2024. This material weakness did not result in a known material misstatement to our financial statements. However, the material weakness could have resulted in material misstatements in our interim or annual financial statements and disclosures which then may not have been prevented or detected. The material weakness also impacts the effectiveness of segregation of duties, impacts the effectiveness of financial controls which rely on information from relevant financial systems, and increases the reliance on corporate accounting personnel to identify errors at the CarOffer subsidiary level. #### Remediation Plan To address the material weaknesses in our internal control over financial reporting as of December 31, 2023, we have continued remediation efforts outlined in previous financial statements, as applicable, including enhancing our control procedures, and in some cases, increasing the frequency at which controls are performed for logical access in IT systems. In addition, until remediation steps have been completed and are operated for a sufficient period of time, and subsequent evaluation of their effectiveness is completed, the material weakness described above will continue to exist. Our ongoing remediation efforts are focused on continued employee training related to internal control over financial reporting and confirming sustained operation of effectively designed control activities, including IT General Controls. Management is committed to successfully implementing the remediation plan as promptly as possible. As of September 30, 2024, management has implemented or enhanced certain controls to address specific issues related to the material weakness. The material weakness will not be considered remediated until our management implements effective controls that operate for a sufficient period of time and our management has concluded through testing that these controls are effective. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects. See “*Risk Factors—Risks Related to Our Business and Industry—We have identified a material weakness in our internal control over financial reporting. If we are unable to remediate this material weakness, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business and the market price of our common stock.”* in Part I, Item 1A in our Annual Report. ### Changes in Internal Control over Financial Reporting Except as otherwise noted above under "Remediation Plan," including the on-going remediation efforts described, there were no changes in our internal control over financial reporting (as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the period covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Our plans for remediating the material weakness, described above, will constitute changes in our internal control over financial reporting, prospectively, when such remediation plans are effectively implemented. ## Risk factors As filed, 2,035 characters. Careful consideration should be given to the factors discussed in Part I, Item 1A, “Risk Factors,” in our Annual Report, which could materially affect our business, financial condition, or future results, in addition to the information set forth in this Quarterly Report. The risk factor set forth below updates the risk factors in our Annual Report. ***Our goodwill, intangible assets, right-of-use assets, and other assets have been subject to impairment and may be subject to further impairment in the future, which could have a material adverse effect on our results of operations, financial condition, or future operating results.*** We evaluate the recoverability of recognized goodwill amounts and indefinite-lived intangible assets for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. These impairment tests are based on several factors requiring management’s judgment, including identification of triggering events for reassessment and determination of the fair value of related assets. If such goodwill or intangible assets are deemed to be impaired, an impairment loss equal to the amount by which the carrying amount exceeds the fair value of the assets would be recognized. Future events may cause impairments of our goodwill or intangible assets based on factors such as the price of our Class A common stock, projected cash flows, assumptions used, or other variables. In the three months ended June 30, 2024, we recognized a partial impairment charge of $127.5 million related to the CarOffer reporting unit. We cannot accurately predict the amount and timing of any impairment of goodwill, intangible assets, right-of-use assets, or other assets. We may be required to record an additional charge during the period in which further impairment of our goodwill or intangible assets is determined, which could have a material adverse effect on our results of operations, financial condition, or future operating results. Filed Nov 7, 2024. Source: SEC EDGAR, the filing index for accession 0000950170-24-123371. Last ingested by Listed: Nov 2, 2026, 14:16 ET. No prices; not investment advice.