CARG - Earnings call transcript Q2 2018

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Operator

Greetings and welcome to the CarGurus' second quarter 2018 earnings results conference call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions].

As a reminder, this conference is being recorded. to Investor conference Relations like host, to now Nelson, Rodney for would turn over the our I CarGurus. Thank you.

You may begin.

Rodney Nelson

Good call. Thank quarter operator. afternoon to welcome you CarGurus' XXXX earnings and second

in Zales, Officer, We discussing Founder Langley Sam after market Officer the Operating website. and will close Steinert, call Jason and Financial Relations release on and Investor me the announced CarGurus' the our be posted Trevisan, With Officer. issued Chief our Chief results this today Executive press Chief on is afternoon

to we maintain international new the our business, our our Board growth in for and the our our year from During plans, settlements strategy, impact growth in our including statements business full that will awareness business on to ability and guidance call, make statements we strategy levers of of our brand the related Directors, and may expected drive to and related markets, the periods our statements our expect customers, other financial additions contributions payments cash investments net of forward-looking, to the and ability to products, growth adoption our to third our quarter tax be flows our efforts, existing new plans new considered future XXXX, execute share and concerning acquire our drive expansion prospects and on and regarding existing withholding into expectations. to

any update of obligation We upcoming revise should intend, reflect similar words date. be statements and today not anticipate, terms. as statements, may include required as as or may, except undertake to as our expect, law. views not views believe, Forward-looking by these such and only and our forward-looking of considered we statements subsequent we we we plan, phrases we These

and materially or results promises our performance expectations. cause that variety to subject a not and of from are actual to future of differ are uncertainties guarantees risks could statements Forward-looking the

Factors important other be that, certain Form our filed we our refer risks refer other report measures. measures in it by the material after filings. during contained results, to website of please investors.cargurus.com section reconciliation those discussion today's factors of our over may GAAP and at SEC's to be after to close actual of press Risk call, turn affect of to on close and on that non-GAAP With the a release our course will Further, as Investor updated For in the included and heading found quarterly filings could market will the financial today's SEC SEC XX-Q today. release website A non-GAAP our I market The Langley. issued in press can sec.gov. our at Relations under

Langley Steinert

everyone joining Thanks us Rodney and for thanks today. to

our are for Before a will quarter strong team. running against execute we I begin, to initiatives continued I welcome CarGurus XXXX. be to the Relations Rodney have and second Rodney as onboard. our him excited effort to want Nelson strategic to Investor We enjoyed we

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to fuel innovation seeking are continued in products. audience. generate to driven we high-quality dealers and our growth The ROI dealer brand ultimately robust audience engagement investments ROI and further technology both dealer our in market and transparent our bolster Our we yields our new existing with for platform leading from in

data the and the quarter of bring will order millions detail few which moments. our unstructured year, points company. data-driven a the continued while our operating our and of Based CarGurus these income Jason to delivered in continually guidance exceeding improve we on a strength our is growth and we We QX automotive tirelessly the guidance. to result, in a across XX% for full As are revenue work second the execution market. increasing results platform

our our in with reviews and session shoppers resonating visitors powerful in Our user large attracting the CarGurus an XXXX. ratings acceleration to is year-over-year technology average insightful This U.S. monthly QX of quarter deal QX. increased to year-over-year, engaged more vehicle is quarter. user marketplace first Average any U.S. from monthly in in XX% highly up and proprietary combination than dealer growth the second to accelerated was our In information, The from base. of competitors approach our XX% unique the also sessions of U.S. car growth robust XX% XX% clearly growth driven other

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and second user session XX% the of unique sessions In year-over-year, monthly Moving U.S. the aim that and our continue we we in make in while XX%, first we further in one extend audience topping strides monthly other forward, international generated we extent, To our position time. the around respectively, growth sessions year-over-year build number world. position in market for monthly million global where quarter. total, average average XXX visitor to countries the XX% increased to our

as we that new As in that potential report buying practices a to once Spain. pleased our by marketplace that transparency are launched it announce to we dynamics we have we say, by our the consumer of to Needless we emerges quarter, country-by-country on believe landscape. comScore. country I site evaluate We basis in excited behaviors, Spanish days competitive as many U.K. am in dealer in beta unique reminder, again the new the a automotive unbiased a region. from launch our visitors will has Last in but successful where our the our were understand measured quarter, early markets that information opportunity about second segment, order QX, international its elsewhere. With we and market same build monthly the we that outlined in that is launch. our focus business, were said, and momentum by to in disruptive Spain Elsewhere on made major shopping fastest-growing continues in month, site

our other QX dealers Brown, in the Our dealer was CarGurus groups, and in of to in paying visitors one upper would thought we The in Digital, primary average CarGurus' is partners. grew of joining Jardine strong our year engagement is is are U.K.'s what initiative of time coming phone and adoption. and year, our the increase The XX% introducing substantial beyond strategic this extending taking that driving becoming of has since engagement a market call new Jardine's products site, in since this value the U.S. Jardine's Alex. notice. the durations platform. conversion in unique Head consumer monthly audience adds, metrics our listings. innovation the Dealers that show interactions advertising marketplace be Motors engaged that interest year-over-year on are us value note's quality strategy that for seen Group, last at success we recognizing dealer U.K. their rates, dealer of given largest end knew a data-driven Brown was partner and disruption product the sparked a CarGurus and

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years their they We SEM local SEM to to seeing maximize marketing dealers the And this marketplace, about behalf product on to now marketing ability their not the are of Search own agencies own. that leveraging optimizing drive search we keywords small, do is our practice websites. have own a to inquiring search the potential. scale on strategy our programmatic our of of traction expertise encouraging dealer After dealers are also engine product, across domain traffic our our with for billions time some marketing been the investment simply engine for technology lack at as in effectively have dealers' invest Plus.

from quarter CarGurus King out XXX% SEM customers. we customers. CarGurus of SEM SEM are King driving together, of dealerships our one for And King, as that Buick number King of to completes and that package provider. Buick Manager GMC General great of prior and Plus Plus their full SEM CarGurus' King the As leads Jared listings adds Chevrolet in sales. Colorado-based King one provided switched dealerships, Plus because SEM source leads the and sales notes GMC listings they performance Plus compared receiving the feedback to platform. of become its has have and increase beta, of these is second the

serve dealer long-term. or over ultimately subscribing We as retention and product to the will and SEM our helping dealers, per increase average a to CarGurus connections continue listings high-quality annual Plus powerful complement driving believe to dealer AARSD revenue

consumers country are their to directly of CarGurus' We and limited We the for feature in a to our models. regional The inventory nationwide consumer available to with centric. have shipping transport searches strive able to other dealers of select and original maximize display shipping dealers. this cars for cars consumers nationwide for was parts and those makes also relevant the rationale feature, consumer. the local inventory certain to U.S. introduced With

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additions all our dealer whether independent well emerging and marketplace the front to possible Board that in site dealers audience Our paying order capitalize of sets further we end, in and flexibility with of time. set more Directors. public an and To franchise us. execute value it's in out independent Board to dealer on sizes, our Upon attract continue attractive of add products, In we the directors dealers provides large becoming more continue to believe to to our to this team made growth to to scalability opportunity demonstrating invest platform. to important skill relevant we bolster a will We both over our best two of months. groups recent or company, the

June that where the Board Directors. Conine we co-founded company consumer our Wayfair to in Steve helped Steve announced he XXXX, into in added we global build brand. First, of a

Steve's we forward benefit are his engineering expertise to contributions. product and looking are to We from and excited

as integral to Hickok Networks announce Interactive Lori Second, most XX of company's we Lori in Financial Scripps recently pleased efforts. she overall and having platform. will of Development in Officer, role Audit investment our is to strategy management, to as am M&A Directors, was growth invaluable grow her Chair year we serve and Chief executing veteran key Scripps's we believe establishing recently will financial and and Board of prioritization Committee a served talent Scripps' the I as continue in our acumen be the Lori played Lori our that added a

to our of days Board we that thank second has made significant today summary, since our our dedicated key and the departed the announced his earliest half continued XXXX we back Rothman overall Board quarter yielded in recently well business also CarGurus year. Directors. We Simon contributions Simon are initiatives for and to in of service. and momentum execute our positioned In on the across the company him

ensure our to remain With while will We invest financial most and to transparent all to continue the for more on world's we over meaningful we call the else, committed dealers. driving trusted our automotive to in Jason return experience will products results. deliver and best Above the marketplace. our provide consumer details on building investment turn to that, I brand

Jason Trevisan

can That revenue year-over-year the our updated I income Langley. growth related of overview increase XX% with OEM view then begin of you advertising driving partners. will the for campaign awareness $X Advertising revenue XX% third range. an the year again was subscriptions the quarter vary of served large revenue engaged in marketplace from the and revenue, $XX.X expect of statement. of $XXX.X on for our less auto million our our increased ROI guidance source quarter as performance and advertising a primary and detailed roughly for up of prior other reflection quarter-to-quarter full XX% Marketplace audience Thank million. quarter, performance with year-over-year said, timing growing investments advertising second to and quarter-to-quarter. exhibit revenue basis, the XXXX. consumer view our and advertising second to the our total subscriptions We above brand in revenue provide outperformance our in partners as and a represented the strong building augment other a activity to high-end Total Starting $XX.X we million since once greater guidance the promotional remaining and other than linear year-over-year. million

$XXX.X versus the international geographic million, performance year-over-year year our XX% $X.X ago U.S. quarter. at up by was segments. totaled Looking revenue revenue and up XX% million,

referenced, site Italy. Spain and Canada, to in and Langley QX As continue the we we in Germany in launched make strides our U.K.,

paying the quarter. an from our ended XXX dealer end XX,XXX dealers world, to total quarter and around We dealers year-over-year increase Turning the first of paying up of with count. paying XX% the second representing the

of representing up dealer the in Our paying total XXX second the net to addressable moving launch a our increase we from dealers, opportunity forward. penetration first add ended quarter that with XX,XXX total XX,XXX sizable roughly the count our XX% giving brings in paying Spain In total quarter, line us global dealer dealer year-over-year end increase U.S., paying the and was with expectations. our to

to the to continue nonpaying to stage as in reflects platform international operate to experience basis dealers driving on in likely the as we inside as best dealer market size we and team value the the is make audience while pricing to and quality and international value, we that XXX targeted Total adding our such increase at investments development as in to our product our paying invest retention our at better platform's methods and we from driven acquiring QX ROI expand Our team of via count sales International quarter we and of each dealers ended dealer demonstrating of further maximizing our quarter-to-quarter as certain different and paid of on sales nonlinear U.S. to focus field dealers a in relations international paying on continue bring well success developing through new improvements in XXXX. regions an dealer to our markets consumer customer dealer each X,XXX, packaging with a continues growth continue market. be make Further, will strides paying will teams. great are international heavily deliver dealers. engagements

second was as the year-over-year. they The a AARSD X% XX% of for platform. drive the second of areas connections the our standout an was an quarter ROI We at from AARSD AARSD QX. superior across In continued volume quarter, second of positive saw principally the in from connection period and end international volume of growth, increase dealers momentum was year-over-year, that to while at increase of achieve several growth the AARSD end U.S., quarter, receive $XX,XXX the $X,XXX quality

our that remains stages primary multiple near-term out of Given building growing the audience. international we early on platform our our international are focus in markets, in

international audience, are fundamental grow Our and expand inventory grow count phases to dealers market development and number of time. then free AARSD the paid our over finally platform dealer on and

execute expect as continue and investment we international to lumpy a plans we markets. to our be work in As these result, AARSD through phases on distinct international

our other non-GAAP discuss which I in our out stock-based and a expenses basis, profitability items. and will compensation quarters, As backs previous expense discrete on

As of quarter, comparisons compensation since our and non-GAAP in at yet of non-GAAP expenses XX.X%. our looking therefore not stock-based expenses helpful. In GAAP in profitability our expenses and year-over-year $XX.X become operational non-GAAP has million, more the and quarter, are of expenses believe comparison operating we better marketing post-IPO Total second XX% a represented year-over-year. provides our Non-GAAP were the sales reminder, expenses a XX% material line first higher to gross performance up These audience generate for was margin the driving but, before invest us. us for focal and to continue for when continue substantial we Investments continue we to marketing dealers. our leading products Longer and the connection with platforms market address aggressively to point operating forward. while now, a will quarter. in market investments appropriate expect large sales via moving opportunity be will technology grow our leverage volumes our term, to operating

existing engineering while improve to categories. into adjacent to our headcount add to innovating continue expand We products

pursuing our are as investments SEM As nationwide range and of expansion, supporting while the we $X.X in products, fuel income as slightly year-over-year expenses company's technology launch guidance long-term our and to healthy topline development feature and higher operating Spain. These $X end, international ahead committed and Plus by in broader of profitability. due maintaining the the product, We million, such quarter to To was XX% non-GAAP products business growth. revenue growth that offset remain the such delivered in to shipping sets our new such increased to existing million. services which investments grew in

by of a earnings in range. quarter, Non-GAAP were our $X.XX XX.X% On to were expenses our million. of basis, gross share GAAP continue of $X.XX the GAAP we for high-end per advantage proactively which margin was total the outperformance will and operating topline diluted business. $XXX.X above GAAP take We guidance reinvesting delivered

Additionally, compensation income in in GAAP $X down second quarter in less income reduction stock-based ago year quarter. expense stock-based GAAP QX to in income QX $XXX,XXX GAAP with $X.X operating in million, primarily We million million increases The stock-based the $X.X the of expense. expense result net $XX.X attributable was in in shareholders from income in XXXX. than common GAAP is recognized operating operating compensation compared XXXX, compensation million. totaled

During the totaled earnings of loss tax GAAP from $X.X international Geographically, research from our in and credits. a $X.X the $XX.X million million segment. of was million state GAAP benefits federal and development deductions had U.S. operating benefit recognition income tax quarter. and per our operating $X.XX taxable quarter, equity-based share recognized we compensation GAAP we of stemming stock the in in and diluted a the

development from expenditures the with $XXX,XXX. cash of sheet. to quarter million roughly in quarter roughly million quarter. capitalized first our in capital our includes costs and second in We $XX.X investments, the cash in the operations the $XXX generated and second free We flow, balance end at in short-term and line Turning which website of balance non-GAAP cash million with ended $XX.X

equity from we payments equity remitted from shares quarter, corresponding allowed the awards the share us our pool. RSU in return and settlement stemming million to plan, to which During $XX.X withholding our tax withheld

technology capital quarter and remarks remittance have prepared of close model. and profile the third withholding XXXX. reflect our we plan my differentiated, impact our taxes equity less should awards Overall, cash efficiencies material for our of forward, the impact on of generation cash related I full driven flow. Moving to to will continues with outlook and believe the moderate our overall year our

to outlook million We are $XXX raising to of million $XXX million $XXX to up million, full a our range year revenue from previously. $XXX

advertising We half acknowledging in over to increases the expect to realized in we nonlinear the the marketplace while of carry back our performance will and other experience our likely year segment. subscription segment

full previously. up of $XX a We range our are $XX.X $XX.X outlook operating $XX raising million, million to also million year million non-GAAP to to for from income

for outlook and Our accounts including products focusing on building further connections our investments audience to investments improve building and growth our to our growth, proposition. long-term value driving dealer out drive brand,

range are share, full EPS year $X.XX addition, In $X.XX from to a per to $X.XX of up increasing non-GAAP we $X.XX to guidance our previously.

per be $X.X to in $X.XX we and $X.X focused third share. company our non-GAAP expect range key million to us. of summary, $XXX opportunity of continues the million on perform In to operating $X.XX against quarter, Focusing on large execute in XXXX the teams on and pursuing total million, to the range EPS income before non-GAAP objectives million revenue our and of to our $XXX the the well diluted financial for initiatives are strategic market

in U.S. audience continue investment in is drive effective. the paying listing with ROI, our products, and and to dealer we expansion dealers consumer Coupled enhancements among growth resulting satisfaction Our ongoing proving new and awareness

replicate success segment. leveraging this we investments to to We platform continue as in our countries invest other these wide international are in

in with will setting we open pleased thus strong progress in up we Q&A. look forward this XXXX. the call XXXX far growth and stage we made With the that, are and to finishing year for We the have continued for

Operator

Instructions]. [Operator

Our first Sachs. Please Terry state question comes question. with for Goldman Heath your

Heath Terry

traffic or have wonder into and user conversion launch quarter, particularly paid number U.K. bit in little breakdown the could organic as in free dealership the really just there, understand I And Germany, specifically can just paid the just give on markets, that would or and detail more us the what bit little on the U.S. strong a launched to can got obviously on more if sort you in your net sense, helpful, seeing you your you are growth be further a particularly us on a quarter? in you. there. have maybe international on you on base? between in continue Thank the traffic then of the dealer add given you in help to If see Great.

Sam Zales

Sam take the related I It's hi. question Zales. will Heath, international. to first

We dealers the in are seeing markets. for international scaling continued on value proposition the

same I for mentioned we exist the points dealers the think and have consumers pain I in markets entered.

I that same think I with add, that's Spain would just launched. the

the on are For community, The and to acquisition go to channels using it's their that return well. dealer basic a looking for investment we provide continuing expenditures and they them. paying conversion customer is from great to opportunity for

I freemium paying in base the that, free think XX% you international to they grow the growth they really a U.S., here program in see our opportunity significant a try acquisition the from our it programs. paid free the as dealer That's when in to customer leads markets. models moving one, do, to sign

and rate the those have conversion We premium products basic a same and paid the change been the markets the selling the program the converting of programs. are connection to number of substantial able one that our vehicles in to significant dealers the growth that is, of international we from to way U.S. is behaving demonstrate volume those are

is our the in program. international opportunity gain to first the on inventory know, you markets free As

volume then close and it as be audience inventory consumer can make as rates. much dealers, our and possible as the getting experiences those best in built once connection we So to consumer see that converting benefit to

to significantly on it international we those turn the that Jason will in so doing markets. great I pace and a are consumer at And side.

Jason Trevisan

Heath. Hi

in traffic you yes, were it. So very an heard. was It we pleased our the with as acceleration, quarter, U.S.

We at and social, display search specifically. look use it high a comes and includes then search, engines and we includes in organic unpaid branded and have search. we our break and brand that search channels unpaid paid our At talked past paid the direct, retargeting, level, out don't but through

momentum I seeing that to our time takes now drivers TV specifically typically brand are the are in campaign that we seeing build we that influence is one now. campaigns of our of think bigger the and and U.S., the

the in, We a there midyear been as season and state shopping well QX. in the the are seeing market confluence kicking having of last at since car high continuing year steady for as in

in and traffic seeing that the said, across But we growth seeing growth disproportionate in that are so direct traffic we all in. branded we of are And the board are in channels search.

traffic team but is We a but brand, they about sophisticated also improvements our leading, scale them making team well. that growing allowing spend to is always algorithmic or that lot a that have acquisition are the we highly think we market should as are mention same less our spoken spend in efficiency on

And the so is last within but for brand biggest seeing factor growth board, are the the across we new year, sure.

Heath Terry

Great. Really Thank you. helpful.

Operator

Thank you.

Our next question. Please your with state Ralph question comes Schackart William from Blair.

Ralph Schackart

evening. Two Good could. questions, if I

know we volume strongest XX%, years, just question and That's impact a at fastest quarter growth have first follow-up. model. AARSD I the the domestic if connection a that about data But take you growth think how assess I the since quarter. two metric rate I are at on First you strong at in a our curious, about is on which the that of Jason, growth have that are drive my talked around given and first of XXXX, having you least the scale you able back today? the to then step with nearly

Jason Trevisan

Sure.

by So AARSD, we of terms by of driven metric in past audience, growing unit audience couple the as And really have lever, I your strongest that growth. you In so lever products. and a It's new strong had past to complex quarters, think followed And this stronger quarter and guys is up. strongest renewals. largest, our levers and three lead and that AARSD to builds outlined, pricing. it have tends models, pricing we what new learned in continues which has audience growth connection to have our strong of historically products be and been

to always a pricing to We soon or ever. hard and so slow, everyone that that said have very lever anytime not us that's march I we for be pull would remind going maybe is that unit methodical going be a

has those of order the levers remained. So three

a quarters as has it old between renewals though, overriding that five just recent new the for relates the with we in with of I and most for an ago works quarter lately. think quarter, quarters calculation, three to renewals math replacing job and the And how benefit factor done this are, that an have good of to the a of thing one AARSD, quarter. is is we AARSD all

we as so faster revenue dealer grows see than our our grows, to count AARSD growth. going And are

really, renewals. So has growth and some but audience really continued of the growth connection is be our really math, the it's helping to headline with that's strong our and

Langley Steinert

has I One is It's engine gotten future. ARRSD community. multiple not dealer would fact had a that of Dealer are of as to a days in that Ralph, products but we that on suite about kind our that And that thing whole in year it's probably the Display launched about layering our that still products for listings. Langley. of like now Jason's a the tell so comment, we going We the our just adds velocity but dealers. quite favorable marketing addition is product Obviously, have have that we said, are reviews that product you, we Yes. is this early we building a are the we we listings from suite in ago, over excited search and building forward suite product thing Jason to to

Ralph Schackart

you Plus like it be you see how or opportunity you out Give helpful. and feedback. product. good good with seeing a you us versus as product It rolled could my that for compares to question progressing? us if signals today? of It's Dealer segue are SEM second on see Maybe relevant getting any sounds help product if are to revenue SEM frame sense it's And Thank actually rolling you. you a would the initial Display Plus the that understand how out

Langley Steinert

which Yes. terms fall dealing themselves, Jason today. trying been have but the success. something different are with is noticed bring overcome easily into is will One, bear think three pretty in dealers I most what probably let to to that talk than the important market that we the have point we marketplace the sizing, technology significantly I that it they do to either in of tend camps. is we can to They

to working sort the keywords be is, be working they one there a agencies to dealer. agency of marketing then can local and they a those larger a typically and And agency in of might with. provide terms second The with might digital might be they subscale volume thirdly, be tend

is cost. scale. that of dealer. the most when and keywords people far many accomplish the working last think Number years I for talk significant lot we XXX keywords which the expensive. responses you found are keywords so to is really volume. have architecture bear the get for tail typically key many things. we Because traffic. or them for have we that to to And many, the as going Typically said, can when ask that obvious we over bring billion have keywords keywords up long about often for really how two more XX,XXX the we And a about that overlooked, tested a dealer, we architecture built are new instead many will One ones talking built scale with, previous mining them, a typically ironically And really dealer one has We new allows two as is the have sheer secondly, more that levers we light a your as solution? we XXX. that a as the going is given can that and of we drive account, has, with I been of the

also more It per VDP gives it reduction So it them cost lower activity. cost and gives cost scale. per a

about excited really in sizing. market a And Jason the marketplace we maybe far. are are little so we talk what the can about seeing So

Jason Trevisan

Sure.

that quick spend dealers believe to searches billion Ralph. in We will $X billion do a $X auto I in spend. the So in several range top-down, billion gross

And it you you in about fees it so of if were dealers billion because associated will then do be a all $X with round are which not is think at lot if numbers. that, outsourced, the to internally, looking

million dealers sort some the fees a in it's million, really businesses is a sub-$XX refer to that there approaching range. range them to potential but million businesses in-sourced, that net we of again that and is then of lot are billion are agencies as of the net local few fragmented. maybe couple There's sub-$XX $XXX of revenue So $X

It dealers. franchise to larger toward dealers. tends to So it toward tends skew skew

rip as this. And so heard we and target This have a say. are we being replace, you is smart about us who for

So account would it's than flipside Display. ramp The item it is, basis, than level sales a to longer ticket cycle. On longer take a higher it's Display our product.

in see listing base the our penetration our build can meaningful that accelerate in of And when next several we here our help growth years to reach to contribute or dealers. our so growth opportunity installed an really paying we business

Ralph Schackart

Thank Langley. Jason. you Thanks Great.

Operator

with Please Our from question. Securities. Ron next Josey question JMP your state comes

Ron Josey

question Great. Thanks. and quick One quarter. Great follow-up. a just

on product, mentioned just Langley, and regional So the about shipping you future. new

select it was dealers for and mentioned select you so specifically. nationwide said And dealers shipping you

a with the have you qualify wondering buying broaden of And this because shipping? then then you the does also this wondering only and is what given to feature? your with question new a are shipping product? you these logistics quarter on better for Are to what replacing responsible on planning And AARSD have yourself? cars policy? site are dealer Or this actually what And do for wondering mentioned taking done and the am you old you are there just CarGurus, So all just quarter is an significantly. now Jason, might users job renewals. the return if market unseen, I

you. done you What Thank Just remind have of improve have better us that? the renewals? on job to done you

Sam Zales

nationwide Zales. the Sam shipping. Ron. what to take related It's call Hi we I question will

experience. understanding were I made Langley that the opening in made. developed echo couple this of at consumer a offering First will comments We the of statements

we a significant so those you is particular doing was consumers. of and that the can those a certain area remote already found search vehicles in criterion to that not that dealer consumer said, where directly shipped could and provide could do experience cost geographies could at in found of and provided, best number level, a we of that those search provide business be we of locations effectively, a very outside And consumers. set so the with we vehicles can a their opportunity search region searches searching area go the no directly the ship in searches, So to dealers and surrounding certain to to a at in hope biggest their consumer country, limited practice around those for for general

the vehicle a the already And consumer to dealers had clear at so directly already the built ship able about to product do who dealers I to manage that. consumer at are not is that We capability. consumer logistics. we the to a positive experience that space experience. be It want and went really

clear that to The this included. the Shipping search know we today consumer, said shipping is a to appear and vehicle dealer vehicle the allow we will to will So we and in consumer will built that say consumer that to it be them that that shipped price or with their to radius be those dealer's you. very is vehicles be fee. that the fee results let XXX is is shipping to And mile no if there to included doorstep. will delivered we

policy. and in this industry, a companies many the they with As Carvanas, have return of Vrooms know you

work Our partners with a one. honor today that will similar we

regard their vehicle. great helps helps more the business, return And bigger the with themselves them and experience close their of vehicles dissatisfied is from experience to seen getting that the tremendous positive we subscription of opportunity CarGurus to front ratings revenue they experience stream a broader dealers in for a that if put and those consumer able create high That's dealer the audience. dealers. in consumer business a have consumer, the So for

Ron Josey

Sam, follow-up if quick. I could real

themselves? many sense? that Sorry mile look you areas in to to of make up with have begin to Does actually are pick current travel to Do sense interrupt, XXX-plus traffic, a how Jason. folks your and willing car the

Sam Zales

consumer have saying, the It well flexibility, me. and and we it to international directly. their farther to don't don't in I would of with and to obviously, But process drive front sides search drive as thought seen ship is and to going dealer are the out that and have need experience big radius that's consumer at dealer platform markets dealership There provide consumer XXX particular to of both location. in an number to to Ron. go The have of to both miles. willing with me are the our we I shop been this does, change the of this boon the And leave a marketplace. optimized

Ron Josey

Sure. Thanks.

Jason Trevisan

then question Sam So of renewals This add I is will start to to may address groups. one and your it. Sam's

him to give breathe. a will second So I

us would characterized it. better few why getting are I I yes, there So say as driving a factors at

how part first messaging ROI the The we dealers. help It's that's we of that are to becoming driven is with and trying dealer. our the are increasingly educate

that been gross focus and starting ROI percent heard by on in but could their back. increase calculator to profit. am X driving sounds to are discussion the like our allows and for wan and You us every X how profit thing that about from, to we basis, a well, the have you are to and taking quarters I spending several me that an talk them relative sure that I a through to, resonate change tenor simple on we to low-cost education them achieve us gross very that's am process now that's really I that think us that paying of And getting make have I they dealership that the helps dollars with

I understand teams The more marketplace. thing with merchandise cars is consultative. more think and account successful our just are partnering to being market them drivers are dealers and the the really second our frankly better their better on help They be

just variety I last is that is sources, rather, and variety of of from leader obvious we leader. There to displays are the think scale in more evidence that from dealers. few more become quarters our factors facts and dominant the a is the third the the a factor have

renewal roots last, data our that the helps in we really cycle. also in the success, behaving historical are not we using for back are waiting to we would predict that are to success think risk in than being or are and that of dealer of success going ways any dealers them to conversation. sort them seeing those think and we for like then identifying the but addressing real rather could And I time, more that lead sort and dealer's don't proactive

Ron Josey

Thank you Jason. Sam. Thank you

Operator

you. Thank

from question. your comes state White question Tom D.A. next Our Please Davidson. with

Tom White

taking Thanks my Great. for question.

Just guidance. on the

the the revenue you year beat. well excess So XQ of in full are raising guide

And specific of AARSD of it an Is of some the just growth on curious the audience. second of from products? new some what field addition Obviously Just are maybe then Is audience maybe drivers the kind the spectacular. is of dealer sales? strength outlook implied it from improved investment piece half? the for increased

can you the what unique to sense Any growth. Thanks. growth is down quantify the growth? user connections about talk compares You funnel connections that

Jason Trevisan

it's Sure. Tom, Hi Jason.

year. a half of strength So have will subscriptions. ongoing had first strong really the on in have believe We guidance, the we

have we We from second acknowledge, that that's first flowed through so activity the half and and promotion revenue based others say, half advertising strength of do is timing through And heard our year. on OEMs you us so less as the and have predictable. campaign

been growth strength So have our is now and believe that our second strengthen on that doing the the half. I guidance now, principally the say, raise would will has been, are I audience half impacting of support first which backs we seeing we that renewals

biggest observation. they and connections, sure in the advertising influences QX have not a connection good or mean, relate shopper businesses, by means correlation other brand new audience growth. business mass-market to this does. there attract you is television-based between it's uniques I volume of XXX% as versus spend than And, in tends any I funnel fact, said, as a far in year QX year is see search and As in and how audience one and our last brand media-based am to higher I

be, right are away. to unique but often And our ready so they are those less convert likely likely, to to not going

sessions have our stayed fairly You stable. unique per has that seen

to is audience growth going and but hasn't that a it we shape of lockstep had yet our huge as a connection little bit And on the are it so not have And a growth. audience. changing influence result,

is mobile with time. dealer's It other and platforms than and more to behavior certain that with respond with that we how It users The thing may different equal to encouraging make. dealers all are changes types and too with it connections be site, created changes over them connections connections. they might changes connect value changes of user not types of others changes how and

factors it. several go into there's So that

just to Our but the goal necessarily it's not maximize kind right is connections. connections, maximize to of

say, not seeing think just quality, renewals. But strong quantity. quantity such it growth and and that's supporting to strong we connection audience ROI are and growth really as suffice with we So dealer about

Tom White

Thank you.

Operator

Kessler Aaron from with Raymond your James. question. comes question state next Please Our

Aaron Kessler

Yes. Hi guys.

Just a couple of questions.

was should you Thank think I had reinvested as our that mentioned and of and thoughts And philosophy on how operating well? latest reinvesting that then in you. just second term First, your intermediate about you over you on your QX. update here? in obviously thought some testing may price general can good provide may to before, how upside of expenses. but we kind revenue? upside It some if that And across looks near maybe leverage maybe evolve like

Sam Zales

Zales. take turn price I Jason Sam to it's Aaron, revenue. testing on Hi will and it

mentioned the two We top had first be in were of or think the the bottom first quarter or of in a we so price testing, I go. inning were the may the maybe second. I of

and arrangements. pricing We different in far mode of have packaging test success great had looking at thus

looking is that pricing lead-based well pricing different our are model. to product a the the starting as driving things of And of an we our with analysis are our new last think it I question hit Jason in and pricing, like understanding we very at all renewals ROI-based of of than history that all dealers. of foundation ROI

are connections we are sophisticated the driving are and value so And about the impact driving dealers. getting we of of much to the our we more understanding

had are as and are innings. models auction-based testing as the I still we early pay-for-performance We things, models, mentioned, in

or the seeing perfected move model in to used of be some of those will AARSD it's we too are one we early success forward. have but that that several the a reflected that growth, permanently say as You of of

can will ongoing this we and reflect that hopefully think growth of the versus find price driving pay dealers continue and testing growth, process connection the driving driving a we keep pricing subscription. be If and reflect the iterative they we growth where an balance going the models we our to better is we AARSD know to we strategies to the are ROI that to are business. keep for that for packaging incremental I in value

Aaron Kessler

it. Got

Langley Steinert

the reinvestment. it's will Langley. Aaron, take on one I

competitors remarks advantage one Jason things. that over-deliver our reinvestment competitive in against to think I So to technology. on our that on his technology. our to really focus is is, We revenue two core earlier all when fact in obviously, believe is focus on we alluded probably Number

push fast we team and really tech least and to So the in into is the as more at as term, up significantly up products that can our new are probably marketplace. above But we brand. near building

the And some real a differentiation aided Our principally a been digging exploring radio, offline, really as our consumer well, unaided TV awareness. radio marketing encouraging and both have team from more earlier in of than of has point is job but branding. and We done TV, in be testing returns although there feel standpoint terms going we have of to TV against competitors. like product a great

whatever this is the time we and dollars building best feel over brand. claim where stake that into to we reinvest so performance And our marketplace we the have in

Aaron Kessler

Got it. guys. Great. Thanks

Operator

comes Kurnos Company. state question from question. with The your next Dan Our Please Benchmark

Dan Kurnos

not then eventually are you brand aggressive adds mischaracterize, you people fair to as you of said kind the are that push bad thus either some occurs a ? the to wondering you the while just intentional get market your or new your international in people on of add launch you sort the on are react love to of reacting competitors to how to awareness, penetrated like part far? not side, to through quick more it as you of When how more a quantity, of marketplace a are still on side, I where not a the guys just this, off, sounds with as as now that to guys pace Is kind Jason, Thanks. I to like process, known the that's saturation you want And lot think point renew more actors, to get and really renewal marketplace, don't the Thanks. into either start decisions earlier, as characterization? probably going a maybe put fairways go but sense Great. on domestically, it. back dealer

Jason Trevisan

Sure.

to first part of though? happy actors, reference your bad I was take. The I missed the that. to am question, What

Dan Kurnos

Yes.

the be sense a you go actors sort through want think churn, is the process? necessarily it get of go really adds think count, of am what guys referenced was in am of think concert if are to just you terms good if are of maybe growing may it to near-term if guys the through of limiting kind sort that is dealer but guess that's I I you as kind pace there call are the intentional, it's some U.S. trying however of comments, renewal don't but over the just I I I in that the mistaken So I characterized well renewals you your it data process, earlier. don't and you you doing dealers or earlier or with

Jason Trevisan

it. Got

Okay.

that are that market I that. if that quality that think as with term should for what don't to bad a for think the the I a a is actors, delivering getting the about we yes, place using dealer, So that. as But sort about we think we more is don't where it necessarily scale and in used I line that We compensated ROI are still of the leading supporting the pricing. we positive remember market it certainly is that and way be in the resoundingly is but

away of there. not more options prices are they do, and pricing frankly having per that in market willing nefarious from attractive believe are we so dealers And bad than unit out actor, what we I of much are walk what who se, a guess, fair so lot other terms to not It's a pay still activity.

dealer, we our In dealer now terms in. is adds, we across about right the dealer would dealers markets I thing new the pool that about of all is our first are the say, available XX,XXX think

in XXX,XXX bumping And up markets. to are all of just XX,XXX against our sort XX,XXX-plus, XX,XXX of so of we

we less we basis, penetration at and we look a a stick, slowdown we we opportunity, in in penetration. of measuring third to level are to U.S., a than still where that have an have that achieve a it are feel segments way a go. but signaled do aggregate we we expect long market and with we On third market-by-market as see or a the So by growth going see more lot at of that percentage

up larger look paying competitors, If the, some and call are range of than much we at you to XX,XXX are at in they that. XX,XXX dealer higher our it,

refer business in the it we a And be model uncharted as think, to so our or territory larger into and set far we appeal so to differences, always we remains of of that we XX,XXX to dealers. because U.S. How seen. get

to And products we as to We soon to XXX,XXX theme are not at same we paid countries. we expect the more at stop. will It's just steam be launch as XX,XXX market But for can do exceed to rate. targeting in think we a still meanwhile, to going the ultimately we go. and the how and we are are pace think I is, and then we but us a the more work going get XX,XXX there moderate key for platform build there level that dealers to going

pay welcome we on for a to need the they they and to benefits freemium then so if have dealers reasonable going fares to enjoy are are product. that. paying, of And But product that freemium stay will

Langley Steinert

it's Dan, Langley. Yes.

your to I in those take markets. question reaction to about, think So product asked you our international about second more

actually the We reviews our and when up. and incumbents competitors at became They reviews. any putting actually page cut because wouldn't history the positive U.K., out would line, past our of being popular. And competitors my put websites worried have the was take they when Canada their punch upset. were hotel so reviews merchants start seen on TripAdvisor we a started reviews to put some transparency. will I user of negative putting And our They to in TripAdvisor, customers the react even to saw

I is deal. And when they My what is would highlight to it. consumers doing They semi-transparency, great are so reaction the will putting, won't is you is about a deal, they that. car some car aren't when kind stupid. VDP, of are bad that, the talk a our but will see-through are competitors that doing of call They on when

more cars order Some the are give flocked am business algorithm. model they other they Google Yahoo of based well, analysis said, their importantly and on at an am on Google. change the PageRank mathematical I and good to VDPs. no, up bad on out perhaps saw of to on are both rank with where who of going I their competitors was to sort they and marketplace Google this were is to money all and deals the to they search making I But taking the that show going unbiased the destroyed to links unwilling results. our on it where Google the because seriously are they showing cuts money. even then that search more think and model, Inktomi this and deal paid And with not top when analogy them best I mathematical based Yahoo were in one the is, will to came the inclusion using Anyway, consumers past forward fact pays that and and today, sort along me the most

they and we are markets they be bit are in We box competitors let's and towards a seen they transparency the up a because income most seeing it change where that that will are businesses. where well, our them sort statements. on consumers are And market, is seeing the pays smart blowing have based But money. formidable in order paid the on a are model both, a they U.S. have can't basically great built some because in full sort done flock their inclusion in clear, order that they dilemma of international the really in we without who it

these of some million $XXX have competitors they lines have And revenue $XXX worry to about. million,

about we I inventory. we our are to as folks we in, how how as doing of way see again pretty they will reacting refer think but our entry, how are fundamental I we and think that think quickly. it they and product and to yes, sort semitransparent the And So that and believe we technology about advantage because have a consumer consumers a think, I through

Dan Kurnos

Langley. Jason. Thanks Thanks

Operator

Thank you.

from your Our state Mark RBC Capital Please next question. with comes question Mahaney Markets.

Mark Mahaney

ask that, we I want think for long-term U.S. me. the Thanks sky what American including that, Hi. on dealers you market. pretty or blue AARSD that's to just put big question. and a XX,XXX a If about North the worldwide XXX,XXX or dealers if

the a and up what in lot in today? oldest differences there you. Are U.S. like U.S. the do the are levels the lower instructional So have in Thank is they international closer than there you the rise of just talk AARSD the U.K., curves much between U.S.? AARSD seeing growth you look reasons blending international seen any is it's the Are seeing in but you it markets, about that to are have why than AARSD Canada in shouldn't the a AARSD, know AARSD you countries. the structural markets? long-term international U.S. And international in I also lot now and

Jason Trevisan

this I Hi start can one. Mark.

the So in of the then, that is first markets all, we right are now. XX,XXX

enter we when and countries. if other bigger becomes that obviously So

it's different? biggest just markets. is those now, our the in terms to that right driver say In us why size would I For of

far U.S. basis, so connections in And in are per than a are we connection right fewer per we the on those you just if now. driving dealer dealer think markets about it

you There you metric if portion our paid connections metric back connection There But connections, things are that a business, then see free look has considerably. at becomes adding connections, U.S. that to dealers, grow. per connections have just are grown such adding I per growing that period say. harder And or both you dealer onboarded a start up. go once structural two when and dealer a to you so of and good dealers grow then continuing would is you

than The in the including the some some than that's unit different are first a is dealer function that and the And U.S., models, higher relationship OEM pricing different market infrastructure. markets I P&L have the are of lower and the just think dealer U.S.

I connection potential our of think eyes. per in drive that's that So ultimate the will something revenue

consumer is behavior. thing second The

So marketplace listing in advertising model. an use inclined markets times are willing some other in think consumers or dealer And more where connect more they less of they to of less inclined. heavy inclined, markets, with to like site an providers and need to are advertising, a a are those

So there structural and in foremost, our couple I it's but things, and a is the maturity size say, would of first market.

Mark Mahaney

Jason. Thanks Okay.

Operator

gentlemen, management will questions further time. Thank you. now remarks. Thank to at back this are you. Ladies and call I for there this turn closing

Langley Steinert

time. all and everyone didn't the for appreciate interests, your anything certainly input, great of add the to have but the of all we questions thanks We

Operator

disconnect. conference. a Thank you. may This concludes today's great Have All parties day.

CarGurus (CARG) 7 Aug 182018 Q2 Earnings call transcript