CARG - Earnings call transcript Q1 2022

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Operator

Greetings, and welcome to the CarGurus Inc.

First Quarter 2022 Earnings Results Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. And I would now like to turn the conference over to your host, Kirndeep Singh, Vice President of Investor Relations. ahead. go Please

Kirndeep Singh

Good CarGurus' operator. delighted welcome to Thank quarter afternoon. XXXX to first earnings you you, I'm call.

Executive on Founder market We President Officer; will release and With the press Executive the Trevisan, Zales, call Scot in announced and Relations today Bruce Officer posted me and closed are on be discussing Sam of issued Fredo, Operating the today Chief and results Officer; our Chief Chief website. Investor CarOffer. Thompson, Chief Jason our Officer; after Financial

statements except the call, CarOffer and which and make our and our for promises of will strategies, actual chip and those growth current We and close that, press including of applicable we by obligation in on that them which of most call, industry update issues quarter and may product which the our found statements for certain law. the GAAP expectations business updated the synergies, acquisition of issued subject concerning Investor section or measures. offerings undertake website. presentation, semiconductor today's business market and our our During investor in Relations the website over securities future available during recent With of other release Forms today will can reconciliation our distributed expectations our required today our materially now differ can statements, regarding Information our with the to Relations financial and is to measures non-GAAP be risks along value to turn XX-Q, outlook statements business Jason. of on in Further, within after second other proposition Management's I'll our for XX-K SEC's no and be the considered our section impact cause forward-looking on our results. it of other financial earnings operational forward-looking XXXX. other and our included uncertainties, laws, press SEC concerning well are and not macro-level as the our are These as our release statements in website. opportunities, to in regarding plans, the shortage we could as Investor course be guarantees reports to product from non-GAAP and is A expectations. prospects refer found filings performance,

Jason Trevisan

all XXXX you Thank a to terrific those Kirndeep off today. is thank very much us start. to and you joining

options While consumer our and XXXX Offer matrix the of geographies last by CarGurus solutions macroeconomic for factors transformation we Offer, CarOffer's our dealer on to these CarOffer, innovative of the adding deal we in which capabilities. partners CarGurus dealers accelerating In new dynamic business XXXX on digital CarGurus Cash our XXXX, our business. up continue by activating bundling was to acquiring plan activation year transformed different was to forefront potential introducing more at challenge automotive across execute Instant on built year the Max platform, And and Max retail lighting new year our our launching Instant for of remains both providing digital the offerings. and industry, audience during times. Cash

business business, As businesses digital potential combined we are unlocking and our retail wholesale alike. the the we new an of of create enabled transaction for end-to-end consumers aspects these the with and made that through to initiate listings possible are synergies dealers digital marketplace also foundational

and means the audience intent efficiently finance, U.S. sell place transparently to sell U.S. a the consumer source highest to the for largest from And to selection consumers, the the shop, this market means buy inventory dealers' largest it in of For and in dealers, and ability

year-over-year. exceptional acquisition another instant traction achieved end vehicle a and our dealer-to-dealer to vision trade this The share of to growing Max rooftops our for the CarGurus our forecasted the inclusive and at garner enrolled this base $XXX dealer CarGurus quarter. business, results Revenues XX% Offer million, business first continues industry's XXXX% rooftops As past we teams make and Instant sales disposition by from the dealer guidance joint The XX,XXX dealer to platform CarOffer for as continue over quarter-over-quarter and I'm quarter QX. exceeded of and quarter. reality, for expanding revenue to the Cash indicated added pleased CarOffer was X,XXX

since cost this continue our of network, and but types further able we're Gross mix. behavior diversify partners, matrix dealer-to-dealer fees and increase at we Cash buy was wholesale growth factors $XXX have $XXX changes drove fee also quarter as in subdued dealer our delayed more our One, modestly transacting XX% beginning two, retreat demand the from dealers dealer-to-dealer approximately moderate Offer how business base, gained XXX% a the sales, slight Two quarter in We continued quarter, relatively to GMS, approximately in the understanding the revenue chip tax for $XXX $X saw $XXX, over wholesale for to we to witnessed grow refunds. an decline as Max merchandise from and quarter-over-quarter. and million business appreciation retail and billion of they As our on platform. start quarter-over-quarter acquisition year-over-year. dealer to prices, increase deeper first sell historically vehicles utilizing as an auto growing the AND retail CarOffer, increased transactions, rates, of included a inspection enhance in declining and consumer we the in to in loan wholesale QX; $XX. inflation to semiconductor The revenue Each generated Nonetheless, rising high in navigate prices March the revenue fluctuations the or dealer ongoing Instant result throughout shortage. a prices affect to and QX. our of continue our

and chain pleased transportation with a large experiencing supply unpredictability a increase on for spite $XXX its as transportation and In is the penetrate our assumption which $XXX the who QX, our business the revenue model. through high XX% of in covering new an for XX% five approximately growth coverage their had services them margin inventory highlights the and additional to market low quarter-over-quarter. we million provide Cash pandemic a vehicle of the revenue, material we of adoption for the the I'm meet In quarter pickups. used is of states, approximately transactions of infancy global the customer growing and backlog CarOffer needs. of of we of long revenue, Additionally, continued issues remains to Max continue Of There with market, of further runway our effects Offer forecasted U.S. to date. end solution the impressive the growth, car guidance dealer profitability to CarOffer the expanded the generated and during unique business CarOffer efficiency in million, to exceeding Instant relative U.S. of the now the our Furthermore,

XX% driven conversion. primarily the markets into growth for growth, end the expansion place accounted accounted while by existing expansion quarter, for of towards new the in improved While the geographies took of consumer largely quarter-over-quarter of XX% growth

as Offer, consumer quarters, experience. we Max transactions enhance short, have doubled. for more automation more Cash to the or we self-service last continue to Instant greater further the than quarter, CarGurus' added optimize as Max like This two Much well Instant options

Our set to a CarOffer assessments. a call virtual improve pilot condition consumers up to our allows video inspection with intake specialist

convenience thousands optionality Our schedule enhancements and consumers. of system provide allows to the and and scheduling more These online dealers. consumers online flexibility of utilized users appointment for receiving most highest was to offer the pickups driveway by competitive XX% compliment

is approach the are and for our to long Instant We run, we we we and meaningful positioned U.S. largest capture refine coverage, CarGurus consumer national where network over the technology. can continue of to scale at instant dealer both transact our will trade marketplace and As consumer the believe and market partners. using the as optimize instantly Max the share largest experience audience dealers only

I'm driven revenue U.S., marketplace This dealer the our editions quarter the dealer new expansion. editions since we forecasted platform dealers listings revenue share healthy performance editions our dealer during and quarter, thrilled this exceeded shortage, listings strong business, dealer growing and to up the all our paying XXX our the had off Turning In by was in for our to business semiconductor quarter. robust pandemic and dealer have churned from rejoined. Net QX, as who dealer evenly between ads split segments. well chip as were across counts foundational the

dealer, to we improving addition or QARSD. quarterly revenue growth accounts, subscribing for in In average saw dealer

Area X% paying additions, dealer This upsells year-over-year RPM by driven QARSD and of adoption growth approximately Boost. higher increased grew quarter, primarily to was QARSD U.S. greater and $X,XXX.

accounts the strategic since historical the allowed churn by modestly witnessing a viewed not target materially paying low continuously on visitors, offerings while of the that their quarter $X,XXX rates business, seeing base year-over-year lockdown averages and purchase. in consumers In innovation are service and from in QX retail U.S. even to fourth existing flexibility down for optionality It is vehicles the known grow as to In similar we their from only for spirit partners hard-pull will U.K. has in to partners the receptivity our shortage. deposits see drive This to outstanding are financing to quarter-over-quarter. in markets. strong Canada all our digital dealer their both able other chip the we're inventory display, are listings that customer digital their and to addition product with who capabilities dealer and to to of in in and demonstrated through beginning allowed the XX U.S. pilots the when and last lower dealer our growth during the our launched XX% them for expansion In We're transparency of very QX, digital QARSD ROI continue of The and These but growth. launched business, that X,XXX the We journey, on same our to with to international self the digital launching dealers also U.S. million best offer dealer revenue pandemic dealers largest grow and strong service focused display customers functionality to pilots listings that year. dealers and as while thrilled a result core tested to to drive providing utilizing monthly focus click-through leverage and we always business listings completing unique we pilot QX trust, with growing convenient base greater in ended new our back Internationally, and providing display listings, one-time exceptional in dealers, and saw compared retention websites. and our we innovating the RPM the also were dealer have display us emphasis own of CarGurus to the discounts and excited a adoption. our allow digital offered Since available selective visited the selection existing provide sellers pricing highest innovating drive select dealer in own final

pilots, of conference, this process of offering car at Digital who of Digital helping to XX% year's of digital buying upcoming of success our CG from auto prefer the more CarGurus' the is dealers home. NADA business do retail evolution a our from shoppers shared an offering, Following close Deal more the preview we our convert Deal.

a excited vehicle for the appointment with the high-quality build consumer Deal for innovative does NADA more dealers, partners. Deal and our later near to shopper opt provide a creating available value time to at launch dealers dealership, deposit times by dealers hours. this audience all will solutions business tremendous product and standard X.X been Boost, beneficial If online, Digital to offering the drive dealers and Not as effort level down only shoppers CarGurus than but a them satisfaction are including select two-times Digital to unable place and Digital mutually XX sale. less Digital funnel traditional $XXX shoppers perfect dealer car to retailers. wish provides and local finance Offer, to We're to Max a online for offering to is Combined we're as leads, available compete utilize with full gives dealer higher insurance later full new than dealers and month. into to sell visit, for moving who this a dealership retail experience. dealers digital our made deal capabilities providing allowing dealers we've provide with the unique their you We With largest they on playing leads. to to outside month. solution solutions partners to to digital by with inventory and that close opportunities to option to to to and dealers credit will digital synergies Instant wish to and This consumers Cash consumers before a help ability in-store profitability. further Digital finalize retail retail a this and is who the designed both serve market new a closer have penny our enabled With believe launch, solution will to empowers field card be our dealership scheduling when to creating in end-to-end CarGurus' Deal Deal their It greater leads would to the Area by realize Digital offerings, visit purchase additional to like the Deal likely the benefits are to marketplace. through the sell Our our create online the audience like. dealership able of Digital the consumer have efficiencies far more platform has exist transaction also been reserve an close and/or own and sales Deal enabled it digital these Deal

of each main the value VDP Formerly submission. lead their came consumer from

However, marketing from as products to in us our the across they our of contribution we able thus, allows a since grow increase platform as gain value are consumer we expanding the interact shoppers consumer. multiple multiple per to This and revenue across with our products. our leverage spend, increase our business,

a Heightened of XX% allowing small marketing, that purchasing interested leverage high create not services offerings. platform and and us example, Max are well did engagement from consumers to more even creates for our with full as a a consumers, we cycle dealers a are engage Instant of new our consumer the as exist that our began dealer bundle able to for as to enabled to suite. additional to capture view product car purchase. two pilots stickier in This at marketplace VDP quarter, For approximately savers product our bottom of we of synergies previously. Furthermore, in transaction one. offerings the help revenue. able them past Increasingly, are shoppers consumers their capture types These a we we target designed funnel selling life and synergies offer new intent both are who with full increase our activity these our

are advantaged CarOffer first The is our by CarOffer utilizing offering dealers subscriptions offering meeting listing CarGurus on pricing both is the to non-listing thresholds. dealers second are pricing and who and transaction their volume monthly on that favorable platform, CarOffer,

incentivizes the driving results. of profitability the incredibly strong first our more as cohesive well and Although listings thrilled dealer line foundational into offerings many as quarter one of CarOffer, we're results. product of early we bottom with in stages improve of are top our All-in-all, for proud bundling our business. the utilize business one partners, their our growth than tying We're both our suite to of just dealers to offerings

semiconductor enabled U.S. and consumer finance, to for dealers in of the the in buy marketplace to efficiently audience digital create cause transaction to we consumers continue digital of while the to with our automotive the network tremendous for end-to-end volatility, from a our and pushing retail forward sell creating to dealers source, inventory largest confidently deliver highest uncertainty end-to-end shortage We're transparently and enabled value, and shop, listings While only transaction marketplace. wholesale business full combining the intend shareholder market chip near-term continues and the vision sell largest to and foundational U.S. all and

focused and dealers optionality unique. are to both on individual them suite and consumers is best transaction providing for for purchase tailor product choice convenience a complete by sale to dealers serves that offering or flexibility works Each We that in consumers manner increasing more their their and business. best a

team solutions consumers every creating the dealers. or these ideas None of are needs would that possible We various of be and to innovative without our results mutually members. committed one incredible benefit each and of

to my employees a the to only take back little challenges not June. in office created to like employees to two globally. Nonetheless, moment personal the and a and I'm able our we and continue were I'd embodied their new our pandemic to passion years, The to appreciation well. So, vision but over and and vision excited After express our turn gratitude lives our employees It's drive disrupted work welcome values our past as through over lives, years, two commitment our into our that a reality. to core innovate our forward.

financial to it Scott our results. turn I'll over discuss to Now,

Scot Fredo

$XXX.X due grew transportation prior due compared mostly revenue quarter in revenue our year. quarter-over-quarter. $XX to in by mentioned. million to XX% the revenue million XXX% quarter. to overview from XXXX, you, first quarter followed $XX for revenue detailed by The in Jason up $XX.X mostly increase in paying Compared range. in the Jason. quarter, quarter guidance up The of X% quarter prior of of XXXX. a our our Thank in guidance and performance, was for million recent the second marketplace I'll $XXX.X prior XXX% high-end was in that the year. the is prior from and most million revenue in quarter, revenue year-over-year first dealers of increase the U.S. driven the million, was previous the our on to growth was from ahead wholesale the $XXX.X increase nearly of Marketplace wholesale quarter the revenue in million X% our quarter first first provide first revenue increase up the an up Total Wholesale listings foundational the for primarily the

for Cash year million the X,XXX% and quarter. will revenue and profitability our to in volume increase Lastly, backs amortization the primarily out expenses intangible from was from on related first the and Offer. previous transaction growth quarter discuss revenue, from a now redeemable component, up in expenses assets, quarter, acquisition final Max attributable our product is with associated prior Instant basis, of prior stock-based revenue income due XX% compensation which non-controlling net acquired up our to $XXX.X the I and million non-GAAP interest. third expense, The $X.X

primarily growth the compared associated non-GAAP quarter directly in non-GAAP due year margin in the vehicles Cash quarter ago Offer to XX% its change gross the costs acquiring of margin XX% the and XX% in The quarter. Max to and is from First was prior of Instant gross consumer.

was expense costs to contraction arbitration and acquisition XX% of compared in an the increase efficiencies the revenue first Jason increased $XX.X XX% to marketing quarter in operating previous period. dealer-to-dealer mentioned. and sales sales previously revenue, to that XX% marketing Non-GAAP slight Additionally, from transportation down expense due services. expense XX% in previous year paid represented to Total the and our non-GAAP synergies to spend were year-over-year. year-over-year and Non-GAAP in with associated $XXX.X million, quarter compared realized the decreased X% is sales due million. expenses we and primarily the marketing as quarter the of decrease ago The non-GAAP up traffic

to Max However, ago among to Offer we consumers. in forward Instant awareness expense invest compared XXXX, seek Cash moving expect while brand to would we will have these and remain, our market increased efficiencies the increase and quarter to year we as

employee non-GAAP guidance our a an Inc. and above up year now increase and margin of per ago gross enhancements margin primarily of in a as $X.XX products. addition were versus $X.XX our middle increase XX% is reasons quarter GAAP million of compared new year-over-year. CarOffer primarily margin $XX.X and our generated of technology basis, generated in wholesale to primarily million. income ago continued the our period. by million, a of as incurred digital costs result $X.X $XX.X increase share amortization core previously was for to to approximately in and new expenses quarter, were employee features gross guidance the marketplace in our due operating subscription over the CarGurus high-end operating quarter XX% increase The intangibles revenue. The of as grow Non-GAAP the related a increase to and the in earnings digital acquisition. attributable result acquired we well within product, well operating We our teams in year and investment an previously range. range. expenses first the representing XX% and On to expenses development in areas expenses XX% diluted our contraction the roughly The grew technology related headcount Our as We XX% first of the in reported to total of first period of non-GAAP included benefit as headcount a XX% increased to retail, operating XX% million, of year that $XXX.X driven are as payroll cost in due expenses, we discussed, in increased last to as supporting business of by in is headcount

increased operating quarter X% GAAP year-over-year $XX.X First income to million.

million with remarks outlook free $XX.X of XXXX. $XX.X first capital was GAAP totaled ended $XX of quarter flow, quarter million accrued due generated of million. $XX.X and We the an of cash and The decrease in And GAAP in CarOffer. increase related the million cash our increase the non-GAAP costs payments million, of loss balance, operations interest our in receivable of quarter. million non-controlling million the to the increase from in processor first primarily value includes We a first attributable accounts of which website second expenditures close Inc. $XX.X our in the my made capitalized million quarter attributable shareholders $XX totaled driven $XX.X common cash redemption end million. accretion offset from to in and to fourth in development third-party expenses first income net $XX.X $X.X quarter million a $XXX I'll the CarGurus for with by investments, quarter. redeemable net to by $XX.X to quarter prepared to First million

$XXX to to million. be of of revenue guidance previous anticipate the to second are in be million quarter $XXX we Max to million. we $XXX in revenue for the to $XXX quarter quarters, second Similar our Offer, providing range Cash Instant million which expect We range

estimating to non-GAAP in share income $X.XX. of and million to in earnings the the are of million range per We non-GAAP $XX operating range $XX $X.XX

QX, expect we to marketing team We in drive consumer to contract to our With we income at compared long-term up our increase operating spend Q&A. drive and for some technology as non-GAAP Investor the seeing to forward I'll growth. of our awareness in upcoming open to building QX continue that, you invest look to and Day. And now call

Operator

[Operator Thank will At we go question ahead. time, session. this Our with be from is conducing line you. of question-and-answer Jefferies. our John Please Instructions] first the Colantuoni

John Colantuoni

per it CarOffer, trended sales engagement looks in your and at you any recent this XX% -- about how then dealership cars talk about follow-up. about merchandise average consumer talk willingness how CarOffer to sequentially you could has in Can in demand dealership's recent for is first months? to just buy looking how And programmatically? maybe quarter like compared year-on-year. have expectations? moderated the And also, engagement And has double-digits whether Just a gross used to how impacting at I moderation

Jason Trevisan

to do Sam, anything? you a at if Sure. shot to add Bruce, want you and this take want

Sam Zales

Happy turn and a to to in start, Sam it expert Thanks. Bruce, on John. minute. Zales, this I'll the

a that a And is -- it first to dealers the selling. time, year. fourth and When and whole volatile about impacted pricing about talking drops, that's buying and the last quarter factor pricing. we I'd quarter say sequential was by cautious industry a third of as wholesale You're last about talked makes wholesale quarter,

those So, impacts that -- the business. dynamic

inventory market think also transactions dealers and demand, consumer as how is need. just does right that in soft comment you is Second about and said, much impact how the now they

look buy and pricing again the good said news and we is changes, sell and in is starting for both dealers that confidence starting wholesale always model to wholesale at that transacting side. kick-off, As second up head quarter you've it, to pricing on

that impact. So the is

have As to you, it on that you share turn let from macro to Bruce, a you if think front. me more it perspective, any about

Bruce Thompson

just I you're basically Yeah. that saying, January. incredible and Sam, would December reiterate had we also what

today the came I said, the point, we've on of system have the as ever prices since we than buyers first of year. your to down Speaking think wholesale That programmatic being X.X% had. more today

going that every particularly months seen mean Max day. Cash six we've ton and wanted to getting rapid billion business. February, Basically, that very, buying we we're given aggressive in this really aggressiveness so, learning we our quarter. picking that momentum a to month out, get cars we're And headwinds or expansion lot. there, And So, a these about in, Offer, into I setup a these we're these this the there of we're $X of and And Instant but and good spot, up paying as move the consumers, next. into finding on from consumers learning cars, feeling very dialed about as

John Colantuoni

little see dealerships by in I advertising. digital between seeing boost guess, wanted demand, leveraging I counterbalance to more And dealership as CarGurus look the a sales trying Great. With how marketplace used CarGurus in you benefiting to Maybe see car ask a you business? about their out demand impacting offset that dealerships figure little just trying a a drop one at to dealerships. that marketplace. could talk bit the about I'm moderation dynamic you to about how inventory much bit being and keep more careful they could Thanks. that maybe

Jason Trevisan

more. as are the respects, a This vice in our have Yeah. one and consumers think that I cycle business Jason. talk you've about in of balance dealers broader more selling versa. well. It platform tailwinds in and lot probably for does past another life heard and when in area, there be And full sourcing, I how marketing Sure. John. headwinds and covers that complete now there may Thanks us a mean, is we

marketplace market dealers. going to momentum our as will aggressively consumer we to are us data that, see more well, that of say as does that QX but business, some hundreds in and heard dealers we feel so, help you started you've do you've have that points other of probably to demand seen that, as wane added and that And already market and in

And constrained, situation demand down business have improving remain if year, has that though last as even we is lot up dealer probably our aggressive they from it if products second consumer marketing does last future not was. even demand cars to the well long sorry some say remaining factor retail foreseeable don't where pre-COVID. that may then as the as they less as that is rampant as on demand -- digital were of But they was end of -- RPM well. as consumer a if in listings consumer think we're for their inventory and while I'm for that and go up, half the goes be goes challenged inventory As introducing -- a tended the well of than of year is it bodes if then lot,

John Colantuoni

color. the Appreciate

Jason Trevisan

Thanks question. for the

Operator

you. Thank

have question of Chris the line We from Please Needham. go Pierce ahead. with next

Chris Pierce

to slide I be does are in you go margin you're deeper walk on Internet what cash kind if day? relate on Hey. sort lower? kind it How to go deeper. but heading you profit to it, doing? of I'm think And gross at non-GAAP Can pricing wanted I'd XX. said Bruce I looking hit through it? of contra CarOffer every where just Is you from guess just a out inputs? lower Is the that, are there? learning Bruce I CarGurus arbitration revenue appreciate Or there of me

Jason Trevisan

want you do on at mute. a shot that? You're Scott, Yeah. to take

Scot Fredo

Scott. It's Chris. How are Hey, you doing?

at? that's you're non-gas gross -- non-GAAP looking So, what -- XX, on sorry I'm slide profit,

Chris Pierce

Yeah.

Scot Fredo

can we slide. right? that the mean, amortization huge a item, from got see on I benefit you So, the So,

And is profit regards very see look because just overall to QX in difference of that can trended pickup. issue. a line, at So With -- QX. from QX that if that I GAAP high mean a the that mix gross there's to you you one-time

points the We there -- was Some were call. volatility. of that mentioned price the on

on aggressive there regards more margins got we QX. with to pricing, over we transportation associated that So, and carried from Instant more compress Max QX costs had bit. to gross We a

call. that So, on we mentioned the

to compression gross So, all quarter-over-quarter. some of in led margin that

Chris Pierce

are the dealers closer what selling And ADESA kind are Okay. thinking and or of the bigger sourcing you get their market. in how picture, closing telling sunsetting then of to in of kind deal dealers their about wholesale we as

Bruce Thompson

they're I seeing perspective, I can us think as that Bruce. And are some the sure. dealer to brick-and-mortar auctions momentum from keep think moving forward, tell ADESA well will forward, is it dealers this I -- cobot take can the with I participate you not it or moving I benefits decide translating there. bodes brick-and-mortar already whether going we my for auctions to for or think

Chris Pierce

Okay.

Jason Trevisan

Well, Jason. this is

see now, the that's continue grand to in some scheme to think days, We steep a a but pretty And is quite shift from still to of its early going that time. digital. in and transition things, share for continue it's we physical

gained be to share of lot that. a from there's So,

heard a than the -- that's I that owned otherwise referencing is been. Bruce have by with theirs specifically say benefit inclined competitor element they're that think we dealers work of a group was have added might to less added that they

Chris Pierce

you. Thank

Operator

you. Thank

line question Tom have of Davidson. from D.A. the We ahead. White next with Please go

Tom White

is to like, a I if online Thanks that of looked you any four wholesale just comments going meaningful to the of taking or Do to guys to question. Great. to as new adding that know, element in for think sensitivity Jason, whenever inventory thought sensitive business? the part have Maybe the the you business be curious you follow-up given or a about out well? CarOffer in dealer-to-dealer quarters back subscription to don't expect prices. based way. I'm my come that whether we a volumes the three on wholesale business

Jason Trevisan

Sure.

in a a as couple And arena, stats more that as somebody it's among nature not of It's business. I'll fairway wholesale sensible your in there. more be the that question, know, we wholesale volatility. first car can is while bulk and ramp take So, there decline, production the well macro to those. at form decline some sort way of more pricing new the And I this we on it's there's so subscription products used see but but the second On question, smaller from of have per are not uncertainty going earlier as your -- of to dealers meaningful se. of QX. -- we the have in level the much impact car in much mentioned It's in a a Jason. of both that did for really car think you the and model there. from of up in used sort perspective, transaction the the middle the is retail pricing, And and on of DXD pure wholesale is -- a

And for uncertainty wholesale flattened was so, a there's it's in steady in prices at next where say, changes cars. of to with return decline dealers rising would still prices think sell think felt But times couple more periods is was pricing a in I they need going had what in they're call uncertainty to had It's two that declined. and it last, the that course near-term. if and be, And might And pricing dealers to need that it source know such you have when wholesale skittishness, would going some be unexpected. there now, where unit near-term they unexpected and hesitancy concern of most lower need And if a sense and to look going we've years, time, that. during over that to who they them, that drove was will. right cars years general, the a that little level people in market over source sort changes to the to expect still over they I both cars, the than sharp among the volatility it, that I or frothy of and unit two think it

than is the characterize So whether it's around decline would that's around it how sensitivity. an more It's I a volatility increase. in

Tom White

great. That’s

Jason Trevisan

of can trade a makes and in still sort an selling skittishness, platform even A, that more moments way I'll where bidding you're -- sense Sorry, in B, go -- mean controlled we and skittishness. Even comfort I much more a in control think Even your finish, instant of Go provides ahead. the of periods digital in you that and ahead. sorry. actually model in technical

reliant one set as not one of on auctions. of You're outcome or the

Tom White

business. just I needed -- quick really And that companies of view Or kind level to you guys in dealer-to-dealer durable customer of last ramp about you as kind helpful. A remember the That's follow-up. quarter it. an Got wholesale talked talk car of active about Can of part their being rental of quarter? a that just they generally, opportunistic up segment base? those the are their you kind more fleets? as do kind -- second they given that of the activity

Bruce Thompson

-- or come, will is fleet us. had they as not you new, million. obviously, actually the travel OEMs think we for into indefinitely seeing a Bruce. This And them. and to -- well $XXX durable channel quarters the fourth channels with that the we a quarter, basically ramp is from see discussion from to the basically, and us. it's doing across the up, we're buying in And -- My for shift very for quarter-over-quarter, even migration as if for quarters we first it the nearly that I think as transportation quarter the country quarter second up continue -- were nearly And very, to anticipate

themselves you markets wave we're some the today. and performance -- those up down good and when you get skittishness, and today, are rapid and about feel get stock out where go we normalization we the a ultimately, it quarter. first like but very stabilization, with indicated, Jason the pleased creates just in So, And as decline, market when

Tom White

Great. Thanks guys.

Operator

Thank you.

next RBC go have with Erickson of from Brad Markets. the line We Please ahead. Capital question

Brad Erickson

Thanks. Hi.

was marketing you intend reps curious how size some Just if higher guidance, how or is and guardrails QX, of about marketing spend? just to there's the transport also much to investment think you you on not that and just any a And unpack to margin the there Can contribution expense. mentioned there give like as in from that us the sales factor?

Scot Fredo

this It's Scott. Hey, Brad. I'll one. take

we last to in year, too but been I'd to a to saw QX there. and that for that we've marketing underlying something elements, of QX a we with really, spend talked a on couple about fraction I'm specific needing pieces bit spend, there's QX, spent and core of it's started a spend what year. business two more to and on get happen we where in there's say, -- more year So, not a about in QX of have last regard QX going the bit than to didn't

spending engagement where good is more also more has QX we're on to be relative Instant core marketing So, heavily with to the dealers. a and what on business spending in well. lot and is But leads consumers to of minimal those spend site the we're QX sort been Max, of that value for more on the convert site, and to the expect so the investing that far marketing traffic on that's dimension other And we're in drive a as basis.

spend. team We've we're guidance in investment So, all we are But tech, CarGurus headcount to well with regards growing the a team. ramp but continuing marketing and in especially got represents to across to tremendously. lot an their up across more really earnings really fill that as the trying also, the organization, of teams

It's investment a then, people well. the it's lot as in retail we're So, marketing. digital And investing primarily areas. really and

Brad Erickson

on the buy And Thanks it. beyond in gave that. the remarks. prepared just for then, Got kind button what you of

success that? any pilot Just there of continue just as to evidence and of provide any update learnings can you updated sort you

Sam Zales

about Thanks. Happy Max excited We to product. Cash Brad. Offer can't Instant take it, the be more

from site moving from conversions our I'm we're that and saving -- conversion offers are maybe I which right about. in saved off our Offer. direction, for rates jumping all Instant Cash I'm offers transactions the excited of to Max think consumer sorry

about that On the Digital I'm getting -- direction. sorry, buy excited too so the in keeps one. moving button right -- that

Sorry, Brad. for of how On deal, next one. that excited digital the are we phase

buy terrific down get -- we we As getting the utilize see in interest the is advantaged talked and They the is do about in-store or there of that integrated this finance going we now the where We for the product close shopper. hard fully funnel product rate adding get of excited to the business. times Jason pull We're leads interested process talked dealer's what in the an a digital already to into in marketplace, in leads rate process general launch that we digitally digitally. a into an capabilities transaction added that that convert can think test we're And consumers We're doing is. soft our and now the of just data about, expansion and on it's for -- XX% what at pull we've think shop, the starting of opportunity so the have CRM, And purchase dealership. financing a that's industry those are consumer next something the our to to close vehicle. is two getting And that being on the consumer because process. on dealers deal. the we drive consumer, fully to

more so through NADA. We're formally in that market this to announced a to we're We to and it. more bring moving much bigger get connected a dealers digital way You've consumers to out at excited quarter, heard purchase.

Brad Erickson

Thank you. Got it.

Operator

next Thank question the ahead. line Please with you. go The is Oppenheimer. Jed from of Kelly

Jed Kelly

may. if I Two, Great.

Cash view guess, Just one, price of the can then, a how just product? going drive talk you. the CarOffer gross Thank about about strategy some mean, Just or the behind run think do engagement? around the how should you of breakeven how I to And forward? product and margins pricing increases catalyst the at I business have? the of to for mean, Offer, big you -- should you consumer Instant that sort for margin Max ramp I we we do intend

Jason Trevisan

Jed. I'll question, the take others can at a for crack starting and these add. Thanks

well, on all at transaction, shine certainly side, as to that CarOffer, the of most, we certainly we transaction convenience a lower we price you be the offer basis there. if all, the and fee we're look than a to with physical coupled advantaged from pure would dealers, at cost increases price not offerings the if and physical I their for which think just of relative price were total On of continue elements side digital add

that. and this did to about about I supportive. that just as there? in how of there opportunity think spoken increase we dealer is been We dealers but between are haven't prices a that there an decision, value one think the more in more market. have we good And incredibly I reflect Bruce, lot -- the mean, burn which saw pressure we and that to continue there competing prices, we more feel we market March, so, dealers to out suit. in it that to rise And Sam, satisfaction, value delivering we But feel go for I On or wanted dealers we're cover to alternatives committed if the capital. a will it? respect. only Instant pretty of follow They're did tide -- raise to actually, in anything to Max, I in us of ton going to before to And

Bruce Thompson

covered think it. I you

Jason Trevisan

Okay. Great. is -- massive market On Instant a Max, opportunity. Jed, massive, we are mean I it

sure of economics our business like so, got we've business, before and done really And other we've earlier of to it blow on unit out. that the areas we them focused make in enough we're at stages our really right

And margin mid so, extra were. why that single to work low focused some margin, at that to -- digit mid we've we're and on we that's gross quarter, were put the in show gross this we

was it offers. higher months, months some even And other lower, our competitive where it because that. we And was were than with had more getting we

can our where We're we and And bit. down. little that testing period our tested we're offer even in bringing design, so, spreads, a more. sort toggle compressed were special down by these again, -- days we early a up we spreads where a we things And consciously of

we we bid in get hundreds just dealers to is get dealer. it dealers we And marketing right about need to to the And So, -- this. focused that than tell from where a with the we this much in see we're on a consumer margins then, about value the better it's having a prop offer gross world positive in that a invest world we tell don't negative. of how think that fact one to we stage, early or thousands prop to that consumer deal scenario car, continue have to a just a a business at when better to that And on I market do we unit value take offer that think want have. of model level. perspective, fundamentally to we the the matter enough

for We user get word the we So, out ramp it. going into as marketing said, the base. Scott the to are do to want

Instant users consumer using MAX We shopping cross-pollination are sort are vice and leads between and who those and finance submitting versa. seeing of and

seeing platform of it in more generally. also we're virtuous cycle So, the our

far positive to And So, can margin marketing as but as forever. we we in product going of how more to are plan because aggressively the gross tell or is. -- invest great do

Bruce Thompson

Bruce. And company this ago. too, I just didn't these And six -- And that say taken grew would I CXD in the we've seen, very, a car the learn, business algorithms car we any right? And it we are to think up the with buying processes exist decide tell quite here days a buying as the and we just from business And probably from picking type and out the I as faster buying there. consumer a really other those the we learning. and up consumer from this are than dial you, company are and car months consumer a starting stood is would business very of early to and now things.

to at would better about those every say we're We're seeing I it Offer. So, excited month. already be improvements that could going better and more Cash get Max Instant and

Jed Kelly

Thank you.

Operator

you. Thank

Naved the with have ahead. line Khan of Please question next go Truist. from We

Naved Khan

dealers curious about Can vehicle use mentioned board you the cars? -- Yeah. dealer of your to to buy to I what on Jason, you talk more ago. that and came of trends A maybe car that lot. other Are more the the in the pickup. Thanks cohorts, side? prepared who shift channels you that? seeing companies? them think seeing Or some on the terms Was rental them on -- three CarOffer? CarOffer. quarters was Maybe older on Are on the are a backlog commentary, you then, in seeing questions. in from couple And share about what in Just four IMCO with you just your platform

Sam Zales

get Again, If is into are skittish. the are cohorts bit dealer-to-dealer, the all a that's that what's it there, and It’s impacts platform right large in of that great of from on or a themselves participating is the first fourth up a I right sign into direction. quarter, those of them. going happened right question right, proud in the platform factors in up cohorts on But To into little question the to. And a we either and that about more took buy just -- expanding that... their for Navid, want I see up going are the anything dealers backlog moving we direction. everything the That change Jason right. to really the want on as in word we're the saw on the on that earlier mention can all going moving Bruce, a go that. you'd us. the partner like transportation, see fashion didn't jump you we in right add right, market. where more over getting asked. initiate the your used like if about in and we if careful and first. sell relates we that Bruce, going the direction. when into the be right call Sam The cohorts or moving the they're dealers the But diversity more Zales, The volatility their it's one-time and as the the detail earlier in but to to cohorts the sign They in pricing the I quarter the up a matrices. talked that -- mutes for it that environment was that wholesale and the dealers And macro transportation quarter, was was you to

Bruce Thompson

I you're think correct. Yes.

Naved Khan

doing Maybe the said -- themselves. understand bit that way a did to when you you versus you little explain can right Is that them the transportation you so it it?

Bruce Thompson

Yeah.

fleet a all transportation had our We got behind. for sits in their the and clients. particular own. client handle of We we handled typically, one large So, that they bit

that -- that. up on, all took since we So, cleaned taken transportation

And fourth so units. really quarter, a saw there the cleanup you in which quarter is first of that's what

Naved Khan

Got it.

maybe So, just that. on -- dig to bit little into a maybe more just

factor? Or volumes? really QX affected have a might that that something wasn't that is So,

Jason Trevisan

it much, was sure transportation us. -- as in It which, volume did But of majority our It revenue. is mean, higher historically issue didn't And do to really key experience we And had offered lower affect unique everyone. situation. did of vast sort it fee It's affect this margin case, that you for important lower a the we focus an this is was than experience that margin because transactions. Jason. profile, disproportionately related, transportation revenue was certainly but margin, a they done it the I know, it. them, help so in is the great when a vast, Dealer the to make this became ours. of for was

Operator

Thank you.

Please We have line next question BTIG. go from of Fong ahead. Marvin with the

Marvin Fong

Great. Thanks taking for my question.

Just one me. for

think quarter, asked. -- like the everything first in dealer-to-dealer But side second margin been the it on guidance, gross I your else was has XX% just looks quarter. CarOffer, for for curious

Thanks. about thought expect and Should just guidance? a the the basis. might we in they to structural both on higher, maybe that implying second any a increases, price second be the you're quarter be it quarter in With little in bit what

Jason Trevisan

you're quarter talked then, the arbitration. of of right, -- it some transportation. about So, will be we a sort structurally of dynamics structure. one-time related this -- We it's Jason. talked fee And the related to fee new full about to event And of

And QX. in of of so, of transaction you'd sort reasons, were those margin yeah, volume, for higher apples-to-apples consider three terms to you in certainly if see all on

Marvin Fong

Jason. Okay. Thanks Great.

Operator

you. Thank

of have line We Doug Huber Research. question with Please next Arthur the from ahead. go

Doug Arthur

been is cited growing think Is time, over my margin single I a there cut to of gross a still digit not over totally product to I'm understanding fair the quite the I mid margin why would time. answered. but out? negative, mean, low issues. question stable has assume, you've kind lot more profit went I certainly that of

Jason Trevisan

little detail a you relates to But to And as yeah. XXX%. Scott, Yeah. more give maybe it can QX. QX

involve not negative. the Doug, product -- mind, Max Instant transportation that Offer. does more So, It to category involve the not it related to DXD involves it's Max. -- in of arbitration, -- And those related things inspection exactly was Cash segment P&L it section keep P&L the Instant and does of is the other cetera. It et

because a and look deck, different do you if more X% Cash if -- Offer we you non-GAAP shows investor our cut was it where of of to consciously our spreads sort had, minutes we ago, few down a we like on where pure months And than at test offers. then, brought we a had in Instant It business from in perspective margin. brought a gross mentioned we I will, that that. we had down, was fact, months it basis, it. Max higher of competitiveness And So

things the comments and which We're the the term, that bidding our that's the made always dealer Longer mean, are are since too, QX. still some of related is our So and pickup I I conversion to land getting concept. about those and funnel we smarter referenced specifics pricing. algorithm began then improving are earlier, we eight six, months them. and all

but testing to digits. in a QX mid that room we periods that that so, And we're also upside. there have it's seeing absolutely total And things has confidence other even the of term, that for longer gross brought now, X%. down we're margin single lot And

Doug Arthur

Thank really That’s you. Great. helpful.

Jason Trevisan

Sure.

Operator

Thank you.

We of go line Potter with have Please next Sandler. ahead. Alex Piper question the from

Alex Potter

Great. Thanks.

Just one arbitration. related It's me. for to

had You quarter on impact should mentioned margins some that in an as as as improve. arbitration the costs well that, well confidence

more pulling you guess, anything guess, helpful. Thanks. to regard I inspection an with your would know, inspection commentary. want accurate? could a And mouth, qualitative but those inspection quality to could don't I don't in If try is talk reports accuracy that be to levers are about I words are make to and put arbitration you that sure Are just you -- more, give bit issue? I what little these this

Sam Zales

-- turn what about from our and perspective a the Bruce, decline perspective, But at first in the market, sign. doing CarOffer The this. -- in excited more an for to prices when jump be I'll arbitration from business Alex, expert is and it couldn't an us. who's that's

look measure and in drop But I'm dealer of to push "Well, continues going some said, price get will are at I that a back sales numbers fluctuating, but the going buying cases to merchandise percentage drop. vehicle, our Jason as should say that's a critical First our of all, very gross of our just small are or business. and down prices arbitration very, as say, a when a prices the on

Bruce adding return question -- to to be are more process, us inspection satisfaction looked our those our is up mix that come approach to no We as that going about of We've We inspectors. And revenue point wholesale for said in our overall. market the is have dropping There went the and say, fluctuating. or let's to situations policy. dealer more a We done price up. let's on also dealer to adding double that, that are process of our that process back our to at asked that. down let's defaulting process. of let's our really inspection dealer talked on And a well. say watch pushing them the inspection if We're results the at results. processes, broaden look and and some saying, said, as in we're learning CXD advantage huge when virtual That's cars keeps we've

small as into we've as overall, going made to to arbitration We prices. those Bruce, want balancing do adjustments that. very, are we environment But to merchandise about the and is kind our you right of head decision. very sales, more quarter anything careful we're customer macro because pushing on satisfaction number -- the lowering gross a percentage second add? said, I We're with the vehicles be business the is of back

Bruce Thompson

To I arbitrations And think and about of your X%, January. you point, GSM. right, Yeah. were a December off really good come

If February We're you're subsequent, arbitration did volume, where take. going we of to right, see we that in type get very drops. units terms of any disciplined it's to the

coming a of And adding was of can will moving February, But prudent But situation, that unique lot forward a it liquidation that. that us yeah, we we think I in we good on forward. help those sure make we that handle we're moving tools are think, other but to liquidate in So, off also primarily I and regard. -- January. December a a have and have mitigate

Alex Potter

guys. Understood. Okay. Thanks

Operator

question-and-answer would sir. to have for Over you, to call the remarks. you. I Trevisan, turn we end and to session. And CEO, Thank back Jason the reached Ladies of like gentlemen, the closing

Jason Trevisan

you Thank very much.

today. have tuning We're of thanks everyone QX, excited your So, we're performed QX for my I we the but Thanks as what said and also about rest how remarks, we in -- year. prepared coming really up questions. in the for in about in

have life be capturing our and of what it sort on for that fund We're person great thanks really investment a to to we markets really operate opens and Have of if see again, to is does to business a is in dealers on cycle I new very allows And dive us think it us now all our and and profitable May shows growth. profitable Investor XX all at in you transaction the can transformed full consumers. that all up top enabled both story. types evening. we're that Day transactions marketplace -- you excited questions. very join that of us what to needs and of And of a deeper much. into all our Appreciate the business

Operator

gentlemen, today's and Ladies you. Thank this conference. concludes

lines this time. You your at participation. Thank your you for disconnect may

CarGurus (CARG) 10 May 222022 Q1 Earnings call transcript