UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________ to _________________

Commission File Number: 001-38233

CARGURUS, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	04-3843478
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2 Canal Park, 4th Floor Cambridge, Massachusetts	02141
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (617) 354-0068

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol	Name of Exchange on Which Registered
Class A Common Stock, par value $0.001 per share	CARG	The Nasdaq Stock Market LLC (Nasdaq Global Select Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Small reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of May 5, 2022, the registrant had 102,383,357 shares of Class A common stock, $0.001 par value per share, and 15,999,173 shares of Class B common stock, par value $0.001 per share, outstanding.

Table of Contents

		Page
PART I.	FINANCIAL INFORMATION	1
Item 1.	Financial Statements	1
	Unaudited Condensed Consolidated Balance Sheets	1
	Unaudited Condensed Consolidated Income Statements	2
	Unaudited Condensed Consolidated Statements of Comprehensive Income	3
	Unaudited Condensed Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ Equity	4
	Unaudited Condensed Consolidated Statements of Cash Flows	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	30
Item 4.	Controls and Procedures	31
PART II.	OTHER INFORMATION	32
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 6.	Exhibits	47
Signatures		48

ii

SPECIAL NOTE REGARDING FORWARD‑LOOKING STATEMENTS

This report contains forward‑looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward‑looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward‑looking statements because they contain words such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “likely,” “may,” “might,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms. Forward-looking statements contained in this report include, but are not limited to, statements about:

•our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses, ability to generate cash flow, and ability to achieve, and maintain, future profitability;

•our growth strategies and our ability to effectively manage any growth;

•the value proposition of our product offerings for dealers and consumers, and the return on investment that our dealers realize from our products;

•our evolution to becoming a transaction-enabled marketplace where consumers can shop, buy, seek financing, and sell their cars and dealers can source, market, and sell their vehicles;

•our ability to realize benefits from our acquisitions and successfully implement the integration strategies in connection therewith;

•our expectations regarding future share issuances and the exercise of put and call rights in connection with potentially acquiring additional equity interests in CarOffer, LLC, or CarOffer, as well as the associated valuation of redeemable noncontrolling interests;

•the value proposition of the CarOffer online wholesale platform, including our belief that as dealer enrollments increase, dealers will see a corresponding increase in inventory on the platform, further enabling liquidity, selection, choice and business efficiencies;

•our expectations for CarGurus Instant Max Cash Offer, as well as our digital retail offerings and continued investments;

•the impact of competition in our industry and innovation by our competitors;

•the impact of accounting pronouncements;

•the impact of litigation;

•our ability to hire and retain necessary qualified employees to expand our operations;

•our ability to adequately protect our intellectual property;

•our ability to stay abreast of, and effectively comply with, new or modified laws and regulations that currently apply or become applicable to our business and our beliefs regarding our compliance therewith;

•our ability to overcome challenges facing the automotive industry ecosystem, including inventory supply problems, global supply chain challenges, the global semiconductor chip shortage, changes to trade policies and other macroeconomic issues;

•our expectations regarding cash generation and the sufficiency of our cash to fund our operations;

•the future trading prices of our Class A common stock;

•our expectation regarding deferred tax assets;

•our expected returns on investments; and

•the impacts of the COVID-19 pandemic.

iii

You should not rely upon forward‑looking statements as predictions of future events. We have based the forward‑looking statements contained in this report primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, and growth prospects. The outcome of the events described in these forward‑looking statements is subject to risks, uncertainties, and other factors described in the section titled “Risk Factors” and elsewhere in this report. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward‑looking statements contained in this report. Further, our forward‑looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions or joint ventures in which we may be involved, or investments we may make. We cannot assure you that the results, events, and circumstances reflected in the forward‑looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward‑looking statements.

The forward‑looking statements made in this report relate only to events as of the date on which the statements are made. We undertake no obligation to update any forward‑looking statement made in this report to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, except as required by law.

iv

PART I—FINANCIAL INFORMATION

Item 1. Financial Statements.

CarGurus, Inc.

Unaudited Condensed Consolidated Balance Sheets

(in thousands, except share and per share data)

	At March 31, 2022			At December 31, 2021
Assets
Current assets
Cash and cash equivalents	$	315,005		$	231,944
Investments		60,000			90,000
Accounts receivable, net of allowance for doubtful accounts of $405     and $420, respectively		144,718			189,324
Inventory		20,992			19,656
Prepaid expenses, prepaid income taxes and other current assets		17,407			16,430
Deferred contract costs		8,731			9,045
Restricted cash		5,866			6,709
Total current assets		572,719			563,108
Property and equipment, net		33,101			32,210
Intangible assets, net		76,161			83,915
Goodwill		157,998			158,287
Operating lease right-of-use assets		57,359			60,609
Restricted cash		9,627			9,627
Deferred tax assets		26,439			13,378
Deferred contract costs, net of current portion		6,327			5,867
Other non-current assets		6,074			4,573
Total assets	$	945,805		$	931,574
Liabilities, redeemable noncontrolling interest and stockholders’ equity
Current liabilities
Accounts payable	$	61,873		$	66,153
Accrued expenses, accrued income taxes and other current liabilities		61,755			78,586
Deferred revenue		12,776			12,784
Operating lease liabilities		12,503			13,186
Total current liabilities		148,907			170,709
Operating lease liabilities		54,359			57,519
Deferred tax liabilities		28			58
Other non–current liabilities		37,896			23,639
Total liabilities		241,190			251,925
Commitments and contingencies (Note 7)
Redeemable noncontrolling interest		239,750			162,808
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized;    no shares issued and outstanding		—			—
Class A common stock, $0.001 par value per share; 500,000,000 shares    authorized; 102,142,545 and 101,773,034 shares issued and outstanding    at March 31, 2022 and December 31, 2021, respectively		102			102
Class B common stock, $0.001 par value per share; 100,000,000 shares    authorized; 15,999,173 and 15,999,173 shares issued and outstanding    at March 31, 2022 and December 31, 2021, respectively		16			16
Additional paid-in capital		398,471			387,868
Retained earnings		67,168			129,258
Accumulated other comprehensive loss		(892	)		(403	)
Total stockholders’ equity		464,865			516,841
Total liabilities, redeemable noncontrolling interest and stockholders’ equity	$	945,805		$	931,574

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

1

CarGurus, Inc.

Unaudited Condensed Consolidated Income Statements

(in thousands, except share and per share data)

	Three Months Ended March 31,
	2022			2021
Revenue
Marketplace	$	163,289		$	155,800
Wholesale		90,994			13,803
Product		176,325			1,765
Total revenue		430,608			171,368
Cost of revenue (1)
Marketplace		12,209			10,988
Wholesale		58,182			11,126
Product		178,342			1,944
Total cost of revenue		248,733			24,058
Gross profit		181,875			147,310
Operating expenses:
Sales and marketing		87,581			68,174
Product, technology, and development		30,653			25,164
General and administrative		33,121			20,514
Depreciation and amortization		3,861			7,667
Total operating expenses		155,216			121,519
Income from operations		26,659			25,791
Other (expense) income, net		(119	)		222
Income before income taxes		26,540			26,013
Provision for income taxes		7,702			6,462
Consolidated net income		18,838			19,551
Net loss attributable to redeemable noncontrolling interest		(1,072	)		(2,810	)
Net income attributable to CarGurus, Inc.		19,910			22,361
Accretion of redeemable noncontrolling interest to redemption value		82,000			—
Net (loss) income attributable to common stockholders	$	(62,090	)	$	22,361
Net (loss) income per share attributable to common stockholders: (Note 9)
Basic	$	(0.53	)	$	0.19
Diluted	$	(0.53	)	$	0.19
Weighted-average number of shares of common stock used in    computing net (loss) income per share attributable to common stockholders:
Basic		118,031,325			116,316,464
Diluted		118,031,325			117,249,365

(1)Includes depreciation and amortization expense for the three months ended March 31, 2022 and 2021 of $7,324 and $999, respectively.

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

2

CarGurus, Inc.

Unaudited Condensed Consolidated Statements of Comprehensive Income

(in thousands)

	Three Months Ended March 31,
	2022			2021
Consolidated net income	$	18,838		$	19,551
Other comprehensive income:
Foreign currency translation adjustment		(489	)		(1,083	)
Consolidated comprehensive income		18,349			18,468
Comprehensive loss attributable to redeemable noncontrolling   interests		(1,072	)		(2,810	)
Comprehensive income attributable to CarGurus, Inc.	$	19,421		$	21,278

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

3

CarGurus, Inc.

Unaudited Condensed Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ Equity

(in thousands, except share data)

	Redeemable Noncontrolling			Class A Common Stock					Class B Common Stock						Additional Paid–in			Retained			Accumulated Other Comprehensive			Total Stockholders’
	Interest			Shares			Amount		Shares			Amount			Capital			Earnings			Loss (Income)			Equity
Balance as of December 31, 2021	$	162,808			101,773,034		$	102		15,999,173		$	16		$	387,868		$	129,258		$	(403	)		516,841
Net (loss) income		(1,072	)		—			—		—			—			—			19,910			—			19,910
Stock–based compensation expense		—			—			—		—			—			15,353			—			—			15,353
Issuance of common stock upon exercise of stock options		—			74,163			—		—			—			680			—			—			680
Issuance of common stock upon vesting of restricted stock units		—			451,084			—		—			—			—			—			—			—
Payment of withholding taxes on net share settlements of equity awards		—			(155,736	)		—		—			—			(5,430	)		—			—			(5,430	)
Accretion of redeemable noncontrolling interest to redemption value		82,000			—			—		—			—			—			(82,000	)		—			(82,000	)
Tax distributions to redeemable noncontrolling interest holders		(3,986	)		—			—		—			—			—			—			—			—
Foreign currency translation adjustment		—			—			—		—			—			—			—			(489	)		(489	)
Balance as of March 31, 2022	$	239,750			102,142,545		$	102		15,999,173		$	16		$	398,471		$	67,168		$	(892	)	$	464,865
Balance as of December 31, 2020	$	—			94,310,309		$	94		19,076,500		$	19		$	242,181		$	129,412		$	1,880			373,586
Net (loss) income		(2,810	)		—			—		—			—			—			22,361			—			22,361
Stock–based compensation expense		—			—			—		—			—			14,929			—			—			14,929
Issuance of common stock upon exercise of stock options		—			93,455			—		—			—			258			—			—			258
Issuance of common stock upon vesting of restricted stock units		—			473,883			1		—			—			(1	)		—			—			—
Payment of withholding taxes on net share settlements of equity awards		—			(162,950	)		—		—			—			(5,041	)		—			—			(5,041	)
Conversion of common stock		—			929,597			1		(929,597	)		(1	)		—			—			—			—
Issuance of common stock upon for acquisition		—			3,115,282			3		—			—			103,642			—			—			103,645
Acquisition of a 51% interest in CarOffer, LLC		58,031			—			—		—			—			—			—			—			—
Foreign currency translation adjustment		—			—			—		—			—			—			—			(1,083	)		(1,083	)
Balance as of March 31, 2021	$	55,221			98,759,576		$	99		18,146,903		$	18		$	355,968		$	151,773		$	797		$	508,655

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

4

CarGurus, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)

	Three Months Ended March 31,
	2022			2021
Operating Activities
Consolidated net income	$	18,838		$	19,551
Adjustments to reconcile consolidated net income to net cash provided    by operating activities:
Depreciation and amortization		11,185			8,666
Currency loss (gain) on foreign denominated transactions		84			(51	)
Deferred taxes		(13,091	)		60
Provision for doubtful accounts		150			379
Stock-based compensation expense		14,147			14,360
Amortization of deferred contract costs		2,806			3,195
Changes in operating assets and liabilities:
Accounts receivable, net		39,973			(2,423	)
Inventory		(1,336	)		(565	)
Prepaid expenses, prepaid income taxes, and other assets		(2,127	)		(1,652	)
Deferred contract costs		(2,997	)		(3,494	)
Accounts payable		(4,062	)		4,876
Accrued expenses, accrued income taxes, and other liabilities		30,087			(1,632	)
Deferred revenue		(5	)		2,857
Lease obligations		(592	)		(265	)
Net cash provided by operating activities		93,060			43,862
Investing Activities
Purchases of property and equipment		(1,230	)		(1,227	)
Capitalization of website development costs		(2,506	)		(966	)
Cash paid for acquisitions, net of cash acquired		—			(65,899	)
Maturities of certificates of deposit		30,000			—
Net cash provided by (used in) investing activities		26,264			(68,092	)
Financing Activities
Proceeds from exercise of stock options		680			258
Payment of finance lease obligations		(19	)		(10	)
Payment of withholding taxes and option costs on net share settlement of    restricted stock units and stock options		(5,430	)		(5,041	)
Repayment of line of credit		—