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CST: 16/12/2019 07:24:30   

CarGurus Announces Third Quarter 2019 Results

40 Days ago

Third Quarter Highlights:

  • Total revenue of $150.5 million, an increase of 26% year-over-year
  • GAAP operating income of $9.7 million; non-GAAP operating income of $18.6 million
  • GAAP net income of $10.4 million; non-GAAP net income of $15.5 million
  • Adjusted EBITDA of $20.6 million

CAMBRIDGE, Mass., Nov. 05, 2019 (GLOBE NEWSWIRE) -- CarGurus, Inc. (Nasdaq: CARG), a leading global automotive marketplace, today announced financial results for the third quarter ended September 30, 2019.

“CarGurus delivered a strong third quarter featuring several important accomplishments. We grew our industry-leading U.S. audience and generated year-over-year U.S. leads growth of 13%, providing strong value to our dealers and aiding growth in our core listings business,” said Langley Steinert, Founder and Chief Executive Officer of CarGurus. “Our brand investments are driving more direct traffic, and our new “My Car, My Deal” campaign that launched in Q3 highlights CarGurus’ unique consumer benefits. Finally, our international business continues to deliver strong growth, evidenced by our highest total international net dealer additions and triple-digit year-over-year audience growth.”

Revenue

  • Total revenue was $150.5 million, an increase of 26% compared to $119.1 million in the third quarter of 2018.
  • Marketplace subscription revenue was $135.5 million, an increase of 28% compared to $105.9 million in the third quarter of 2018.
  • Advertising and other revenue was $14.9 million, an increase of 13% compared to $13.2 million in the third quarter of 2018.

Operating Income

  • GAAP operating income was $9.7 million, or 6% of total revenue, compared to $5.9 million, or 5% of total revenue, in the third quarter of 2018.
  • Non-GAAP operating income was $18.6 million, or 12% of total revenue, compared to $11.4 million, or 10% of total revenue, in the third quarter of 2018.

Net Income & Adjusted EBITDA

  • GAAP net income was $10.4 million, or $0.09 per fully diluted share during the third quarter ended September 30, 2019, compared to $13.9 million, or $0.12 per fully diluted share during the third quarter ended September 30, 2018.
  • Non-GAAP net income was $15.5 million, or $0.14 per fully diluted share during the third quarter ended September 30, 2019, compared to $11.3 million, or $0.10 per fully diluted share during the third quarter ended September 30, 2018.
  • Adjusted EBITDA, a non-GAAP metric, was $20.6 million, compared to $12.7 million in the third quarter of 2018. 

Balance Sheet and Cash Flow

  • As of September 30, 2019, CarGurus had cash, cash equivalents, and short-term investments of $164.3 million and no debt. 
  • The Company generated $23.8 million in cash from operations and $21.1 million in free cash flow, a non-GAAP metric, during the third quarter of 2019 compared to generating $10.8 million in cash from operations and $9.6 million in free cash flow during the third quarter of 2018. 

Third Quarter Business Metrics

  • U.S. revenue was $141.6 million in the third quarter of 2019, an increase of 24% compared to $114.7 million in the third quarter of 2018. GAAP operating income in the U.S. was $20.0 million, an increase of 38% compared to $14.5 million in the third quarter of 2018.
  • International revenue was $8.8 million in the third quarter of 2019, an increase of 98% compared to $4.4 million in the third quarter of 2018. GAAP operating loss in International markets was ($10.3) million, an increase of 20% compared to a loss of ($8.6) million in the third quarter of 2018.
  • Total paying dealers were 35,199(1) at September 30, 2019, an increase of 15% compared to 30,593 at September 30, 2018. Of the total paying dealers at September 30, 2019, U.S. and International accounted for 28,692 and 6,507(1), respectively, compared to 27,128 and 3,465, respectively, at September 30, 2018.
  • Average annual revenue per subscribing dealer (AARSD) in the U.S. was $16,967 as of September 30, 2019, an increase of 21% compared to $13,993 as of September 30, 2018.
  • AARSD in International markets was $5,079(2) as of September 30, 2019, an increase of 5% compared to $4,820 as of September 30, 2018.
  • Website traffic and consumer engagement metrics for the third quarter of 2019 were as follows:
    -- U.S. average monthly unique users were 38.1 million, an increase of 3% compared to 37.0 million in the third quarter of 2018. U.S. average monthly sessions were 103.5 million, an increase of 3% compared to 100.5 million in the third quarter of 2018.
    -- International average monthly unique users were 10.2 million(3), an increase of 129% compared to 4.4 million in the third quarter of 2018. International average monthly sessions were 26.2 million(4), an increase of 151% compared to 10.4 million in the third quarter of 2018.

(1)  Includes paying dealers from the PistonHeads website.
(2)  Excludes AARSD from both the (i) PistonHeads website as it was acquired on January 8, 2019, and therefore, data for the trailing 12-month revenue calculation is not available and (ii) Italy website as it began earning marketplace subscription revenue in April 2019, and therefore, data for the trailing 12-month revenue calculation is not available.
(3)  Includes users from the PistonHeads website.
(4)  Includes sessions from the PistonHeads website.

Fourth Quarter and Full-Year 2019 Guidance

CarGurus anticipates total revenue, non-GAAP operating income, and non-GAAP earnings per share to be in the following ranges:

Fourth Quarter 2019:

   • Total revenue $152.2 to $155.2 million
   • Non-GAAP operating income $17.1 to $19.1 million
   • Non-GAAP EPS $0.12 to $0.13

The fourth quarter 2019 non-GAAP earnings per share calculation assumes 113.8 million diluted weighted-average common shares outstanding.

Full-Year 2019:

  Total revenue $583.0 to $586.0 million
  Non-GAAP operating income $63.6 to $65.6 million
  Non-GAAP EPS $0.47 to $0.48

The full-year non-GAAP earnings per share calculation assumes 113.5 million diluted weighted-average common shares outstanding. Guidance for the fourth quarter and full-year 2019 does not include any potential impact of foreign currency exchange gains or losses.

CarGurus has not reconciled its non-GAAP operating income guidance to GAAP operating income, or its non-GAAP EPS guidance to GAAP EPS, because stock-based compensation and amortization of intangible assets, the reconciling items between such GAAP and non-GAAP financial measures, cannot be reasonably predicted due to, as applicable, the timing, amount, valuation and number of future employee equity awards, and the occurrence of acquisitions and therefore cannot be determined without unreasonable effort.  For more information regarding the non-GAAP financial measures discussed in this release, please see the reconciliations of GAAP financial measures to non-GAAP financial measures and the section titled “Non-GAAP Financial Measures and Other Business Metrics” below.

Conference Call and Webcast Information

CarGurus will host a conference call and live webcast to discuss its third quarter 2019 financial results and fourth quarter and full-year 2019 financial guidance at 5:00 p.m. Eastern Time today, November 5, 2019. To access the conference call, dial (877) 451-6152 for callers in the U.S. or Canada, or (201) 389-0879 for international callers. The webcast will be available live on the Investors section of the Company’s website at https://investors.cargurus.com.

An audio replay of the call will also be available to investors beginning at approximately 8:00 p.m. Eastern Time on November 5, 2019, until 11:59 p.m. Eastern Time on November 19, 2019, by dialing (844) 512-2921 for callers in the U.S. or Canada, or (412) 317-6671 for international callers, and entering passcode 13694866. In addition, an archived webcast will be available on the Investors section of the Company’s website at https://investors.cargurus.com.

About CarGurus

Founded in 2006, CarGurus (Nasdaq: CARG) is a global, online automotive marketplace connecting buyers and sellers of new and used cars. The Company uses proprietary technology, search algorithms and data analytics to bring trust and transparency to the automotive search experience and help users find great deals from top-rated dealers. CarGurus is the most visited automotive shopping site in the U.S. (source: Comscore Media Metrix® Multi-Platform, Automotive – Information/Resources, Total Audience, Q3 2019, U.S. (Competitive set includes: CarGurus.com, Autotrader.com, Cars.com, TrueCar.com)).  In addition to the United States, CarGurus operates online marketplaces in Canada, the United Kingdom, Germany, Italy and Spain. To learn more about CarGurus, visit www.cargurus.com.  CarGurus® is a registered trademark of CarGurus, Inc.

© 2019 CarGurus, Inc., All Rights Reserved.

Cautionary Language Concerning Forward-Looking Statements

This press release includes forward-looking statements. All statements contained in this press release other than statements of historical facts, including, without limitation, statements regarding our future financial and business performance for the fourth quarter 2019 and full-year 2019, our business and growth strategy, including in international markets, and the ability of our brand awareness efforts to drive direct traffic, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “estimate,” “expect,” “guide,” “intend,” “likely,” “may,” “will” and similar expressions and their negatives are intended to identify forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks and uncertainties, including, without limitation, risks related to our rapid growth and ability to sustain our revenue growth rate, our relationships with dealers, competition in the markets in which we operate, market growth, our ability to innovate and manage our growth, our ability to expand effectively into new markets, our ability to realize benefits from our acquisition of PistonHeads and successfully implement the integration strategies in connection therewith, our ability to operate in compliance with applicable laws, as well as other risks and uncertainties set forth in the “Risk Factors” section of our Quarterly Report on Form 10-Q, filed on November 5, 2019 with the Securities and Exchange Commission (SEC), and subsequent reports that we file with the SEC.  Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, we cannot guarantee future results, levels of activity, performance, achievements or events and circumstances reflected in the forward-looking statements will occur. We are under no duty to update any of these forward-looking statements after the date of this press release to conform these statements to actual results or revised expectations, except as required by law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this press release.

 
 
Unaudited Condensed Consolidated Balance Sheets
(in thousands, except share and per share data)
 
    At
September   30,
2019
    At
December   31,
2018
Assets              
Current assets              
Cash and cash equivalents   $ 29,514     $ 34,887
Investments     134,808       122,800
Accounts receivable, net of allowance for doubtful accounts of $216
  and $479 at September 30, 2019 and December 31, 2018, respectively
    17,892       13,614
Prepaid expenses and prepaid income taxes     8,381       10,144
Deferred contract costs     8,170       5,253
Other current assets     7,167       7,410
Restricted cash     250       750
Total current assets     206,182       194,858
Property and equipment, net     27,568       24,269
Intangible assets     3,982      
Goodwill     14,828      
Operating lease right-of-use assets     56,439      
Restricted cash     1,914       1,921
Deferred tax assets     44,200       38,886
Deferred contract costs, net of current portion     9,944       7,252
Other long–term assets     4,326       1,104
Total assets   $ 369,383     $ 268,290
Liabilities and stockholders equity              
Current liabilities              
Accounts payable   $ 42,752     $ 34,345
Accrued expenses, accrued income taxes and other current liabilities     14,022       18,654
Deferred revenue     7,781       8,811
Operating lease liabilities     7,823       1,693
Total current liabilities     72,378       63,503
Operating lease liabilities     57,806       9,395
Deferred tax liabilities     289      
Other non–current liabilities     1,808       1,281
Total liabilities     132,281       74,179
Stockholders’ equity:              
Class A common stock, $0.001 par value per share; 500,000,000 shares
  authorized; 91,312,647 and 89,728,223 shares issued and outstanding
  at September 30, 2019 and December 31, 2018, respectively
    91       90
Class B common stock, $0.001 par value per share; 100,000,000 shares
  authorized; 20,502,084 and 20,702,084 shares issued and outstanding
  at September 30, 2019 and December 31, 2018, respectively
    21       21
Additional paid-in capital     199,228       184,216
Retained earnings     38,688       9,713
Accumulated other comprehensive (loss) income     (926 )     71
Total stockholders’ equity     237,102       194,111
Total liabilities and stockholders’ equity   $ 369,383     $ 268,290
               
               
               

Unaudited Condensed Consolidated Income Statements
(in thousands, except share and per share data)

    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2019     2018     2019     2018  
Revenue   $ 150,462     $ 119,125     $ 430,763     $ 327,996  
Cost of revenue(1)     9,392       6,412       25,740       17,940  
Gross profit     141,070       112,713       405,023       310,056  
Operating expenses:                                
Sales and marketing     100,133       82,708       293,238       229,948  
Product, technology, and development     17,745       12,771       51,063       33,713  
General and administrative     12,322       10,630       36,622       28,042  
Depreciation and amortization     1,166       727       3,413       2,064  
Total operating expenses     131,366       106,836       384,336       293,767  
Income from operations     9,704       5,877       20,687       16,289  
Other income, net:                                
Interest income     759       639       2,247       1,571  
Other income (expense), net     251       (38 )     1,258       15  
Total other income, net     1,010       601       3,505       1,586  
Income before income taxes     10,714       6,478       24,192       17,875  
Provision for (benefit from) income taxes     330       (7,404 )     (4,783 )     (34,845 )
Net income   $ 10,384     $ 13,882     $ 28,975     $ 52,720  
Net income per share attributable to common stockholders:                                
Basic   $ 0.09     $ 0.13     $ 0.26     $ 0.49  
Diluted   $ 0.09     $ 0.12     $ 0.26     $ 0.47  
Weighted-average number of shares of common
stock used in computing net income per share
attributable to common stockholders:
                               
Basic     111,662,949       109,628,692       111,257,271       108,367,270  
Diluted     113,364,775       113,601,415       113,389,695       113,351,150  
(1) Includes depreciation and amortization expense for the three months ended September 30, 2019 and 2018 and for the nine months ended September 30, 2019 and 2018 of $952, $581, $2,246 and $1,701, respectively.  
   
   
   

Unaudited Condensed Consolidated Statements of Cash Flows
(in thousands)

    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2019     2018     2019     2018  
Operating Activities                                
Net income   $ 10,384     $ 13,882     $ 28,975     $ 52,720  
Adjustments to reconcile net income to net cash provided by operating activities:                                
Depreciation and amortization     2,118       1,308       5,659       3,765  
Currency gain on foreign denominated transactions     (87 )     (37 )     (927 )     (56 )
Deferred taxes     291       (7,443 )     (5,025 )     (34,543 )
Provision for doubtful accounts     327       524       695       1,246  
Stock-based compensation expense     8,761       5,528       25,390       14,951  
Amortization of deferred contract costs     2,163       1,054       5,797       2,355  
Changes in operating assets and liabilities:                                
Accounts receivable     (1,146 )     (1,741 )     (4,984 )     (1,168 )
Prepaid expenses, prepaid income taxes, and other assets     1,200       (4,336 )     (871 )     (8,648 )
Deferred contract costs     (3,674 )     (3,213 )     (11,442 )     (9,715 )
Accounts payable     4,708       4,124       10,740       11,462  
Accrued expenses, accrued income taxes, and other current liabilities     (738 )     (973 )     (2,047 )     (2,964 )
Deferred revenue     (695 )     66       (1,027 )     3,381  
Lease obligations     (2 )     1,900       (1,882 )     1,466  
Other non-current liabilities     212       108       500       347  
Net cash provided by operating activities     23,822       10,751       49,551       34,599  
Investing Activities                                
Purchases of property and equipment     (2,181 )     (892 )     (10,765 )     (1,873 )
Capitalization of website development costs     (547 )     (253 )     (2,074 )     (978 )
Cash paid for acquisition                 (19,139 )      
Investments in certificates of deposit     (38,281 )           (134,808 )     (130,000 )
Maturities of certificates of deposit     22,800       40,000       122,800       110,000  
Net cash (used in) provided by investing activities     (18,209 )     38,855       (43,986 )     (22,851 )
Financing Activities                                
Proceeds from exercise of stock options     368       676       1,456       3,061  
Financing cash flows from finance leases     (9 )           (21 )      
Payment of initial public offering costs                       (1,142 )
Payment of withholding taxes and option costs on net share settlement of restricted stock units and stock options     (4,192 )     (4,379 )     (12,783 )     (21,867 )
Net cash used in financing activities     (3,833 )     (3,703 )     (11,348 )     (19,948 )
Impact of foreign currency on cash, cash equivalents, and restricted cash     (114 )     29       (97 )     (54 )
Net increase (decrease) in cash, cash equivalents, and restricted cash     1,666       45,932       (5,880 )     (8,254 )
Cash, cash equivalents, and restricted cash at beginning of period     30,012       35,366       37,558       89,552  
Cash, cash equivalents, and restricted cash at end of period   $ 31,678     $ 81,298     $ 31,678     $ 81,298  
                                 
                                 
                                 

Unaudited Reconciliation of GAAP Operating Income to Non-GAAP Operating Income and GAAP Operating Margin to Non-GAAP Operating Margin
(in thousands, except percentages)

    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2019     2018     2019     2018  
GAAP operating income   $ 9,704     $ 5,877     $ 20,687     $ 16,289  
Stock-based compensation expense     8,761       5,528       25,390       14,951  
Amortization of intangible assets     167             486        
Non-GAAP operating income   $ 18,632     $ 11,405     $ 46,563     $ 31,240  
                                 
GAAP operating margin     6 %     5 %     5 %     5 %
Non-GAAP operating margin     12 %     10 %     11 %     10 %
                                 

Unaudited Reconciliation of GAAP Net Income to Non-GAAP Net Income
(in thousands, except per share data)

    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2019     2018     2019     2018  
GAAP net income   $ 10,384     $ 13,882     $ 28,975     $ 52,720  
Stock-based compensation expense, net of tax(1)     6,921       4,367       20,058       11,811  
Change in tax provision from stock-based compensation expense(2)     (1,943 )     (6,970 )     (9,632 )     (35,912 )
Amortization of intangible assets     167             486        
Non-GAAP net income   $ 15,529     $ 11,279     $ 39,887     $ 28,619  
Non-GAAP net income per share:                                
Basic   $ 0.14     $ 0.10     $ 0.36     $ 0.26  
Diluted   $ 0.14     $ 0.10     $ 0.35     $ 0.25  
Shares used in non-GAAP per share calculations                                
Basic     111,663       109,629       111,257       108,367  
Diluted     113,365       113,601       113,390       113,351  
(1) The stock-based compensation amounts reflected in the table above are tax effected at the U.S. federal statutory tax rate of 21%.  
(2) This adjustment reflects the tax effect of differences between tax deductions related to stock compensation and the corresponding financial statement expense.  
   
   
   

Unaudited Reconciliation of GAAP Gross Profit to Non-GAAP Gross Profit and GAAP Gross Profit Margin to Non-GAAP Gross Profit Margin
(in thousands, except percentages)

    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2019     2018     2019     2018  
Revenue   $ 150,462     $ 119,125     $ 430,763     $ 327,996  
Cost of revenue     9,392       6,412       25,740       17,940  
Gross profit     141,070       112,713       405,023       310,056  
Stock-based compensation expense included in Cost of revenue     92       83       268       264  
Non-GAAP gross profit   $ 141,162     $ 112,796     $ 405,291     $ 310,320  
                                 
GAAP gross profit margin     94 %     95 %     94 %     95 %
Non-GAAP gross profit margin     94 %     95 %     94 %     95 %
                                 
                                 
                                 

Unaudited Reconciliation of GAAP Expense to Non-GAAP Expense
(in thousands)

    Three Months Ended
September 30,
    2019     2018
    GAAP expense     Stock-based
compensation
expense
    Amortization of
intangible assets
    Non-GAAP
expense
    GAAP expense     Stock-based
compensation
expense
    Amortization of
intangible assets
    Non-GAAP
expense
Cost of revenue   $ 9,392     $ (92 )   $     $ 9,300     $ 6,412     $ (83 )   $     $ 6,329
S&M     100,133       (2,520 )           97,613       82,708       (1,216 )           81,492
P,T&D(1)     17,745       (3,938 )           13,807       12,771       (2,584 )           10,187
G&A     12,322       (2,211 )           10,111       10,630       (1,645 )           8,985
Depreciation & amortization     1,166             (167 )     999       727                   727
Operating expenses(2)   $ 131,366     $ (8,669 )   $ (167 )   $ 122,530     $ 106,836     $ (5,445 )   $     $ 101,391
Total expenses   $ 140,758     $ (8,761 )   $ (167 )   $ 131,830     $ 113,248     $ (5,528 )   $     $ 107,720
(1) Product, Technology, & Development
(2) Operating expenses include S&M, P,T&D, G&A, and depreciation & amortization
                                                               
                                                               
                                                               
    Nine Months Ended
September 30,
    2019     2018
    GAAP expense     Stock-based
compensation
expense
    Amortization of
intangible assets
    Non-GAAP
expense
    GAAP expense     Stock-based
compensation
expense
    Amortization of
intangible assets
    Non-GAAP
expense
Cost of revenue   $ 25,740     $ (268 )   $     $ 25,472     $ 17,940     $ (264 )   $     $ 17,676
S&M     293,238       (7,392 )           285,846       229,948       (3,762 )           226,186
P,T&D(1)     51,063       (11,118 )           39,945       33,713       (6,903 )           26,810
G&A     36,622       (6,612 )           30,010       28,042       (4,022 )           24,020
Depreciation & amortization     3,413             (486 )     2,927       2,064                   2,064
Operating expenses(2)   $ 384,336     $ (25,122 )   $ (486 )   $ 358,728     $ 293,767     $ (14,687 )   $     $ 279,080
Total expenses   $ 410,076     $ (25,390 )   $ (486 )   $ 384,200     $ 311,707     $ (14,951 )   $     $ 296,756
(1) Product, Technology, & Development
(2) Operating expenses include S&M, P,T&D, G&A, and depreciation & amortization
 
 
 

Unaudited Reconciliation of GAAP Net Income to Adjusted EBITDA
(in thousands)

    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2019     2018     2019     2018  
GAAP net income   $ 10,384     $ 13,882     $ 28,975     $ 52,720  
Depreciation and amortization(1)     2,118       1,308       5,659       3,765  
Stock-based compensation expense     8,761       5,528       25,390       14,951  
Other income, net     (1,010 )     (601 )     (3,505 )     (1,586 )
Provision for (benefit from) income taxes     330       (7,404 )     (4,783 )     (34,845 )
Adjusted EBITDA   $ 20,583     $ 12,713     $ 51,736     $ 35,005  
(1) The Company did not have intangible assets prior to the closing of the PistonHeads acquisition on January 8, 2019. The Company recorded amortization expense related to intangible assets of $167 and $486 for the three and nine months ended September 30, 2019, respectively.  
   
   
   

Unaudited Reconciliation of GAAP Net Cash Provided by Operating Activities to Non-GAAP Free Cash Flow
(in thousands)

    Three Months Ended     Nine Months Ended  
    September 30,     September 30,  
    2019     2018     2019     2018  
GAAP net cash provided by operating activities   $ 23,822     $ 10,751     $ 49,551     $ 34,599  
Purchases of property and equipment     (2,181 )     (892 )     (10,765 )     (1,873 )
Capitalization of website development costs     (547 )     (253 )     (2,074 )     (978 )
Non-GAAP free cash flow   $ 21,094     $ 9,606     $ 36,712     $ 31,748  
                                 
                                 
                                 

Non-GAAP Financial Measures and Other Business Metrics

To supplement our consolidated financial statements, which are prepared and presented in accordance with Generally Accepted Accounting Principles in the United States (GAAP), we provide investors with certain non-GAAP financial measures and other business metrics, which we believe are helpful to our investors. We use these non-GAAP financial measures and other business metrics for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons. We believe that these non-GAAP financial measures and other business metrics provide useful information about our operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to metrics used by our management in its financial and operational decision-making.

The presentation of non-GAAP financial information and other business metrics is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP.  While our non-GAAP financial measures and other business metrics are an important tool for financial and operational decision-making and for evaluating our own operating results over different periods of time, we urge investors to review the reconciliation of these financial measures to the comparable GAAP financial measures included above, and not to rely on any single financial measure to evaluate our business.

We define Adjusted EBITDA as GAAP net income, adjusted to exclude: depreciation and amortization, stock-based compensation expense, other income, net, the (benefit from) provision for income taxes, and certain one-time, non-recurring items, if and when applicable. We have presented Adjusted EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our operating performance, generate future operating plans, and make strategic decisions regarding the allocation of capital. In particular, we believe that the exclusion of certain items in calculating Adjusted EBITDA can produce a useful measure for period-to-period comparisons of our business.

We define Free Cash Flow as cash flow from operations, adjusted to include purchases of property and equipment and capitalization of website development costs. We have presented Free Cash Flow because it is a measure of the Company’s financial performance that represents the cash that the Company is able to generate after expenditures required to maintain or expand our asset base.

We also monitor operating measures of certain non-GAAP items including non-GAAP gross margin, non-GAAP expense, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income and non-GAAP net income per share.  These non-GAAP financial measures exclude the effect of stock-based compensation expense and amortization of intangible assets. Non-GAAP net income and non-GAAP income per share also exclude the change in tax provision from stock-based compensation expense. We believe that these non-GAAP financial measures provide useful information about our operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to metrics used by our management in its financial and operational decision-making.

While a reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort as a result of the uncertainty regarding, and the potential variability of, stock-based compensation expenses and amortization of intangible assets that we may incur in the future, we have provided a reconciliation of non-GAAP financial measures and other business metrics to the nearest comparable GAAP measures in the accompanying financial statement tables included in this press release.

We define a paying dealer as a dealer, based on a distinct associated inventory feed, that subscribes to one of our paid listing or display products at the end of a defined period.

We define AARSD, which is measured at the end of a defined period, as the total marketplace subscription revenue during the trailing 12 months divided by the average number of paying dealers during the same trailing 12-month period.

For each of our websites, we define a monthly unique user as an individual who visited such website within a calendar month, based on data as measured by Google Analytics. We calculate average monthly unique users as the sum of the monthly unique users in a given period, divided by the number of months in that period. We count a unique user the first time a computer or mobile device with a unique device identifier accesses one of our websites during a calendar month. If an individual accesses one of our websites using a different device within a given month, the first access by each such device is counted as a separate unique user.

We define monthly sessions as the number of distinct visits to our websites that take place each month within a given time frame, as measured and defined by Google Analytics. We calculate average monthly sessions as the sum of the monthly sessions in a given period, divided by the number of months in that period. A session is defined as beginning with the first page view from a computer or mobile device and ending at the earliest of when a user closes their browser window, after 30 minutes of inactivity, or each night at midnight (i) Eastern Time for our United States and Canada websites, (ii) Greenwich Mean Time for our UK websites and (iii) Central European Time (or Central European Summer Time when daylight savings is observed) for our Germany, Italy and Spain websites, as applicable. A session can be made up of multiple page views and visitor actions, such as performing a search, visiting vehicle detail pages, and connecting with a dealer.

We define leads as user inquiries via our marketplace to dealers by phone call, email, or managed text and chat.

Investor Contact:
Rodney Nelson
Head of Investor Relations, CarGurus
888-508-1190
investors@cargurus.com

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