Q1 2021 CarGurus Inc Earnings Call

May 6, 2021

[music].

Greetings and welcome to the card jurors, Inc. First quarter 2021 earnings results conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Please note. This conference is being recorded and will now turn the conference over to your host Josh called scene. Thank you you may begin.

Thank you operator, good afternoon, and welcome to the Carter's first quarter 2021 earnings call, we'll be discussing the results announced in a press release issued today after the market close and posted on our Investor Relations website.

With me on the call today are Jason Robinson, Chief Executive Officer, Scott, Porretto, Chief Financial Officer, and Sam Zales, President and Chief operating Officer.

During the call we will make statements regarding our business and maybe considered forward looking within applicable securities laws <unk>.

Including statements concerning our outlook for the second quarter 2021.

Management's expectations for future financial and operational performance and innovation, our business and growth strategy.

And the future proposition of our car offer acquisition and the potential.

And impacted the COVID-19, pandemic and other macro level industry issues on our business and financial results.

And other statements regarding our plans prospects and expectations.

These statements are not promises or guarantees and are subject to risks and uncertainties.

Which could cause them to differ materially from actual results.

Information concerning those risks is available on our earnings press release distributed after market close today and and our most recent reports on form 10-K, and 10-Q, which along with our other SEC filings can be found on the SEC's website, and and the Investor Relations section of our website.

We undertake no obligation to update forward looking statements, except as required by law.

Further during the course of today's call, we will refer to a certain non-GAAP financial measures a re.

Reconciliation of GAAP to non-GAAP measures is included in our press release issued today.

Our updated Investor presentation can also be found on the Investor Relations section of our website.

With that I'll turn it over to Jason.

Thank you very much Josh and thank you to all those joining us today.

I am thrilled to share the cargo has generated strong results and the first quarter and both our core listings and digital retail businesses as well as the car off a business.

Our strategy is producing results and we're leveraging our market leading automotive marketplace to continue expanding our digital retail capabilities as well as to catapult car offers digital wholesale platform.

Emerging from 2020, we are now a stronger more efficient company and investing even more to build a single best digital platform for consumers and dealers to buy and sell cars.

It's been a year since the pandemic initially impacted our industry and and this past quarter, we've grown beyond where we were before COVID-19 lockdowns.

Not only have we returned to year over year growth, but we also believe we have a structurally more profitable business. Despite the larger investments, we're making and our digital retail and wholesale growth pillars, which we expect to drive long term growth.

Our first quarter results exceeded our own expectations in particular were so impressed with the topline results and business model efficiency that car offer achieved and its first quarter as part of our business.

I'll walk through our results and alignment with our three pillar strategy.

First our core U S listings business exceeded our bookings and revenue plan driving sequential growth and maintaining a remarkable efficiency of our marketing spend to produce both nominal growth and operating profit and expanded margins versus Q1 and 2020.

I've, often said that the core unit a value of our listings business as leads and we're pleased to report that our U S leads were up mid single digits versus Q1 2020.

And leads to paying dealers were up 16, 6% versus the same period last year.

This speaks to our continuous efforts to drive value to our paying dealers by increasing targeted lower funnel traffic to our site and our product and engineering teams combined focus on improving conversion rates.

We're particularly pleased with this lead growth as it was achieved while spending approximately $20 million less and consumer marketing versus the same time last year.

While the numbers a monthly average unique visitors and sessions our top of funnel traffic kpis are down year over year Carter's remains the most trafficked and engaged U S automotive marketplace with 97% more monthly sessions, and our nearest competitor and minutes per visit or 58% higher than our nearest competitor.

According to Comscore.

Also we saw a great momentum in Q1 with quarter over quarter sequential increases and the U S. A seven 6% for unique visitors and 10, 1% per sessions.

And the U S. We had a strong paying dealer additions and the quarter up 437 from Q4 with growth across all of our dealers segments.

We also saw improved quarterly average revenue per subscribing dealer or a car said, both year over year and quarter over quarter.

And <unk>, a single capability, rather digital retail brings various elements of the car purchase onto our site. So that consumers can execute any and all portions of the car buying process that they'd like online.

For most consumers today that means some combination of searching financing trade and valuation and adding other warranty and insurance products on our site and then completing the purchase over the phone or in the dealership after a test drive.

For a small but growing set that will include completing the entire purchase with a few clicks.

We offer many of these capabilities already and are seeing growth and adoption among both consumers and dealers, but we still intend to improve the experience. So we are increasing our efforts to offer the full spectrum a retail capabilities.

As evidence of that growing adoption the combined year over year revenue growth from area, a boost and consumer financing to initial features of digital retail was 70% and Q1.

And addition, we recently announced the launch a R. C G convert product, which brings many of these retail features into a single dealer package as well as a hiring a Brad Rosenfeld as executive Vice President of digital retail commercialization.

Brad joins us from Amazon, where he has successfully scaled several businesses by enabling brick and mortar merchants and various industries to sell via the Amazon platform and we are confident and he will help or are a dealers do the same.

We know consumer sentiment continues to move in favor of digital retail.

With a scale of our audience and inventory. We believe we are well positioned to help consumers and dealers facilitate more of the digital retail transaction on line and we expect to make a considerable progress on a strategic initiative and 2021.

Last I will discuss our wholesale pillar, which is led by the car off a business.

What draws to pursue this opportunity last year was the strength of their incredible team the share shift from physical to digital wholesale transactions.

Dealer benefits of and instant trading platform versus an auction model and the capital efficiency and profit potential a car offer relative to other digital wholesale businesses.

This is our first quarter with car offer and our financials as we close the transaction on January 14th and we could not be more excited.

And many dealers moving on to the car off a platform are exhibiting similar levels of excitement.

Percent of that dealers retail price and 15% have been above the retail price.

Two and we anticipate these wholesale offers will be available to all Carter as dealers, including those not yet on the car off a platform potentially representing millions of instant offers made every day.

We believe this is evidence of the combined power of our platforms intelligent use of data and the market liquidity of our large dealer network.

These are just a few examples of synergies we expect to achieve between our platforms dealers like Danny Archibald a Archibald and Kennewick, Washington are using the car off from matrix in tandem with a cargo whose marketplace.

As Danny says, it's actually a fantastic integration I use the cargo whose pricing tool daily to make my wholesale decisions and I can see myself using this car offer and integration a lot and the future to sell vehicles.

Prior to Q1 and car offer was already experiencing strong growth because the platform offers dealers efficient wholesale execution.

Instant trading platform.

We believe this in turn creates a more capital efficient business model for car offer versus other more people intensive digital wholesale models that require dealers to frequently launch and monitor auctions.

We also believe this efficiency is ultimately evidenced by the significant growth a car offers platform over the last year, while consuming very little capital.

For further evidence of efficiency and 2021, we've seen increasing velocity on car offer a dealer acquisition and transactions and a growing backlog of dealers to on board and yet car offers pro forma Q1, non-GAAP operating income was positive.

Which we've illustrated in our investor slides.

March was a record month for both dealers and transactions and we exceeded those with new highs and every metric and April.

While our consolidated results and Q1 exceeded our expectations, we were not surprised by the resiliency and strength of our listings business. The early enthusiasm and growing usage among both dealers and consumers of our digital retail features and the market's receptivity to car offers a highly effective platform.

We've only just begun and illustrating the combined power of listings retail and wholesale and believe that dealers are recognizing and as well and consumers will soon enjoy more benefits as a result.

We do want to mention that we are witnessing the inventory and pricing volatility from the macroeconomic chip issue that is impacting many industries, including ours.

While consumer demand was very strong and Q1 and has continued.

<unk> is a realizing higher gross margin per unit, but struggling to maintain inventory levels and may continue to face inventory challenges for several more months.

With heightened demand and reduced inventory comes the potential for marketing spend headwinds by both dealers and Oems.

Despite those temporary issues, which we expect will normalize later this year. We're so pleased with the progress building a platform for dealers and consumers to buy and sell any automobile.

As our pillars mature and gel we will have a platform fueled by our market, leading audience industry, leading dealer network and unrivaled data to inform intelligent retail and wholesale transactions.

I want to and with a special note of gratitude to all our employees.

As the absence of in person and collaboration continues to weigh on us all and I continue to be amazed at the fortitude creativity innovation and camaraderie shown every day by a 1000 plus employees worldwide.

True to our roots a disruption in the early days of our listings business. We continue to be pioneers pursuing our ambitious strategy of listings digital retail and digital wholesale and one integrated offering.

With that I'll turn it over to Scott to discuss our financials.

Jason I'll provide a detailed overview of our first quarter performance followed by our guidance for a second quarter a 2021.

Before discussing the details of the quarter I would like to address a results relative to our Q1 guidance.

At the time, a providing a Q1 guidance we had not finalized our accounting policies per car offer.

Through this process, we concluded that transportation and inspection revenues realized and Colorado transactions should be recognized on a gross basis, meaning that the full consideration collectors on a customer and the cost paid to third party vendors should be reflected in full and revenue and cost of revenue respectively.

At a time of providing Q1 guidance. This policy had not been finalized so our Q1 guidance reflected the projected revenue for these services on a net rather than a gross basis.

Our Q1 results reported today include the company's actual quarterly revenue for these services on a gross basis.

Additionally, the company's earnings per share guidance for Q1, and 2021 was calculated based on a preliminary estimate of its post car offer a transaction share counts, which was higher than the share count that a company subsequently used to calculate it's Q1 EPS reported today.

The company's Q1, EPS guidance took into account the potential dilution to its share count that would result from the exercise bike our offer of a put right respecting the remaining 49% of car offers stock.

For accounting purposes, we had assumed that the company would use its own stocks to purchase the remaining 49% stake and car offer if car off for what's a exercise thats put right.

Which would have had a dilutive effect on the company's share count.

On finalizing its accounting policies respecting the Colorado a transaction. However, a company concluded that a as a March 31, and 2021, there had not been a dilutive impact resulting from the car off a put right and.

And it does not become effective until 2024.

Accordingly, the actual share count that the company used to calculate it's Q1 EPS was lower than a estimated share count on which it had based its Q1 EPS guidance.

Now onto our results.

Total first quarter revenue was $171 4 million.

<unk>, 9% year over year, and nearly $11 million ahead of the high end of our guidance range.

I would like to make it clear that only about half of that over performance against the high end of the guidance was due to the aforementioned accounting adjustment of gross revenue for delivery and inspections.

Our total marketplace subscription revenue fell 2% versus a year ago period to $139 6 million.

Other revenue on the first quarter grew a 101% year over year to $31 8 million, which largely reflects the impact a car offer and also includes growth of our consumer financing products.

Wholesale revenue includes transaction fees earned by power offer from facilitating the purchase and sale of vehicles between dealers where car offer collect fees from both a buyer and seller.

Power off from May also fulfill by orders from dealers through the acquisition of vehicles and other marketplaces and these instances car for a collapse a transaction fee from the buyer.

Conifer also charges buyers fees per inspection and transportation services on all wholesale transactions.

Our U S business generated $132 million and marketplace subscription revenue and the first quarter.

Our international business generated $7 5 million and marketplace subscription revenue for the same period.

And the U S accounted for 95% of total revenue and the first quarter.

U S revenue increased 10% versus a year ago period to $163 million, while international revenue declined 14% year over year to $8 4 million.

The growth and United States revenue is primarily related to a recent car off a acquisition and a decline in international revenue is primarily related to a 9% decline and paying dealers as a U K and particular extended lockdowns during the pandemic.

Turning to paying dealer count we ended Q1 with 31000.

213, total paying dealers, representing an increase of 582 dealers from Q4, and a decrease of 2047 versus a year ago period and.

And the U S. We finished the quarter with 24371 paying dealers, which is an increase of 437 dealers from the end of the fourth quarter.

And our international business. We finished the first quarter was 6842 international paying dealers up 145 from the end of the fourth quarter.

Please note that these paying dealer counts as well as our other kpis and metrics are exclusive of <unk>.

And the first quarter U S. Carted was 5000, and 466, representing a 3% increase compared with the prior quarter and a 7% increase compared to a year ago period.

International cards it was 1113.

Representing a 5% increase compared to the prior quarter and a 6% decrease compared to a year ago period.

Quarter over quarter, <unk> growth was driven by strong quarter over quarter revenue growth primarily in our core listings.

I will discuss expenses and profitability on a non-GAAP basis, which backs out our stock based compensation expense amortization of acquired intangible assets acquisition related expenses and losses attributable to redeemable non controlling interests.

First quarter non-GAAP gross margin was 86% down roughly 670 basis points versus a year ago quarter. The.

A contraction and gross margin percentage is attributed to the impact of the tower for a business on a consolidated results as our Q1 consolidated gross margin excluding car offer was 93% versus 92, 7% and Q1 and 2020.

The gross margin on car offer and Q1 was approximately 16% on a non-GAAP basis, which impacted the overall gross margin percentage of the company.

As I described earlier car offers transportation and inspection revenue is treated on a gross basis, which has an impact to our overall gross margin percentage and.

Additionally, due to the significant volume of dealers being added to the Colorado a platform. There are on boarding resources and cost of revenue that should scale longer term and we expect to see leverage and car offers a gross margins.

And the quarterly update on our Investor Relations website, you will find a non-GAAP summary of Colorado financials, indicating a modest non-GAAP operating loss in Q1 of $214000 on $15 6 million of revenue for the stub period since acquisition, which is January 2014.

Through March 31.

Total first quarter non-GAAP operating expenses were $98 9 million down 18% year over year non.

Non-GAAP sales and marketing expense fell 28% year over year to $65 4 million and represented 38, 2% of revenue down from 57, 6% a revenue and a year ago period.

The improved sales and marketing leverage is primarily the result of efficiency gains and our traffic acquisition and deliberate reductions and spend as a result of macroeconomic conditions.

Our first quarter non-GAAP <unk>.

<unk> technology and development expenses grew 13% versus a year ago period to $19 4 million and.

The investments, we are making and our technology team impact multiple initiatives, including supporting our core marketplace business and both our domestic and international markets and addition to our growing efforts and digital retail and wholesale.

We continue to allocate resources as needed to manage near term business needs and support longer term growth initiatives.

We generated non-GAAP operating income a $48 5 million, representing a margin of 28% and roughly 12 million a head of the high end of our guidance range.

Non-GAAP diluted earnings per share attributable to common shareholders was <unk> 33 for the first quarter <unk> <unk> above the high end of our guidance range.

On a GAAP basis, we generated first quarter gross margin of 86% and incurred a total operating expenses of 121 5 million down roughly 9% year over year, but.

A decline in operating expenses was primarily driven by a decrease and our variable consumer marketing expenses.

First quarter GAAP operating income increased 115% and year over year to $25 8 million.

First quarter GAAP net income attributable to common shareholders totaled $22 4 million.

Geographically first quarter U S. GAAP operating income was $29 4 million up 45% year over year.

We had a GAAP operating loss of $3 6 million and our international business compared to a $8 2 million loss and a year ago quarter.

We ended the first quarter with $240 7 million and cash and investments a decrease of $49 6 million from the end of the fourth quarter.

The decrease on our cash balance was driven primarily by our recent car off our acquisition.

We generated $37 6 million and cash from operations and a first quarter and $35 4 million of non-GAAP free cash flow, which includes capital expenditures and capitalized website development costs of $2 2 million.

I'll close my prepared remarks, with our outlook for a second quarter of 2021.

We expect our second quarter revenue to be in a range of $186 million to $192 million non-GAAP operating income and a range of $35 5 million to $39 5 million and non-GAAP earnings per share and a range of 23 to 25.

As you update your models for the rest of the year you should consider jason's comments regarding the inventory issues and the industry facing the Oems and our dealer partners.

Although our Q2 revenue guidance is a considerable increase from Q1 results, we expect that the chip issuance face and the automotive industry will continue to constrain inventory and potentially impact automotive marketing and advertising spend for several months.

On behalf of adjacent Sam and our executive team I'd like to thank all of a cargos and Colorado our employees perfect continued hard work as we enter year to a remote work.

With that we'll open it up to the call for Q&A.

Thank you at this time, we will be conducting a question and answer session and he would like to ask a question. Please press star one on your telephone keypad and a confirmation tone will indicate your line is and the question queue. You May Press Star two if you would like to remove your question from a mchugh from participants using speaker equipment and may be necessary to pay.

Up your handset before pressing and stacking.

Please note and we ask that you. Please limit yourself to one question and one follow up question per person one moment. Please while we poll for questions.

Our first question is from Dan Kronos, a benchmark company.

Please state your question.

Great. Thanks, good evening.

And maybe just to follow up on those final comments, there and and the <unk>.

Initial comments from from Jason and just around.

And.

The dealer potential dealer headwinds should we be thinking of that in terms of pricing should be paying that in terms of dealer net add.

And and how do we think about either a product attach rate.

Forget car offer for a second.

The year started off on a very strong note.

And I guess and some guys probably a re up.

Higher.

On the volume pricing, but I'm, just I'm curious, how we kind a think about that balance.

Yeah.

Dan Hi, it's Sam Zales. Thanks for the question was a great quarter, we're thrilled with the results.

A crude from what we think we are doing and they always have been doing which is driving the best ROI and the best low funnel shoppers at the highest volume too.

And to our dealer partners and that led to both.

A really strong.

Dealer acquisition results and also a cart carpet growing or hopefully only described a quarterly.

Annualized revenue per subscriber subscribing dealer.

Well I think we saw that Carson number growing and that's because we're driving great lead volume, we are getting dealers to redo with us and also to buy additional products and sad and we're increasing pricing as well. So all of those worked and the right direction I think the industry issues.

Inventory on a real there a you know obviously hurting new car and that obviously has a cascading effect to used cars as well. So I think what youll see is not the same kind of dealer adds not the same kind of a car seat growth, we'll be careful about doing things like renewals during the time that dealer inventory.

These are down so significantly.

Do think the one thing that cargo is a two things cargos relies on though when we think about our success even in tough markets like we did the emerging out of COVID-19 situation last year and is one the ROI, we're driving to those dealers and allows us to have a different and what we think is the best Rois volatile marketing channel as dealers use when you think we can still.

Do well from a customer retention perspective, and a and a carpet perspective, we just won't be as aggressive and putting those additional products a renewals and a decline on that front, but number two is we never a car offer and a partnership with <unk> offer is we're solving their biggest pain points for dealers right now.

And by providing packaged offerings of cargo listings and a solution like car offered a drive inventory sourcing it and automated way like new customers who've never seen before is an incredibly powerful combination that we think will help.

Help us sustained during this tough issue and the industry. I'll also say just very quickly and you think of things like area. A boost that's been a product that you've seen the growth on from a revenue per second per car gurus, because we're helping dealers source customers from outside their local market. So I think for all those factors. So it won't be the quarter that we just came out with from a.

Dealer adds and a.

<unk> perspective, but we think we can weather the storm better than other players in a market because of those factors.

Got it that's super helpful. So growth, but maybe not as much growth on <unk>.

Characterizing that right and then obviously car offer out of the chute was I don't know at least 50% higher probably than where most of us thought it would come out even with a stub quarter.

I guess, maybe Scott are you willing to kind of tell us what you think the car offer does and <unk> how much is embedded in that guide.

And then you know.

To the extent that you guys are still trying to figure out.

Exactly how you want to attack the market any thoughts on.

Competitive positioning against day, and ATV and the market and obviously just gone public or.

And kind of how you think about attacking the.

Consumer sourcing a vehicle opportunity as a potential add on there or just focusing on the main car offer offerings from now.

Hey, Dan I'll take the first part of the question and then turn over to Sam.

We're not going to give any any sort of a.

A specific guidance for a car off for this quarter and I am not sure we ever will but we we did and our investor deck actually highlight their performance through the year, including April because they've had such a strong momentum and b, it's new to us and new to all of you covering us. So we felt it was worthwhile to be a bit more.

And transparent on the trends through the quarter and true.

Through April so you don't really great execution, and as Sam mentioned and.

And I think he's going to talk a bit more about the other opportunities for growth for that business through through these times.

Yeah.

And Dan I'll follow on Thanks, Scott will set a D.

And I can't be more excited about the car off for a business and what they are bringing to the market.

Number one there and instant trading platform, which is completely different from all the players and the market even the ones that you mentioned newly public players.

What they do is they don't require a buyer at a dealership to watch vehicles going across the screen or figure out is that one and I did want a by what was the price I wanted to put on that it is built as an instant trading platform much like a stock exchange bids are in for buys bids are in for selling the order.

Nations that are completely for inspection for transportation for transactions and what its leading to right. Now is hundreds and then many more than hundreds of dealers and.

I've got to have this solution right now.

It is solving the biggest problem and the marketplace and transactions going from thousands to many more than that on a monthly basis that are really driving the success of this business and it's exceeding all of our expectations and it's doing that just like the quote from our dealer partner is I just have never seen anything like this and the marketplace I wish I had it early.

<unk> decided that inventories challenge and it is growing that business tremendously as I said in multiples as Youll see in the dealer presentation, Scott put together a day.

Dealer acquisition going through the roof, and even more so here and a second quarter and transactions lifting that business from a revenue perspective, even further the one thing I'll say that you asked a good question on as a consumer transactions I think our dealers and saying if you can put this capability in front of consumers, who want a sell their vehicles and we as dealers can.

A support in that marketplace.

Can't wait till you launch it and we're working on it we're not committing anything to that but that will be the next phase that you might think about as an incredible next stage of that business opportunity.

Our next question is from Ralph Shakur of William Blair. Please state your question.

Hi, good evening. Thanks for taking the question, maybe just staying on car off for a for a second I'm not sure Sam right person for this but give us a sense of maybe how strategic a more strategic.

<unk> is now and sort of the Ais a beer dealership customers and I know on a short term with and a chip issues and coming out a COVID-19 things are tough on the renewals and the.

And then trying to offer more products, but as we come out of the COVID-19 tunnel give us a sense of your your strategic relationship and perhaps how that growth with dealers.

Thanks, Ralph Sam Zales here, Yeah, you got it right on it is strategic not just because it is a platform that is solving the inventory issue better than any other solution out there and the marketplace.

But when you think about it the combination a carter's and car offer is truly strategic and that you were accessing and leveraging the power of data. So we're providing to those dealers key resolve a consumer transaction capability of the consumer search day, whereas we're a consumer's looking what are they what do they focus.

On from a geographical perspective from a a make or model perspective, where those searches growing and your local market and then how do you think about sourcing those vehicles by having a powerful combination of both retail data or instant market value data and what I can do with my matrix bids and the incident market instant trading plan.

From a car offer and I know what I can do wholesale what I can do retail and example of that is us putting on.

The price points now into the dealers cargo routes dashboard. So we're now opening up capability for dealers to see I've got this product on the market today, it's at retail hoping to sell for this price point and $20000 Holy Cow, it's been sitting on a on a lot for 40 days I can get at it and incident.

Transactions a car car offer at 19, five isn't that great from my business to quickly reached a kind of a success that I wanted by looking at the data seeing it and my dashboard running both businesses wholesale and retail out of one a.

Dashboard and it's a phenomenal success story and I think when you think about that you take it one step further to the last question, Dan asked which is had a consumers play and that again consumers, who are looking to trade and a vehicle and we know that and.

10 million plus transact consumer to consumer here's another great way to say how does the dealer participate and compete with some of those a big box retailers or some of the other players in the marketplace to get action and get into the inventory a consumers willing to sell to them you put those pieces together and those are a pillars.

And what digital retail and digital wholesale really becomes.

Great that's really helpful. Thanks, Tom.

Our next question is from Jed Kelly of Oppenheimer. Please state your question.

Hey, great. Thanks for taking my question.

And again at a interesting announcement a couple of weeks ago on car Gurus conversion is this the first step in terms of potentially allowing dealers to touch on a operate on a pay per lead basis, and then with parts of a REIT conversion I mean, how do you think about getting a larger franchise dealers signed up I mean, we.

Parents and skepticism that car.

A cargo rules will ultimately try to take some of the back and mining and some of the insurance money. So can you just talk about that opportunity.

Sure, Hey, Hey, Jed its Jason.

And just confirming you can hear me okay.

Yeah.

Okay, good on cell and it had some issues.

So yeah, I assume you're talking about Carter's convert which is in fact a.

Expanded a program that we're offering to dealers, which allows the consumer to do a different aspects of the transaction on our site. So that by the time. They are in fact interacting with the dealer they're a much more qualified a.

Shopper and they have done things like get a trade in value estimation and do some financing and and other F&I offered by the dealers get a penny perfect.

A set of numbers and economics for the deal and set an appointment.

And we've had a ton of interest from dealers on that because.

And as I said, what it does for the dealers is it saves them a lot of time and what we've proven is that by marketing all of their products and we're able to cross sell as.

As much as they can if a person we're in a in the store and so theyre made whole on it. So we have a lot of dealers who are signing up for it and.

We also have a evidence now that consumers really want it because.

A very.

Good and growing percent of.

Consumers interacting with that dealers V. D piece are going through different aspects of this convert a set of features.

We've always said that.

We do this to make the dealer whole and so much like our pre qual consumer finance product, where we make economics from the lenders because we're delivering value to them I would think a convert as the same way we are giving this all of this sort of and.

Hence lead capability.

Two dealers for free.

And making them hold on it so it really is a win for them, it's a win for consumers because it and lessons.

And they're able to do more things earlier on and on our site versus spending several hours and it and a dealership.

And it helps us because it differentiates us from other marketplaces, where you can't get a.

Some of these features and.

And as I said in my prepared remarks on on digital retail.

These are you know area, a boost and pre qualifications were sort of phase one the cargo whose convert is phase two.

And then where we're increasing our investment.

To bring more of those perched.

Purchase elements onto our site.

And we're having interest sorry, one other point.

You had said you had maybe heard there was concern among large franchise, we have very large.

You know national groups that are eager to get on board with us with this.

Great. That's helpful. And then just one more from me it looks like a monthly new installed dealers in April were very strong is that coming mostly from dealers that were already using car gurus or other.

These dealers that were new to <unk> or these just new dealers and that weren't didn't have a relationship with cargoes.

So and you're talking about installed dealers per car offer.

Our offer yeah. So it's a bit more of a cross sell or is it sealers and totally new to your site.

Hi, its book so.

About the volume of dealers and we have and our installed base.

You know, it's which is.

Well over half a.

And you would imagine that there's a a decent chance that if they're signing up for a car offer that theyre also using car gurus, but not necessarily a by any means and what we're excited about is that a car offer is in fact growing a number of dealers that they are installing a enrolling and installed.

And very quickly and as Scott said earlier.

And you look at just a year to date growth, it's a pretty astounding, how that's been accelerating and.

And we have only started to I mean, if you think about it we closed January 14th on the deal and it took us.

Several weeks to kind of get everything and order once the deal closed and so we've only really begun a passing.

Warm.

You know partners of ours.

Handing them to introduce into a car offer four really only a couple of months and so there's that sales and account management synergy and then Theres the offers and a dashboard and so that's also going to be a really big boost to introduce a lot more dealers who are not currently on.

Car offer to their product into the power a there.

Instant trade platform.

As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad and a confirmation tone will indicate your line is and a question Kim from participants using speaker equipment and it may be necessary to pick up your handset before pressing and stacking.

One moment, please while we pull for additional question.

Our next question is from Doug Arthur Huber Research. Please state. Your question, yes, Thanks, as Scott and I'm just trying to you you threw a lot out there about the accounting treatment for a car offers a trying to reconcile what appears to be pretty.

Wrong second quarter revenue guide now granted.

And that includes a car offer and sort of cautious.

Adjusted operating profit guide cause.

Because it seems to me if you don't if the dealers pulling their marketing spend.

And that impacts your because of tight inventories and you'll have optionality on your sales and marketing spend as well, which we've seen.

And in spades and the past so I'm just trying to reconcile those two guidance numbers.

Sure. Thanks, Doug.

So yeah, you know our cues from God is really really strong and coming off of a.

Extremely strong Q1.

And that momentum really came in Q1, we had a phenomenal bookings on a our core business and core offers momentum as you can see has just been phenomenal through the year with a record month in March and they they expanded on that in April so really great momentum and the thing that we wanted a caution about that.

The headwind and sort of turned a little bit and April with the inventory issue is and its marketing spend may be reduced at the dealer and OEM level and.

And to your point, if that happens not unlike last year, where we were able to flexibly.

Trucks on our marketing spend we would do the same so that we are providing the right amount of traffic for the right amount a value that our dealers want to risk.

And receive and pay for so there is you know we're very.

Conscious of that when you look at that and almost weekly as to how much we're spending on a.

Traffic acquisition, and and flexing and accordingly to relative to what we're seeing on the market.

Okay got it thank you.

Yeah.

We have reached the end of the question and answer session and I'll now turn the call back over to Jason Curtis and for closing remarks.

Welcome stances I'd like to thank our customers for their business and their partnership and then lastly, I'd like to thank our investors for your support and confidence in US. We're incredibly excited about our performance, but more importantly, we're very excited about our strategy and our future.

Thank you very much and have a great evening.

This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.

[music].

Greetings and welcome to the card Yours, Inc. First quarter 2021 earnings results Conference call. At this time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.

Please note this conference is being recorded.

And I'll turn the conference over to your host Josh called team. Thank you you may begin.

Thank you operator, good afternoon, and welcome to the Carter's first quarter 2021 earnings call.

I'll be discussing the results announced in a press release issued today after the market closed and posted on our Investor Relations website.

With me on a call today are Jason Robinson, Chief Executive Officer, Scott, Porretto, Chief Financial Officer, and Sam Zales, President and Chief operating Officer.

During the call we will make statements regarding our business and maybe considered forward looking with and applicable securities laws.

Including statements concerning our outlook for the second quarter 2021.

Management's expectations for future financial and operational performance and innovation, our business and growth strategy.

Future proposition of our car offer acquisition and the potential.

And impact of the COVID-19, pandemic and other macro level industry issues on our business and financial results.

And other statements regarding our plans prospects and expectations.

These statements are not promises or guarantees and are subject to risks and uncertainties.

Which could cause them to differ materially from actual results.

Information concerning those risks and available on our earnings press release distributed after market closed today and and our most recent reports on forms 10-K, 10-Q, which along with our other SEC filings can be found on the SEC's website, and and the Investor Relations section of our website.

We undertake no obligation to update forward looking statements, except as required by law.

Further during the course of today's call, we will refer to certain non-GAAP financial measures a.

Reconciliation of GAAP to non-GAAP measures is included in our press release issued today.

Our updated Investor presentation can also be found on the Investor Relations section of our website.

With that I'll turn it over to Jason.

Thank you very much Josh and thank you to all those joining us today.

I'm thrilled to share that cargo has generated strong results and the first quarter and both our core listings and digital retail businesses as well as the car off our business on.

Our strategy is producing results, we are leveraging our market, leading automotive marketplace to continue expanding our digital retail capabilities as well as to catapult car offers digital wholesale platform.

Emerging from 2020, we are now a stronger more efficient company and investing even more to build a single best digital platform for consumers and dealers to buy and sell cars.

It's been a year since the pandemic initially impacted our industry and and this past quarter, we've grown beyond where we were before COVID-19 lockdowns.

Our first quarter results exceeded our own expectations in particular were so impressed with the top line results and business model efficiency that car offer achieved and its first quarter as part of our business.

I'll walk through our results and alignment with our three pillar strategy.

I've, often said that the core unit a value of our listings business as leads and we're pleased to report that our U S leads were up mid single digits versus Q1 and 2020.

And leads to paying dealers were up 16, 6% versus the same period last year.

We're particularly pleased with this lead growth as it was achieved while spending approximately $20 million less and consumer marketing versus the same time last year.

According to Comscore.

Also we saw great momentum in Q1 with quarter over quarter sequential increases and the U S. A seven 6% for unique visitors and 10, 1% per sessions.

And the U S. We had strong paying dealer additions and the quarter up 437 from Q4 with growth across all of our dealers segments.

We also saw improved quarterly average revenue per subscribing dealer or a car said, both year over year and quarter over quarter.

The paying dealers added in Q1 came on to our listings marketplace at pricing that reflects our strongly and volumes and were a contributing factor to <unk> growth.

Turning to our international markets. Despite the continued impact of COVID-19 and Q1, we continued to deliver a high return on investment to our dealer partners and the UK and Canada.

We did so through sustained investment and lead growth persist and efficiency improvements product innovation as well as financial support to dealers and the U K and the form of a 100% subscription discount for forever for February due to extended Lockdowns.

At the same time, we grew average monthly traffic quarter over quarter.

Our international marketplace has attracted nearly 8 million average monthly unique visitors, who logged $18 2 million average monthly sessions.

We also grew total leads by 6% quarter over quarter and leads to paying dealers grew 11% quarter over quarter.

These gains are complemented and the U K with a well received launch of our unified cargo Roos pissed and heads product offering that provides and even more robust consumer audience to dealers through a single subscription.

Both our international market surpassed our expectations and Q1, and we continue to see exciting progress in both markets trend toward profitability.

Moving on to digital retail.

We continue to see growing traction of our digital retail strategy.

As a reminder, digital retailers and not a single capability, rather digital retail brings various elements of the car purchase onto our site. So that consumers can execute any and all portions of the car buying process that they'd like online.

For a small but growing set that will include completing the entire purchase with a few clicks.

We have from any of these capabilities already and are seeing growth and adoption among both consumers and dealers, but we still intend to improve the experience. So we are increasing our efforts to offer the full spectrum of retail capabilities.

As evidence of that growing adoption the combined year over year revenue growth from area, a boost and consumer financing to initial features a digital retail was 70% and Q1.

In addition, we recently announced the launch of our CG convert product, which brings many of these retail features into a single dealer package as well as the hiring a Brad Rosenfeld as executive Vice President of digital retail commercialization.

Brad joins us from Amazon, where he has successfully scaled several businesses by enabling brick and mortar merchants and various industries to sell via the Amazon platform and we're confident and he will help our dealers do the same.

We know consumer sentiment continues to move in favor of digital retail with a scale of our audience and inventory. We believe we are well positioned to help consumers and dealers facilitate more of the digital retail transaction online and we expect to make considerable progress on this strategic initiative and 2021.

Last I will discuss our wholesale pillar, which is led by the car offer business.

What drew us to pursue this opportunity last year was the strength of their incredible team the share shift from physical to digital wholesale transactions dealers.

The other benefits of and instant trading platform versus and auction model and the capital efficiency and profit potential of car offer relative to other digital wholesale businesses.

This is our first quarter with car offer and our financials as we closed the transaction on January 14th and we could not be more excited.

And many dealers moving on to the car off a platform are exhibiting similar levels of excitement.

Massimo Castelli General manager, a vision, Hyundai and Kevin Dig and New York Recently said this note to Bruce Thompson, founder and CEO a car offer.

I can tell you today the car offer platform as one of the greatest and most exciting things we have used and years all.

All of our managers find it not only easy to use but are now making deals we never would have otherwise.

We've made a lot of money with it and have been able to easily manage our aged inventory without transportation costs and high fees, all while not losing any time and a lot I only wish I had signed up sooner.

We are so impressed with the execution of the core offer team and Texas, which is rapidly growing key metrics, including enrolled and installed dealers and transactions.

Car offer more than tripled revenue year over year, and Q1, which is a testament to more dealers recognizing the benefits of a digital wholesale platform.

Furthermore, the platform's growth year to date is arguably more impressive.

<unk> offer grew dealer counts and transaction volume and each month of Q1 and through April.

Furthermore, we are just now starting to reap the benefits of our combined platforms as our cargo is account management teams have introduced hundreds of cargoes customers to car offer and we are now surfacing wholesale matrix offers directly and our cargo was pricing tool to dealers subscribe to both of our platforms.

Thus far over 800 dealers can access wholesale offers and the cargo is dashboard and of those who have seen. These initial offers nearly one and five of click through to explore a transaction.

What's more one and four one at a four wholesale offers have been within 5% of that dealers retail price and.

15% have been above the retail price.

We believe this is evidence of the combined power of our platforms intelligent use of data and the market liquidity of our large dealer network.

These are just a few examples of synergies we expect to achieve between our platforms.

Dealers like Danny Archibald a Archibald and Kennewick, Washington are using the car off from matrix in tandem with a cargo as a marketplace.

As Danny says, it's actually a fantastic integration I use the cargo whose pricing tool daily to make my wholesale decisions and I can see myself using this car off a integration a lot and the future to sell vehicles.

Prior to Q1 and car offer was already experiencing strong growth because the platform offers dealers efficient wholesale execution via a.

It's instant trading platform.

We also believe this efficiency is ultimately evidenced by the significant growth a car offers platform over the last year, while consuming very little capital.

Which we've illustrated in our investor slides.

March was a record month for both dealers and transactions and we exceeded those with new highs and every metric and April.

While our consolidated results and Q1 exceeded our expectations, we were not surprised by the resiliency and strength of our listings business. The early enthusiasm and growing usage among both dealers and consumers of our digital retail features and a market's receptivity to car offers a highly effective platform.

We do want to mentioned that we are witnessing the inventory and pricing volatility from the macroeconomic chip issue that is impacting many industries, including ours.

While consumer demand was very strong and Q1 and has continued dealers a realizing higher gross margin per unit, but struggling to maintain inventory levels and may continue to face inventory challenges for several more months.

With heightened demand and reduced inventory comes the potential for marketing spend headwinds by both dealers and Oems.

Despite those temporary issues, which we expect will normalize later this year. We're so pleased with the progress building a platform for dealers and consumers to buy and sell any automobile.

And as our pillar is mature and gel we will have a platform fueled by our market, leading audience industry, leading dealer network and unrivaled data to inform intelligent retail and wholesale transactions.

I wanted to and with a special note of gratitude to all our employees as.

And as the absence of in person and collaboration continues to weigh on us all and I continue to be amazed at the fortitude creativity innovation and camaraderie shown every day by our 1000 plus employees worldwide.

With that I'll turn it over to Scott to discuss our financials.

Thank you Jason.

I'll provide a detailed overview of our first quarter performance followed by our guidance for a second quarter a 2021.

Before discussing the details of the quarter I would like to address a results relative to our Q1 guidance.

And at the time, a providing a Q1 guidance we had not finalized our accounting policies per car offer.

Through this process, we concluded that transportation and inspection revenues realized and Colorado transactions should be recognized on a gross basis, meaning that the full consideration and collected from a customer and the cost paid to third party vendors should be reflected in full and revenue and cost of revenue respectively.

At the time, a providing Q1 guidance. This policy has not been finalized so our Q1 guidance and reflected the projected revenue for these services on a net rather than a gross basis.

Our Q1 results reported today include the company's actual quarterly revenue for these services on a gross basis.

And subsequently used to calculate and its Q1 EPS reported today.

The company's Q1, EPS guidance took into account the potential dilution to its share count that would result from the exercise by car offer of a put right respecting the remaining 49% of car off on stock.

For accounting purposes, we had assumed that the company would use its own stocks to purchase the remaining 49% stake and car offer if car off for what's a exercise thats put right.

Which would have had a dilutive effect on the company's share count.

Upon finalizing its accounting policies respecting the Colorado a transaction. However, a company concluded that a as of March 31, and 2021, there had not been a dilutive impact resulting from the car off a put right and.

And that does not become effective until 2024.

Accordingly, the actual share count that the company used to calculate it's Q1 EPS was lower than the estimated share count on which it had based its Q1 EPS guidance.

Now onto our results.

Total first quarter revenue was $171 4 million.

Up 9% year over year, and nearly $11 million ahead of the high end of our guidance range.

Our total marketplace subscription revenue fell 2% versus a year ago period to $139 6 million.

Other revenue on a first quarter grew a 101% year over year to $31 8 million, which largely reflects the impact of a car offer and also includes growth of our consumer financing products.

Wholesale revenue includes transaction fees earned by power offer from facilitating the purchase and sale of vehicles between dealers where car offer collect fees from both a buyer and seller.

<unk> from May also fulfill by orders from dealers through the acquisition of vehicles at other marketplaces and these instances, Colorado a collects a transaction fee from the buyer.

Conifer also charges buyers fees per inspection and transportation services on all wholesale transactions.

Our U S business generated $132 million and marketplace subscription revenue and the first quarter.

Our international business generated $7 5 million and marketplace subscription revenue in the same period.

The U S accounted for 95% of total revenue on the first quarter.

U S revenue increased 10% versus a year ago period to $163 million, while international revenue declined 14% year over year to $8 4 million.

The growth and United States revenue is primarily related to a recent cutoff for acquisition and the decline and international revenue is primarily related to a 9% decline and paying dealers as a U K and particular extended lockdowns during the pandemic.

Turning to paying dealer count we ended Q1 with 31.

And 213 total paying dealers, representing an increase of 582 dealers from Q4, and a decrease of 2047 versus a year ago period and.

And the U S. We finished the quarter with 24371 paying dealers, which is an increase of 437 dealers from the end of the fourth quarter.

And our international business. We finished the first quarter was 6842 international paying dealers up 145 from the end of the fourth quarter.

Please note that these paying dealer counts as well as our other kpis and metrics are exclusive of <unk>.

And the first quarter U S. Carted was 5000, and 466, representing a 3% increase compared to the prior quarter and a 7% increase compared to a year ago period.

International cards it was 1113.

Representing a 5% increase compared to the prior quarter and a 6% decrease compared to the year ago period.

Quarter over quarter costs, a growth was driven by strong quarter over quarter revenue growth primarily in our core listings.

First quarter non-GAAP gross margin was 86% down roughly 670 basis points versus a year ago quarter and <unk>.

Traction and gross margin percentage is attributed to the impact of the tower for a business on our consolidated results as our Q1 consolidated gross margin excluding car offer was 93% versus 92, 7% and Q1 and 2020.

The gross margin on core offer and Q1 was approximately 16% on a non-GAAP basis, which impacted the overall gross margin percentage of the company.

As I described earlier car offerings and transportation and inspection revenue is treated on a gross basis, which has an impact to our overall gross margin percentage.

Additionally, due to a significant volume of dealers being added to the car off a platform. There are on boarding resources and cost of revenue that should scale longer term and we expect to see leverage and car offers gross margins.

And a quarterly update on our Investor Relations website, you will find a non-GAAP summary of car offers financials, indicating a modest non-GAAP operating loss in Q1 of $214000 on $15 6 million of revenue set a stub period since acquisition, which is January 2014 through March.

<unk> 31.

Total first quarter non-GAAP operating expenses were $98 9 million down 18% year over year non.

Non-GAAP sales and marketing expense fell 28% year over year to $65 4 million and represented 38, 2% of revenue down from 57, 6% a revenue and a year ago period.

The improved sales and marketing leverage is primarily the result of efficiency gains and our traffic acquisition and deliberate reductions and spend as a result, a macroeconomic conditions.

Our first quarter and non-GAAP.

<unk> technology and development expenses grew 13% versus a year ago period to $19 4 million and.

Investments, we are making and our technology team impact multiple initiatives, including supporting our core marketplace business and both our domestic and international markets and addition to our growing efforts and digital retail and wholesale.

We continue to allocate resources as needed to manage near term business needs and support longer term growth initiatives.

We generated non-GAAP operating income a $48 5 million, representing a margin of 28% and roughly $12 million ahead of the high end of our guidance range.

Non-GAAP diluted earnings per share attributable to common shareholders was <unk> 33 for the first quarter <unk> <unk> above the high end of our guidance range.

On a GAAP basis, we generated first quarter gross margin of 86% and incurred a total operating expenses of 121 5 million down roughly 9% year over year the.

The decline and operating expenses was primarily driven by a decrease and our variable consumer marketing expenses.

First quarter GAAP operating income increased 115% and year over year to $25 8 million.

First quarter GAAP net income attributable to common shareholders totaled $22 4 million.

Geographically first quarter U S. GAAP operating income was $29 4 million up 45% year over year.

We had a GAAP operating loss of $3 6 million and our international business compared to a $8 2 million loss and a year ago quarter.

We ended the first quarter with $240 7 million and cash and investments a decrease of $49 6 million from the end of the fourth quarter.

A decrease in our cash balance was driven primarily by our recent car off our acquisition.

I'll close my prepared remarks, with our outlook for a second quarter of 2021.

As you update your models for the rest of the year you should consider jason's comments regarding the inventory issues and the industry facing the Oems on our dealer partners.

Although our Q2 revenue guidance is a considerable increase from Q1 results. We expect that the chip issues faced in the automotive industry will continue to constrain inventory and potentially impact automotive marketing and advertising spend for several months.

On behalf of adjacent Sam and our executive team I'd like to thank all of a cargos and Colorado employees perfect continued hard work as we enter year to a remote work.

With that we'll open it up to the call for Q&A.

Thank you at this time, we will be conducting a question and answer session and he would like to ask a question. Please press star one on your policy on keypad, a confirmation tone will indicate your line is and the question queue. You May Press Star two if you would like to remove your question from a mchugh from participants using speaker equipment and may be necessary to pay.

Up your handset before pressing the star team.

Please note and we ask that you. Please limit yourself to one question and one follow up question per person one on them.

Please while we poll for questions.

Our first question is from Dan <unk> of the benchmark company.

Please state your question.

Great. Thanks, good evening.

And maybe just to follow up on the final comment there and the.

Initial comments from from Jason and just around.

The deal or a potential deal or headwind should we be thinking of that in terms of pricing should we think of that in terms of dealer net add.

And how do we think about a product attach rate.

And I forget car offer for a second.

The year started off on a very strong note.

I guess and some guys probably re up at higher.

And the volume pricing, but I'm, just I'm curious, how we kind a think about that balance.

Yeah.

Dan Hi, it's Sam Zales. Thanks for the question was a great quarter, we're thrilled with the results.

A crude from what we think we are doing and they always have been doing which is driving the best ROI and the best low funnel shoppers at the highest volume too.

And so our dealer partners and that led to both.

A really strong.

Dealer acquisition results and also a carpet growing or have we always described a quarterly.

Annualized revenue per subscriber subscribing dealer.

I think we saw that Carson number growing and that's because we're driving great lead volume, we are getting dealers to redo with us and also to buy additional products and said and we're increasing pricing as well. So all of those worked and the right direction I think the industry issues.

Inventory on a real they're obviously hurting new car and then obviously he has a cascading effect to used cars as well. So I think what youll see is not the same kind of dealer adds not the same kind of car seat growth, we'll be careful about doing things like renewals during the time that dealer inventory.

Are down so significantly.

Do think the one thing that cargo is two things <unk> relies on though when we think about our success even in tough markets like we did emerging out of COVID-19 situation last year and is one the ROI, we're driving to those dealers and allows us to have a different and what we think is the best Rois volatile marketing channel as dealers use when you think we can still.

Do well from a customer retention perspective and a.

And a carpet perspective, we just won't be as aggressive that putting those.

Additional products, a renewals and a decline on that front, but number two is we never have car offer and a partnership with <unk> offer is we're solving their biggest pain points for dealers right now.

And by providing packaged offerings of cargoes listings and a.

Solution like car offered a drive inventory sourcing and and automated way like no customers they've never seen before is an incredibly powerful combination that we think will.

And be the quarter that we just came out with from a.

A dealer adds and a.

Carpet perspective, but we think we can weather the storm better than other players and the market because of those factors.

Got it that's super helpful. So growth, but maybe not as much growth.

Characterizing that right and then obviously car offer out of the chute was I don't know at least 50% higher probably than where most of us thought it would come out with a stub quarter on.

I guess, maybe Scott are you willing to kind of tell us what you think a car offer does and how much is embedded in that guide.

And then two.

To the extent that you guys are still trying to figure out.

Exactly how you want to attack the market any thoughts on.

<unk> competitive positioning against day, and ATV, EBIT and the market and obviously just gone public or.

Kind of how you think about attacking the.

Consumer sourcing a vehicle opportunity as a potential add on there or just focusing on the main car offer offering from now.

Hey, Dan I'll take the first part of the question and then turn it over a Sam.

We're not going to give any any sort of.

Specific guidance for a car offer this quarter and I'm not sure what we ever will but we did and our investor deck actually highlight their performance through the year, including April because they've had a.

It's a strong momentum and be a.

New to us and new to <unk>.

All of you covering up so we felt it was worthwhile to be a bit more transparent on the trends through the quarter and true.

Through April so really great execution, as Sam mentioned and.

And I think he's going to talk a bit more about the other opportunities for growth for that business through these times.

And Dan I'll follow on Thanks, Scott will set a.

Dan I can't be more excited about the car offer business and what they're bringing to the market.

Number one there and instant trading platform, which is completely different from all the players and the market even the ones that you mentioned newly public players.

What they do is they don't require a buyer at a dealership to watch vehicles going across the screen or figure out is that one and they want to buy what would the price I wanted to put on that it is built as an instant trading platform much like a stock exchange bids are in for buys bids are in for selling the automate.

And is there a completely for inspection for transportation for transactions and what its leading to right. Now is hundreds and then many more than hundreds of dealers and.

And I've got to have this solution right now.

Hedge assignment inventories challenged and it is growing that business tremendously as I said in multiples as youll see in the dealer a presentation Scott put together a.

Dealer acquisition going through the roof and EBIT more so here in a second quarter and transactions and lifting that business from a revenue perspective, even further the one thing I'll say that you asked a good question on is consumer transactions I think our dealers and saying if you can put this capability in front of consumers, who want to sell their vehicles and we as dealers can <unk>.

<unk> net marketplace I can't wait to see a launch it and we're working on it we're not committing anything to that but that will be the next phase that you might think about as an incredible next stage of that business opportunity.

Our next question is from Ralph Shakur of William Blair. Please state your question.

Hi, good evening. Thanks for taking the question, maybe just stay on a car off per per second.

I'm not sure Sam right person for this but give us a sense of maybe how strategic are more strategic.

Cargo or is this now and sort of the eyes of your dealership customers and now on the short term with a chip issues and coming out a COVID-19 things are tough on the renewals and the.

And trying to offer more products, but as we come out of the COVID-19 tunnel give us a sense of your strategic relationship and perhaps how that growth with dealers.

Thanks, Ralph Sam Zales here and yes, you got it right on it is strategic not just because it is a platform that is solving the inventory issue better than any other solution out there and the marketplace.

But when you think about it the combination of Carter's and car offer is truly strategic and that you were accessing and leveraging the power of data. So we're providing to those dealers here is all the consumer transaction capability of the consumer search day, and whereas we're a consumer's looking what are they.

They focused on from a geographical perspective from a a make or model perspective, where those searches growing and your local market and then how do you think about sourcing those vehicles by having the powerful combination of both retail data our instant market value data and what I can do with my matrix bids and the instant market incidents.

Trading platform a car offer I know what I can do wholesale what I can do retail and example of that is us putting on.

The price points now into the dealers cargoes dashboard. So we're now opening up capability for dealers to see I've got this product on the market today, it's at retail hoping to sell for this price point and $20000 Holy Cow, it's been sitting on a on a lot for 40 days I can get it at a incident.

Transaction through cart car offer at 19, five isn't that great for my business to quickly reap the kind of success that I wanted by looking at the data seeing it and my dashboard running both businesses wholesale and retail out of one.

Dashboard, it's a phenomenal success story and I think when you think about that you take it one step further to the last question, Dan asked which has had a consumers play and that again consumers, who are looking to trade and a vehicle and we know that.

$10 million, plus transact consumer to consumer here's another great way to say, how does the dealer participate and compete with some of those.

A big box retailers or some of the other players in the marketplace to get action and get into the inventory a consumer is willing to sell to them you put those pieces together and those are a pillars of what digital retail and digital wholesale really becomes.

Great that's really helpful. Thanks, Tom.

Our next question is from Jed Kelly of Oppenheimer. Please state your question.

Hey, great. Thanks for taking my question.

And again and the interesting announcement a couple of weeks ago on car Gurus conversion is this the first step in terms of potentially allowing dealers to touch on a operate on a pay per lead basis, and then with cargo conversion I mean, how do you think about getting a larger franchise dealers get tied up I mean, we.

And some skepticism that car.

A cargo rules will ultimately try to take some of the back and mining and some of the insurance money. So can you just talk about that opportunity.

Sure, Hey, Hey, Jed its Jason.

And just confirming you can hear me okay.

Yes.

Okay, good on cell and it had some issues.

So yeah.

And youre talking about Carter's convert which.

Is in fact.

A expanded program that we're offering to dealers, which allows the consumer to do different aspects of the transaction on our site. So that by the time. They are in fact interacting with the dealer there are a much more qualified shop.

Shopper and they have done things like get a trade in value estimation and do some financing and other F&I offered by the dealers get a penny perfect.

<unk>.

Set of numbers and economics for the deal and set an appointment.

And we've had a ton of interest from dealers on that because.

And as I said, what it does for the dealer as it saves them a lot of time and what we've proven is that by marketing all of their products and we're able to cross sell as.

And as much as they can if a person we're in and the store and so theyre made whole on it. So we have a lot of dealers who are signing up for it.

We also have evidence now that consumers really want it because.

A very.

Good and growing percent of.

Consumers interacting with that dealers edp's are going through different aspects of this convert.

Set of features.

We've always said that.

We do this to make the deal or a hole and so much like our pre qual consumer finance product, where we make economics from the lenders because we're delivering value to them I would think of convert at the same way.

We are giving that all of this sort of enhanced lead capability.

Two dealers for free.

And making them hold on it so it really is a win for them, it's a win for consumers because it lessens.

They are able to do more things earlier on on a site versus spending several hours and a dealership.

And it helps us because it differentiates us from other marketplaces, where you can't get a.

Some of these features and as I said in my prepared remarks on on digital retail.

These are.

Area, a boost and pre qualifications were sort of phase one.

Carter's convert is phase two and.

And then we are increasing our investment to bring more of those.

Purchased elements onto our site.

And we're having interest sorry, one other point.

You had said you had maybe heard there was concern among large franchise, we have very large.

National groups that are eager to get on board with Us a desk.

Great. That's helpful. And then just one more for me and it looks like a monthly new installed dealers in April were very strong.

And coming mostly from dealers that were already using car gurus or are these dealers that were new to are these just new dealers that weren't didn't have a relationship with cargoes.

So are you talking about installed dealers per car offer.

Our operating yes. So you did more of a cross sell or is it sealers and totally new to your site.

Its book so.

Do you think about the volte.

Volume of dealers and we have and our installed base.

You know which is <unk>.

All over have you.

You would imagine that there's a a decent chance that if they are signing up for car offer that theyre also using cargo routes, but not necessarily by any means and what we're excited about is that a car offer is in fact growing a number of dealers that they're installing.

And enrolling and installing.

Very quickly and as Scott said earlier, if you look at just a year to date growth is.

Pretty astounding, how that's been accelerating.

And we have only started to I mean, if you think about it we closed January 14th on the deal and it took us.

Several weeks to kind a get everything and order once the deal closed and so we've only really begun passing.

<unk>.

You know partners of ours.

Handing them too to introduce into car offer four really only a couple of months and so there is that sales and account management synergy and then theres the offers and the dashboard and so.

It's also going to be a really big boost to introduce a lot more dealers who are not.

Currently on car offer to their product into the power a there.

And trade platform.

As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad a concert.

Formation and total indicate your line is and a question Kim from participants using speaker equipment and it may be necessary to pick up your handset before pressing on stacking.

One moment, please while we poll for additional questions.

Our next question is from Doug Arthur Huber Research. Please state your question.

Thanks, Scott and I'm, just trying to you threw a lot out there about the accounting treatment for car offers a I'm trying to reconcile.

What appears to be pretty strong second quarter revenue guide now granted.

That includes core offer and sort of cautious.

Adjusted operating profit guide.

Because it seems to me if you don't if the dealers pulling their marketing spend.

And that impacts you because of tight inventories and you'll have optionality on your sales and marketing spend as well, which we've seen.

And space in the past so I'm just trying to reconcile those two guidance numbers.

Sure. Thanks, Doug.

So yeah on our Q2 guide is really really strong and coming off a.

And extremely strong Q1.

And that momentum really came in Q1, we had a phenomenal bookings on a core business and car offers momentum as you can see has just been phenomenal through the year with a record month and in March and.

They expanded on that in April so really great momentum the thing that we wanted to caution about that the headwinds and sort of turned a little bit and April with the inventory issue is as marketing spend may be reduced at the dealer and OEM level and.

And to your point, if that happens not unlike last year, where we were able to flexibly.

Flex on our marketing spend we would do the same so that we are providing the right amount of traffic for the right amount a value that our dealers want to risk.

Receive and pay for so there is.

We're very.

Conscious of that we look at that and almost weekly as to how much we're spending on.

Traffic acquisition, and and flexing and accordingly to relative to what we're seeing on the market.

Okay got it thank you.

Yeah.

We have reached the end of the question and answer session I will now turn the call back over to Jason try this and for closing remarks.

Thank you Larry Thank you very much everyone I'd like to thank again, all of those who joined US. This evening and I'd also like to thank our employees globally for their hard work under these remote circumstances I'd like to thank our customers for their business and their partnership and then lastly would like to thank our investors for your support and confidence in us.

We're incredibly excited about our performance, but more importantly, we're very excited about our strategy and our future. Thank you very much and have a great evening.

This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.

Q1 2021 CarGurus Inc Earnings Call

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