Q3 2023 CarGurus Inc Earnings Call
Greetings welcome to car Gurus third quarter 2023 conference results.
Speaker 1: Greetings. Welcome to Car of Guru's third quarter, 2023 conference results.
Speaker 1: 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. I will now turn the conference over to Kiran Deeb Singh, Vice President Investor Relations. Thank you. The speakers may begin.
At this time all participants are in a listen only mode. A question 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 I will now turn the conference over to Karen Deep Singh Vice Pres.
The Investor Relations. Thank you you may begin.
Speaker 1: Thank you, operator. Good afternoon. I'm delighted to welcome you to CarGurus third quarter 2023 earnings call. Losing on the call today are Jason Trevisan, chief executive officer, and Sam Zales, president and chief operating officer. During the call, we will be making forward-looking statements, which are based on our current expectations and beliefs. These statements are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in such statements.
Thank you operator, good afternoon, I'm delighted to welcome you to kind of the third quarter 2023 earnings call with me on the call today are Jason tried to teach Chief Executive Officer, and Sam Zell, President and Chief operating officer. During the call, we will be making statements, which are based on our current expectations and beliefs. These days.
They are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in such statements.
Speaker 2: Information concerning those risks and uncertainties is discussed in our SEC filings, which can be found on the SEC's website and in the investor relations section of our website. We undertake no obligation to update or revise forward-looking statements except as required by law.
Information concerning those risks and uncertainties as discussed your attitude.
Which can be found on the website.
And in the Investor Relations section of our website, we undertake no obligation to update or revise forward looking statements, except as required by law.
Further during the course of our call today, we will refer to certain non-GAAP financial measure and reconciliation.
Speaker 2: Further, during the course of our call today, we will refer to certain non-GAAP financial measures. A reconciliation of GAAP to comparable non-GAAP measures is included in our press release issued today, as well as in our updated investor presentation, which can be found on the investor relations section of our website.
The comparable non-GAAP measure is included in our press release issued today as long as you know updated investor presentation, which can be found on the Investor Relations section of our website.
Speaker 2: 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 as it relates to metrics used by our management in its financial and operational decision making. With that, I'll now turn over the call to Jason.
We believe that these non-GAAP financial measures provide useful information about our operating result enhances the overall understanding of past financial performance and future prospects and allow for greater transparency as it relates to metrics used by our management and it.
And operational decision, making with that I'll now turn over the call to Jason.
Speaker 3: Thank you, Kurnadeep. And thank you to all those joining us today. Before I begin, I would like to share the exciting news that we have accelerated the purchase of the remaining minority equity interest in car offer. Our decision to expedite the purchase was driven by our strong desire to accelerate new product opportunities that allow us to build an end to end transaction enabled platform even
Thank you Sandy and thank you to all those joining us today.
Before I begin I would like to share the exciting news that we have accelerated the purchase of the remaining minority equity interest in car offer our decision to expedite the purchase was driven by our strong desire to accelerate new product opportunities that allow us to build an end to end transaction enabled platform even sooner.
Speaker 3: Further, this decision aims to help us continue the momentum of our operational improvements to build a stronger platform for our dealer partners.
Further this decision aims to help US continue the momentum of our operational improvements to build a stronger platform for our dealer partners.
We believe that by accelerating our purchase we will realized synergies of our integrated platform sooner and create an even better consumer and dealer experience.
Speaker 3: We believe that by accelerating our purchase, we will realize synergies of our integrated platform sooner and create an even better consumer and dealer experience.
I would like to thank Bruce Thompson CEO of car offer for his partnership for nearly three years upon Bruce his resignation in connection with the expected closing of the acquisition in December.
Speaker 3: I would like to thank Bruce Thompson, CEO of car offer, for his partnership for nearly three years. Upon Bruce's resignation and connection with the expected closing of the acquisition in December , Zach Hallowell will lead the car offer business going forward.
Hello, Al will lead the car off their business going forward.
Speaker 3: We are so excited for Zach to leverage his expertise and industry relationships from his prior roles at Mannheim Options and Open Lane to lead CarOffer and their incredible team during this exciting next phase.
We are so excited for Zach to leverage the expertise and industry relationships from his prior roles at Mannheim auctions and open lane to lead car offer and their incredible team. During this exciting next phase.
Now turning to our third quarter results. This quarter, we achieved significant milestones that we believe underscore the strength and progress of our transaction enabled platform.
Speaker 3: This quarter, we achieved significant milestones that we believe underscore the strength and progress of our transaction enabled platform.
Speaker 3: On a global scale, we are thrilled that our UK business achieved profitability this quarter, a noteworthy accomplishment that further validates our success and opportunity in global markets.
On a global scale, we are thrilled that our UK business achieved profitability this quarter no.
Worthy accomplishment and further validates our success and opportunity in global markets, especially in the face of a challenging macroeconomic and automotive landscape.
Speaker 3: especially in the face of a challenging macroeconomic and automotive landscape.
In the U S. We introduced the next iteration of instant Max cash offer referred to as sell my car top dealer offer which gives consumers the choice to either sell their car entirely online or to the highest bidding local dealership.
Speaker 3: In the US, we introduced the next iteration of Instant Max Cash offer, referred to as sell my car top dealer offer, which gives consumers the choice to either sell their car entirely online or to the highest bidding local dealership.
And finally, we continued year over year revenue growth acceleration of our resilient high margin listings business as we head into 2024 through pricing packaging and product innovation.
Speaker 3: And finally, we continued year-over-year revenue growth acceleration of our resilient, high-margin listings business as we head into 2024 through pricing, packaging, and product innovation.
Speaker 3: I'm extremely pleased that our achievements this quarter resulted in us exceeding our forecasted, consolidated, adjusted EBITDA guidance.
I'm extremely pleased that our achievements this quarter resulted in us exceeding our forecasted consolidated adjusted EBITDA guidance and set the stage for what we believe will be an even stronger more profitable fourth quarter sequentially.
Speaker 3: and set the stage for what we believe will be an even stronger, more profitable fourth quarter sequentially. Outperformance this quarter.
Our performance this quarter was driven by our listings business, which exceeded our operating plan.
Speaker 3: Notably, a little over a year after Canada reached profitability and continues to produce improving year-over-year EBITDA margins, we are pleased our UK business is now profitable as well.
<unk> a little over a year after Canada reach profitability and continues to produce improving year over year EBITDA margins were pleased our UK business is now profitable as well.
Speaker 3: The path to profitability for the international business demonstrates our ability to drive greater marketing efficiency and value to both our dealer and consumer customers and position ourselves as a key player in these markets.
Past the profitability for the international business demonstrates our ability to drive greater marketing efficiencies and value to both our dealer and consumer customers and position ourselves as a key player in these markets.
Speaker 3: While we exceeded our UK operating plan, we remain thoughtful in areas where we want to invest in the future to grow the business grade.
While we exceeded our U K operating plan, we remain thoughtful and areas, where we want to invest in the future to grow the business prudently.
In the U S. We continued to deliver more value to our dealers, which is reflected in higher quarterly average revenue per subscribing dealer or Carson and we believe will enhance customer retention and long term expansion.
Speaker 3: In the US, we continue to deliver more value to our dealers, which is reflected in higher quarterly average revenue per subscribing dealer, or CARSID, and we believe will enhance customer retention and long-term expansion.
Speaker 3: Growth in Carcid comes from adding new dealers at higher market rates and expansion of existing dealer wallet share through listing upgrades, product innovation and adoption, renewals, lead quantity and lead quality.
Growth in car. So it comes from adding new dealers at higher market rates and expansion of existing dealer wallet share through listing upgrades product innovation and adoption renewals lead quantity and lead quality.
One recent growth lever of Carson is our annual business reviews, or a b ours, which delivered results in Q3 consistent with the prior quarter.
Speaker 3: One recent growth lever of CARSID is our annual business reviews or ABRs, which delivered results in Q3 consistent with the prior quarter.
Speaker 3: We continue to see a strong percentage of dealers accepting our renewals motion and a robust winback rate for those who had churned in the prior quarter.
We continue to see a strong percentage of dealers accepting our renewals motion and our robust wind back right for those who have churned in the prior quarter.
Furthermore, we have also seen healthy product attach rates and higher adoption of annual contracts.
Speaker 3: Furthermore, we have also seen healthy product attach rates and higher adoption of annual contracts.
The fourth quarter, we expect to finish the remaining 25% of our planned a be ours, which will in total represented nearly 20% of our dealer base for the full year.
Speaker 3: In the fourth quarter, we expect to finish the remaining 25% of our planned ABRs, which will in total represent nearly 20% of our dealer base for the full year.
As we look ahead to next year, we will continue our a b ours for dealers that remain materially underpriced, while continuing our collaborative steady renewal process with other dealer partners to more closely align with the value we provide.
Speaker 3: As we look ahead to next year, we will continue our ABRs for dealers that remain materially underpriced while continuing our collaborative, steady renewal process with other dealer partners to more closely align with the value we provide.
Future car said growth will be fueled by all the levers I just mentioned, which we believe will realize via renewals continual account management and deeper partnerships with our customers.
Speaker 3: Future CARSED growth will be fueled by all the levers that just mentioned, which we believe will realize via renewals, continual account management, and deeper partnership with our customers.
The foundation of lifting upgrades are bundling and packaging initiatives that provide dealers with a suite of complementary features and products that make higher packages increasingly valuable.
Speaker 3: The foundation of listing upgrades are bundling and packaging initiatives that provide dealers with a suite of complementary features and products that make higher packages increasingly valuable.
Speaker 3: An example of a packaging incentive we launched in October was including Digital Deal in our new premium listing tiers, Featured Plus and Featured Priority.
An example of a packaging incentive we launched in October was including digital deal and our new premium listing tears featured plus some future priority plus <unk>.
Speaker 3: combining the benefits of increased lead volume from premium listing placements with higher quality digital deal leads that are up to five times more likely to close detailed video.
Combining the benefits of increased lead volume from premium listing placements with higher quality digital deal needs that are up to five times more likely to close.
Bundling products like digital deal also expedites the evolution towards digitally empowered sales for the 70% of consumers who are eager to complete more of the transaction online, allowing dealers to align with consumer preferences.
Speaker 3: Fundling products like Digital Deal also expedites the evolution toward digitally empowered sales for the 70% of consumers who are eager to complete more of the transaction online, allowing dealers to align with consumer preference.
Another feature we recently added to our paid packages is the first of our new dealer data insights initiative designed to bring valuable insights that will help dealers increased turn times.
Speaker 3: Another feature we recently added to our paid packages is the first of our new dealer data insights initiative designed to bring valuable insights that will help dealers increase turnover.
Speaker 3: In October , we launched Next Best Deal Rating, an insights tool that provides dealers the blueprint for the least amount of price reduction needed to achieve the next best deal rating on card.
In October.
We launched next best deal rating and insights tool that provides dealers the blueprint for the least amount of price reduction needed to achieve the next best deal rating on Carters.
Speaker 3: Dealers can specify price reduction thresholds on their specific inventory and receive an automated weekly report to inform price changes that will optimize their volume and margin.
Dealers can specify a price reduction thresholds on their specific inventory and receive an automated weekly report to inform price changes that will optimize their volume and margin.
As we progress toward an end to end transaction enabled platform, we will have the ability to bundle a growing number of other products across the business and curate unique data insights.
Speaker 3: As we progress toward an end-to-end transaction-enabled platform, we will have the ability to bundle a growing number of other products across the business and curate unique data insights.
Speaker 3: We believe this will result in comprehensive stickier solutions that enhance ROI, provide deeper insights, increase the overall value, and foster strategic partnerships with our dealer customers.
We believe this will result in comprehensive stickier solutions that enhance ROI provide deeper insights increase the overall value and foster strategic partnerships with our dealer customers.
Another Avenue that drives Carr said, it's ongoing product innovation and adoption.
Speaker 3: Another avenue that drives Parsa is ongoing product innovation and adoption.
Speaker 3: Although new products may initially have limited revenue and cars that impact, they have the potential to yield significant success and adoption as evidenced by our experience with digital deals.
Although new products May initially have limited revenue in cars that impact they have the potential to yield significant success in adoption as evidenced by our experience with digital deal.
Speaker 3: As such, we recently introduced a new subscription product known as Sell My Car, Top Dealer Off.
As such we recently introduced a new subscription product known as sell my car top dealer offer.
After running a successful early access program in three cities, we evolved our existing sell my car functionality to provide consumers more optionality and dealers greater value.
Speaker 3: After running a successful early access program in three cities, we evolved our existing Selmaikar functionality to provide consumers more optionality and dealer's greater value.
Speaker 3: SellMyCar now presents consumers with two types of offers. A top online offer powered by CarOffers Instant Max Cash offer, which includes white glove pickup service from the comfort of the consumer's home, and a new top dealer offer, which is the highest offer from a local dealership to which the consumers take the view.
Well my car now presents consumers with two types of offers a top online offer powered by car offers instant Max cash offer which includes white glove pickup service from the comfort of the consumers' home.
And a new top dealer offer which is the highest offer from a local dealership to which the consumers take the vehicle.
Others can leverage car off our matrix technology to instantly make tailored offers on car groups consumer vehicles with their choice and generate valuable trade and leads for their business.
Speaker 3: dealers can leverage car-offer matrix technology to instantly make tailored offers on car-grues, consumer vehicles, and their choice, and generate valuable trade-in leads for their business.
Speaker 3: Consumers can now choose between two selling options, providing more convenience and selection.
Consumers can now choose between two selling options, providing more convenience and selection.
Now my car top dealer offer recently launched an 18 metro areas covering more than 40% of the U S population.
Speaker 3: Sell My Car Top Dealer Offer recently launched in 18 metro areas covering more than 40% of the US population.
Speaker 3: Early access dealers are reporting net promoter scores of 86. Exemplifying the unique value proposition we can offer to dealers with our new product innovation.
Early access dealers are reporting net promoter scores of 86 exemplify the unique value proposition, we can offer to dealers with our new product innovation.
Finally, the addition of new dealers, who are paying more market rates remains a key driver for Carson.
Speaker 3: Finally, the addition of new dealers who are paying more market rates remains a key driver for car sales.
Speaker 3: This quarter, we grew our US paying dealer base sequentially by 148 through strong sales momentum and moderating churn, resulting in 24,368 dealers on our platform.
This quarter, we grew our U S paying dealer base sequentially by 148 through strong sales momentum and moderating chair.
Faulting and 24368 dealers on our platform.
Speaker 3: In the third quarter, US Carcid was $6,332, growing 9% year over year.
In the third quarter U S car said was $6332 growing 9% year over year.
Speaker 3: Growth came from all CARSID levers, and in particular, new dealer signings in Q3 resulted in our largest MRR customer acquisition quarter since 2018.
Both came from all car said leverage and in particular, new dealer signings in Q3 resulted in our largest MRO customer acquisition quarters since 2018.
All of these factors combined are accelerating our growth.
Speaker 3: In Q1 this year, our marketplace revenue grew 2.4% year over year. In this quarter, we've grown 7.6% year over year.
In Q1 this year, our marketplace revenue grew two 4% year over year and this quarter, we've grown seven 6% year over year.
Appropriately we are growing our sales team in response to the increased productivity and growing demand we've been experiencing.
Speaker 3: appropriately, we are growing our sales team in response to the increased productivity and growing demand we've been experienced.
In Q4, we expect our marketplace business revenue growth to accelerate year over year through the previously mentioned growth drivers.
Speaker 3: Q4, we expect our marketplace business revenue growth to accelerate year over year through the previously mentioned growth drive.
Speaker 3: While the automotive industry has been anything but normal these past two years, we are excited by our team's ability to continue to overcome these obstacles, innovate and drive value for our dealer partners.
While the automotive industry has been anything but normal. These past few years. We are excited by our team's ability to continue to overcome these obstacles innovate and drive value for our dealer partners.
Speaker 3: With our company's technology roots and data centric approach to innovation, we have grown our investment in artificial intelligence and machine learning in areas like search, sort, account management, content creation, and consumer support.
With our company's technology roots and data centric approach to innovation, we have grown our investment in artificial intelligence and machine learning in areas like search sort account management content creation and consumer support.
Our find my car functionality, which allows shoppers to search for vehicles using conversational language matching their preferences to relevant listings is now being piloted in U K and Canada.
Speaker 3: Our Find My Car functionality, which allows shoppers to search for vehicles using conversational language matching their preferences to relevant listings, is now being piloted in the UK and Canada.
Speaker 3: Moreover, in our ongoing efforts to enhance the shopping experience for consumers, we are leveraging original content from our editorial teams to automatically generate comprehensive vehicle comparison.
Moreover, in our ongoing efforts to enhance the shopping experience for consumers, we're leveraging original content from our editorial teams to automatically generate comprehensive vehicle comparisons.
Speaker 3: This approach simplifies the vehicle purchasing process for consumers, allowing them to easily compare the specifications of two vehicles side by side as they shop online.
This approach simplifies the vehicle purchasing process for consumers, allowing them to easily compare the specifications of two vehicles side by side as they shop online.
Speaker 3: As consumers and dealers alike move toward an increasingly digital first environment, we are equipping them with tools necessary to do.
As consumers and dealers alike move toward an increasingly digital first environment, we are equipping them with tools necessary to do so.
Speaker 3: We are creating a platform that tailors the shopping journey for our consumer customers while simultaneously leveling the playing field for our dealer partners who may be unable to develop these solutions independently or who wish to leverage the breadth of our consumer audience.
We're creating a platform that tailors, the shopping journey for our consumer customers, while simultaneously leveling the playing field for our dealer partners, who may be unable to develop these solutions independently or who wish to leverage the breadth of our consumer audience.
Speaker 3: Digital deal is a stepping stone in our journey that transforms the car buying experience for consumers by harnessing advanced online functionalities to deliver a seamless online to in-store transaction.
Digital deal as a stepping stone in our journey to transform the car buying experience for consumers by harnessing advanced online functionalities to deliver a seamless online to in store transaction.
This includes providing trade and estimates offering prequalification or harpole financing options facilitating the purchase of dealer or vehicle specific finance and insurance products, placing a deposit and scheduling an appointment.
Speaker 3: This includes providing trade and estimates, offering pre-qualification or heart pole financing options, facilitating the purchase of dealer or vehicle specific finance and insurance products, placing a deposit and scheduling an up.
Speaker 3: We ended the quarter with 3,388 digital deal dealers, representing over 250% growth year over year.
We ended the quarter with 3388 digital deal dealers, representing over 250% growth year over year.
Speaker 3: We have now launched Digital Deal in our new featured listings tiers as of October .
We have now launched digital deal and our new featured listings tiers as of October.
Speaker 3: The strategic move enables us to enhance the ROI for dealers by affording them greater visibility with higher quality
This strategic move enables us to enhance the ROI for dealers by affording them greater visibility with higher quality leads.
Overall digital deal leads as a percentage of total leads continue to grow.
Speaker 3: Overall, digital deal leads as a percentage of total leads continue to grow.
Top performing digital deal users on average received 30% of their total email leads from high intent ready to purchase shoppers that are up to five times more likely to close.
Speaker 3: Top performing digital deal users on average received 30% of their total email leads from high intent, ready to purchase shoppers that are up to five times more likely to...
As we continue on our journey of creating an end to end offering for our dealer partners. We are building out our digital retail capabilities. So that dealers can sell their pre owned inventory more efficiently to be approximately 70% of consumers who want to do more from home.
Speaker 3: As we continue on our journey of creating an end-to-end offering for our dealer partners, we are building out our digital retail capabilities so that dealers can sell their pre-owned inventory more efficiently to the approximately 70% of consumers who want to do more from home.
While digital deal enables dealers to offer consumers an online to in store experience on cargo Roos the future of digital retail will empower our dealer partners with greater Optionality to service consumers fully online through every step of the car buying journey.
Speaker 3: While digital deal enables dealers to offer consumers and online to in-store experience on car gurus, the future of digital retail will empower our dealer partners with greater optionality to service consumers fully online through every step of the car buying journey.
Speaker 3: As such, we are working with a small subset of dealers to test and facilitate online purchases to out of market customers using dealer friendly delivery capabilities in an asset like
As such we are working with a small subset of dealers to test them facilitate online purchases to out of market customers using dealer friendly delivery capabilities and an asset light model.
Speaker 3: In addition to delivery, our pilot offers a CG guarantee, which comes with a seven day return policy and a limited warranty to ensure a worry-free post-sale experience for both dealers and consumers.
In addition to delivery our pilot offers a C. G guarantee which comes with a seven day return policy and a limited warranty to ensure a worry free post sale experience for both dealers and consumers.
The ultimate goal of digital retail is to empower all dealers to compete and sell more cars, while meeting evolving consumer demands and a digital first environment.
Speaker 3: The ultimate goal of digital retail is to empower all dealers to compete and sell more cars, while meeting involving consumer demands in a digital first.
And digital wholesale our primary focus has been sustaining a positive trajectory of our operational enhancements as we aim to return to profitability and growth even in the face of less favorable wholesale environments.
Speaker 3: In digital wholesale, our primary focus has been sustaining the positive trajectory of our operational enhancements as we aim to return to profitability and growth, even in the face of less favorable wholesale environments.
Speaker 3: We're also continuing to engage with our dealer network to rebuild comp.
We're also continuing to engage with our dealer network to rebuild confidence.
Speaker 3: Our initial focus is on establishing a dedicated retention team designed to foster greater customer trust and content.
Our initial focus is on establishing a dedicated retention team designed to foster greater customer trust and confidence in the progress we've made in operational enhancements and matrix innovation represent significant steps in the right direction.
Speaker 3: and the progress we've made in operational enhancements and matrix innovation represent significant steps in the right direction.
Speaker 3: We have seen an increase in dealers that are utilizing our new matrix tooling, like 24-hour approval and Buy It Now, to drive greater certainty and comfort in their purchases during a volatile pricing environment, and large players continue to find programmatic buying to be an efficient and effective way to source and sell inventory.
We have seen an increase in dealers that are utilizing our new matrix tooling like 24 hour approval and buy it now to drive greater certainty and comfort in their purchases during a volatile pricing environment and.
And large players continue to find programmatic buying to be an efficient and effective way to source and sell inventory.
Speaker 3: For example, rental fleet customers who seasonally def fleet in the back of the year have pivoted to selling on our platform.
For example, rental fleet customers, whose seasonally D fleet in the back of the year have pivoted to selling on our platform.
Speaker 3: We ended the quarter with 13,562 transactions, down approximately 35%, quarter over quarter.
We ended the quarter with 13562 transactions down approximately 35% quarter over quarter.
Speaker 3: decrease in transactions resulted in growth merchant disales or GMS of $350 million from the third quarter.
The decrease in transactions resulted in gross merchandise sales or G. M S. A $350 million for the third quarter.
While there's more work to be done with our dealer partners. We believe we are well positioned to grow and regain market share as the automotive market normalizes.
Speaker 3: While there's more work to be done with our dealer partners, we believe we are well positioned to grow and regain market share as the automotive market normalizes.
Speaker 3: In the interim, we continue to leverage our matrix technology to innovate and provide dealers with offerings such as SellMyCar Top Dealer Offer to demonstrate the uniqueness of the car offer platform coming together with cargo.
In the interim we continue to leverage our matrix technology to innovate and provide dealers with offerings such as sell my car top dealer offer to demonstrate the uniqueness of the car off our platform coming together with cargo routes.
We are proud that our results this quarter reflect an accelerating listings business as well as meaningful progress toward an end to end transaction enabled platform that provides consumers with the trust transparency and choice they need to constantly shop finance buy and sell a vehicle and empower dealers with innovative tools to source market and.
Speaker 3: We are proud that our results this quarter reflect an accelerating listings business, as well as meaningful progress toward an end-to-end transaction-enabled platform that provides consumers with the trust, transparency, and choice they need to confidently shop, finance, buy, and sell a vehicle, and empower dealers with innovative tools to source, market, and sell via.
Sell vehicles.
Speaker 3: As we continue to build new products and capabilities, we are helping our consumer and dealer customers achieve their goals of more digital transactions, while at the same time, fueling top-line growth and profitability in our business.
As we continue to build new products and capabilities, we are helping our consumer and dealer customers achieve their goals of more digital transactions, while at the same time fueling top line growth and profitability in our business.
We are excited by the trajectory of our platform and all of our accomplishments. This year. We believe have set us up for an exciting 2024 with ongoing growth in innovation to best service, our dealer partners and largest consumer audience.
Speaker 3: We are excited by the trajectory of our platform and all of our accomplishments this year, we believe, have set us up for an exciting 2024 with ongoing growth and innovation to best service our dealer partners and largest consumer audience.
Before I provide a detailed overview of our third quarter performance, followed by our guidance for the fourth quarter and full year 2023, I would like to formally welcome Elisa Palazzo as our new CFO beginning in December.
Speaker 3: Before I provide a detailed overview of our third quarter performance, followed by our guidance for the fourth quarter and full year 2023, I would like to formally welcome Elisa Palazzo as our new CFO beginning in December .
Speaker 3: We are thrilled to have for joining the car gurus team and know Aliza's background and expertise and online marketplaces will be extraordinarily valuable to us as we grow and expand our business.
We're thrilled to have rejoined the cargo whose team and know it leaves his background and expertise in online marketplaces will be extraordinarily valuable to us as we grow and expand our business.
Now turning to our results.
Speaker 3: Total third quarter revenue was $219.4 million, down 49% from the year ago period.
Total third quarter revenue was $219 4 million down 49% from the year ago period.
Our total revenue for the third quarter was at the high end of the guidance range of $221 million.
Speaker 3: Our total revenue for the third quarter was at the high end of the guidance range of $221,000.
Marketplace revenue was $177 9 million for the third quarter up approximately 8% from $165 3 million in the prior year and up 4% from 171 million in the prior quarter.
Speaker 3: Marketplace revenue was 177.9 million for the third quarter, up approximately 8% from 155.3 million in the prior year, and up 4% from 171 million in the prior quarter.
Speaker 3: excluding comparisons to periods where we provided pandemic-related concessions to dealers. This represents the highest year-over-year growth rate since the first quarter of 2020 and the highest sequential growth rate since the fourth quarter of 2019.
Excluding comparisons to periods, where we provided pandemic related concessions to dealers. This represents the highest year over year growth rate since the first quarter of 2020, and the highest sequential growth rate since the fourth quarter of 2019.
The increase in marketplace revenue compared to the prior year was primarily due to higher listings revenue as a result of 9% year over year Carson growth.
Speaker 3: The increase in marketplace revenue compared to the prior year was primarily due to higher listings revenue as a result of 9% year-of-year carcin growth.
Sequential growth was driven by strong MRO, our acquisition and stabilization of our OEM advertising business.
Speaker 3: The Quential Growth was driven by strong MRR acquisition and stabilization of our OEM advertising.
Wholesale revenue was $21 7 million for the third quarter of 2023 down 54% from $47 million in the year prior and down 32% from $32 million in the prior quarter.
Speaker 3: Full sale revenue was $21.7 million for the third quarter of 2023, down 54% from $47 million in the year prior, and down 32% from $32 million in the prior quarter.
Speaker 3: The year-over-year decrease in wholesale revenue was due to our continued prioritization of operational improvements, coupled with less favorable market conditions.
Year over year decrease in wholesale revenue was due to our continued prioritization of operational improvements coupled with less favorable market conditions.
Speaker 3: Quarter over quarter, we saw a decrease in dealer to dealer transactions. At dealer's experience, price uncertainty coupled with typical retail seasonality in retail sales and rental.
Quarter over quarter, we saw a decrease in dealer to dealer transactions as dealers experienced price uncertainty coupled with typical retail seasonality in retail sales and rental fleets.
Speaker 3: Lastly, product revenue was 19.8 million for the third quarter. In line with the midpoint of our most recent guidance range.
Lastly product revenue was $19 8 million for the third quarter in line with the midpoint of our most recent guidance range.
Product revenue was down 91% from $214 1 million in the prior year and down 46% from $36 8 million in the prior quarter.
Speaker 3: product revenue was down 91% from 214.1 million in the prior year and down 46% from 36.8 million in the prior quarter.
Speaker 3: The year-of-year decline was primarily due to our decision to limit transactions for instant max cash-off.
The year over year decline was primarily due to our decision to limit transactions for instant Max cash offer.
Speaker 3: In addition, the third quarter continued to have meaningfully lower arbitration rates and consequently low arbitration revenue driven by our enhanced inspection capabilities and arbitration policy.
In addition, the third quarter continued to have meaningfully lower arbitration rates and consequently, low arbitration revenue driven by our enhanced inspection capabilities and arbitration policies.
Quarter over quarter, lower product revenue was due to fewer transactions and lower asps on our platform.
Speaker 3: quarter over quarter, lower product revenue was due to fewer transactions and lower ASPs on our platform.
Speaker 3: Instant Max Cash Hopper generated $18.2 million in revenue.
Instant Max cash offer generated $18 2 million in revenue.
I will now discuss our expenses and profitability on a non-GAAP basis.
Speaker 3: I will now discuss our expenses and profitability on a non-gap basis.
Third quarter non-GAAP gross margin was 77% compared to 37% in a year ago quarter.
Speaker 3: Third quarter non-gap gross margin was 77% compared to 37% in the year ago quarter.
Speaker 3: The change in non-gap gross margin year of year was primarily due to the shift in revenue mix to our high margin marketplace.
The change in non-GAAP gross margin year over year was primarily due to the shift in revenue mix to our high margin marketplace business.
Speaker 3: Total third quarter non-GAAP operating expenses were down 1% year over year to 126.1 million.
Total third quarter non-GAAP operating expenses were down 1% year over year to $126 1 million.
Speaker 3: non-GAAP sales and marketing expense was down 11% year over year to 74.
non-GAAP sales and marketing expense was down 11% year over year to $74 million.
Speaker 3: The decrease in marketing expense compared to the prior year reflected our decision to continue limiting marketing investment for instant max cash offers.
The decrease in marketing expense compared to the prior year reflected our decision to continue limiting marketing investment for instant Max cash offer.
Speaker 3: non-GAAP sales and marketing expense represented 34% of revenue from 20% of revenue in the year ago.
non-GAAP sales and marketing expense represented 34% of revenue up from 20% of revenue in the year ago period.
Our third quarter, non-GAAP product technology, and development expenses grew 14% versus the year ago period to $29 7 million.
Speaker 3: Our third quarter non-GAAP product technology and development expenses grew 14% versus the year ago period of 29.7%
Speaker 3: Similar to previous quarters, the increase was primarily due to an increase in salaries and employee-related costs as a result of an 8% increase in headcount from the year-ago period.
The previous quarters. The increase was primarily due to an increase in salaries and employee related costs. As a result of an 8% increase in head count from the year ago period.
Speaker 3: though it was relatively flat sequentially as we slowed our pace of hiring in the third quarter.
So it was relatively flat sequentially as we slowed our pace of hiring in the third quarter.
As a result of our prior head count growth. We expect this expense to remain elevated as a percentage of revenue relative to prior years as we continue to develop and grow our expanded product offerings to build our end to end transaction enabled platform.
Speaker 3: As a result of our prior headcount growth, we expect this expense to remain elevated as a percentage of revenue relative to prior years as we continue to develop and grow our expanded product offerings to build our end-to-end transaction enabled plan.
Speaker 3: Consolidated adjusted EBITDA of $48.6 million in the third quarter was $4.6 million above the high end of our most recent guidance range. This was due primarily to the over-proportional
Consolidated adjusted EBITDA of $48 6 million in the third quarter was $4 6 million above the high end of our most recent guidance range.
This was due primarily to the over performance of our listings business as.
Speaker 3: As we previously mentioned, our UK business reached profitability this quarter driven by revenue growth, prudent expense management, and favorable FX rates.
As we previously mentioned our U K business reached profitability this quarter driven by revenue growth prudent expense management and favorable FX rates.
non-GAAP diluted earnings per share attributable to common shareholders was 34 cents for the third quarter seven cents above the high end of our most recent guidance range.
Speaker 3: non-GAAP diluted earnings per share attributable to common shareholders was 34 cents for the third quarter. 7 cents above the high end of our most recent guidance.
On a GAAP basis, we generated third quarter gross margin of 75% compared to 35% in a year ago period.
Speaker 3: On a gap basis, we generated third quarter gross margin of 75% compared to 35% in the year-rego period.
In the third quarter, we incurred total operating expenses of $141 2 million up 16% year over year.
Speaker 3: In the third quarter, we incurred total operating expenses of $141.2 million, up 16% year-over-year.
Speaker 3: The increase year over year was primarily driven by higher stock-based compensation.
The increase year over year was primarily driven by higher stock based compensation.
Speaker 3: In Q3 2022, we had negative stock-based compensation expense as a result of favorable adjustments relating from the revaluation of car offer incentive unit and subject unit award.
In Q3, 2022, we had negative stock based compensation expense as a result of favorable adjustments relating from the revaluation of car offer incentive unit and subject unit Awards.
Third quarter GAAP operating income decreased 19% year over year to $23 1 million.
Speaker 3: Third quarter GAAP operating income decreased 19% year over year to $23.1 million. Third quarter GAAP consolidated net.
Third quarter GAAP consolidated net income was $19 million.
Speaker 3: Net income attributable to car garoues total 22.3 million. And third quarter gap net income attributable to common shareholders was 22.3 million.
Net income attributable to cargo, who has totaled $22 3 million and third quarter GAAP net income attributable to common shareholders was $22 3 million.
Speaker 3: We ended the third quarter with $447.2 million in cash and cash equivalents, a decrease of $6.4 million from the end of the second quarter.
Speaker 3: We generated 26.4 million in cash from operations in the third quarter, and 17.2 million of non-GAT pre-cash flow, which includes capitalized website development and capital expenditure costs of 9.1 million.
Speaker 3: As provided by operations in the third quarter, was primarily driven by our results, partly offset by a $7.7 million decrease in our working capital.
Speaker 3: During the third quarter, we repurchased 956,000 shares for an aggregate purchase price of $17.1 million.
Speaker 3: As of September 30th, we had repurchased a total of 122.9 million in shares and had approximately 127.1 million remaining available for share repurchase.
Speaker 3: Additionally, I'm pleased to share that our board has authorized another $250 million share repurchase program commencing in 2024, underscoring our commitment to strategically returning value to shareholders.
Speaker 3: I'll close my prepare remarks with our outlook for the fourth quarter in full year 2020.
Speaker 3: We expect our fourth quarter revenue to be in the range of $208 to $228 million, and we expect full year revenue to be in the range of $899 to $919 million.
Speaker 3: In the fourth quarter, we expect similarly high single digit year-over-year marketplace revenue growth as we saw in the third quarter.
Speaker 3: In our digital wholesale business, we expect revenue in the fourth quarter to be in line with third quarter results, as dealers remain cautious, coupled with typical seasonality.
Speaker 3: We're excited about the launch of top dealer offer, which we expect to cannibalize instant max gross revenue.
Speaker 3: We believe it provides a better experience for consumers and dealers and yields high margin gross profit dollars given the subscription nature of the offering relative to instant max cash off.
Speaker 3: Accordingly, we forecast fourth quarter revenue for our product line item to be in the range of 12 to 22 million. And we anticipate full year product revenue to be in the range of 108 to 118.
Speaker 3: We expect a modest sequential decrease in operating expenses as we still expect full year 2023 marketing spend to be below 2022.
Speaker 3: with lower operating expenses and accelerating marketplace year over year revenue growth. We expect marketplaceEBA.2 to improve sequential.
Speaker 3: We expect digital wholesale to remain unprofitable until market conditions and customer buying activity pick up.
Speaker 3: We expect our fourth quarter non-GAAP consolidated adjusted EBITDA to be in the range of $46 to $54 million and non-GAAP earnings per share in the range of $30 to $33.
Speaker 3: We expect full year 2023 non-GAAP consolidated adjusted EBITDA to be in the range of $181 million to $189 million and non-GAAP earnings per share in the range of $1.19 to $1.22.
Speaker 3: Here today, we have made substantial progress toward our vision of being the only end to end automotive transaction enabled platform as we launched sell my card top dealer offer continued innovation in digital retail and accelerated growth in our marketplace.
Speaker 3: progress we have made which sets us up for an exciting 2024 would not be possible without the dedication and unwavering commitment of our extraordinary employees globally who continue to push us forward in making our ultimate vision of reality. With that.
Speaker 1: Thank you. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. And for a participant using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit to one question and one follow-up question.
Speaker 1: Our first question is from Rajat Gupta with JP Morgan. Please proceed.
Speaker 4: Great, thanks for taking the question. I just had a couple. Firstly, on the fourth quarter guidance, it implies flat-ish sequential EBITDA, maybe like a million higher. But if I hear your comments around the marketplace business, it would suggest that you kind of confirm that and you prepare the marks as well. But it kind of implies the car offering EBITDA is kind of flat-ish sequentially. So, that that should use EBITDA
Speaker 4: So is that just the analogy or, you know, because I would have expected like the operational focus to continue the improvement? So maybe you can just clarify that. And then I have a follow up.
Speaker 3: Doris, thanks, Rojot. So yeah, I think in our remarks, we talked about given the growth in marketplace and the comments on HopEx that sequential EBITDA there should be higher. But I think it's also fair, you're in the ballpark to say that car offer is expected to be flat.
Speaker 4: understood, got it. And just in the car offer, for the decision, obviously a little surprising that we decided to, you know, by remaining state a little earlier, you mentioned some of like the probably integration efforts that led to that decision, but.
Speaker 4: I'm curious was there like any increasing visibility around the business turning to profitability in the near term or anything around daughter market commissions that also led you to act sooner on the purchase.
Speaker 3: Sure. I wouldn't say that the broader market led us to act sooner. In terms of visibility, I think we have
Speaker 3: It's, as we all know, it's a transaction business. And so it's much harder to forecast that in our subscription business, but we have gotten better at predicting it and forecasting it because of the operational challenges that we've made. And we've talked about, but I would say, the four reasons that we accelerated this are one, it's an accelerant for product innovation between our two platforms.
Speaker 3: Two, it allows us to have full ownership to have more ball control on the operational improvement.
Speaker 3: three were excited about Zach's industry experience brought to bear on it. And then for it, it sort of reaffirms our conviction of our long-term vision of having these platforms together. Edithson.
Speaker 1: Sure, thank you. Our next question is from Nick Jones with JMP Securities. Please proceed. Thank you.
Speaker 5: Great, thanks for taking the questions. I guess maybe sticking in the kind of fully acquiring car offer, does this change, how meaningfully does it change? It's going to be investment cycle on the platform, and I guess ultimately margins as we look, maybe further out into next.
Speaker 3: Hey, Nick. Jason, it does not change our perspective on the investment thesis.
Speaker 3: We continue to, as you've heard us talk about the last couple of quarters, expand the product portfolio to be more resilient in up and down markets. And so we're investing in the technology, we're investing in client service, we're certainly investing in the stability and future growth of the company. And I think that will continue. And in terms of long-term margin targets, no, those remain the same.
Speaker 5: Right, and then maybe one on just dealers in the ABR, just sounds like you're getting quite a few to come back. Maybe they say no to the increased price and they come back. How is that dynamic changing if at all from last quarter? Are you finding it to be easier or are you finding people maybe, or dealers coming back faster? Thanks.
Speaker 3: Sure, the two things, so not much change, our results were similarly as strong. When we talked about return rates of the Q1 cohort in Q2 being around 40%, that has since increased because there's another quarter under a belt. And then our Q2 cohort had similar return rates in Q3 as our Q1 cohort did.
Speaker 1: Our next question is from Tom White with D.A. Devison. Please proceed.
Speaker 6: Oh great, good evening. Two if I could just US dealer growth get increased quarter over quarter kind of despite the account reviews, which is encouraging I'd say. Just curious whether US dealer growth could be a meaningful growth factor for you guys next year, as you know inventory sitting on dealer lots, presumably kind of continued to build up, or is growth in US marketplace going to be still mostly parsed driven, and then I got a quick follow up.
Speaker 7: No, no, you want to jump in? I'm saying, sure. Thanks, Tom. Thanks. It's Sam Zales here. Thanks for the question. It was a terrific quarter for a new customer acquisition that's a big part of our car stood number two. We're bringing in customers at a higher price point. I think what you're seeing in the market is.
Speaker 7: two types of customers. Those who are saying from a dealer perspective, I wanna be aggressive in this tough market of high interest rates as not as much consumer demand. How do I win? Let me get on the best platform that drives the largest audience and the largest down funnel customers. And those are more conservative saying, I'm only gonna play with one of the marketplaces, I would go with the, again, the marketplace that's driving the down funnel in largest.
Speaker 7: quality of audience in the marketplace. We had our biggest MRR customer monthly recurring revenue, customer acquisition numbers we've seen since 2018.
Speaker 7: So despite, as you said, our ABRs, the annual business reviews, which do involuntarily kick out some customers who won't pay a fair market price, they're coming back, as Jason said, more than half of them from the first quarter coming back in after saying no to the price point and coming in at $2.5
Speaker 7: double digit significant price increases. And number two is we're winning. So re-winning is working very effectively. And then we're plus on the customer acquisition side which I think puts us in our own stratosphere in the market in the last quarter. That number is in the 150 range. So it's a good quality number for new customer, net new customers acquired. But.
Speaker 7: I think our plan is keep growing the expansion of our current MRR with our customers and wind back those customers who don't choose the price point in the ABRs and then keep winning new business. So I do think that's a lever that our incredible sales and service team is finding a way to continue re-accelerating the growth of our business. It doesn't happen at a company, company, our size and we're just growing that business and re-accelerating it. We think that's going to continue as we go forward.
Speaker 6: Great, thanks for that. Maybe just a quick follow up, Jason, you touched on engagement of the fleet buyers, the rental car companies on the car offer platform. I'm just, are they returning to the platform like more quickly than local dealerships are to transact? And maybe could you share your latest thinking on what their engagement levels might look like kind of early next year in the run up to kind of peak travel season? Thanks.
Speaker 3: Of course, so I wouldn't think about them as.
Speaker 3: returning faster than dealers. They are really running a different type of business that.
Speaker 3: tends to be, well, it's clearly tethered to travel trends, but it's also much more seasonal than dealers would experience. And so they've always been on our platform in some form. And there are certain times in the past and then often ties to seasons where they will be heavy buyers, but they have more recently, especially as they de-fleet this time of year, been more active as sellers on our platform.
Speaker 3: We have not given guidance or...
Speaker 3: you know, directional indications as to what we think they'll do in future quarters, Q4, Q1. But we… we'll be.
Speaker 3: you know, continue to believe and know that they really value the programmatic, the ease of programmatic buying and selling. And so we're a compelling platform for that. We also have, you know, over the past couple of years learned how we can. Have them work on our platform in a way that doesn't disrupt any of the stability of the platform.
Speaker 1: Thanks. Our next question is from Naveed Khan with B Riley.
Speaker 4: Yeah, hi, thank you. A couple of questions from me.
Speaker 4: There's a new mention that you'll be done with the AVR for this year, but we'll continue to look at opportunities into next year. Can you give us some sense of the scope of that? What percentage of data might be still paying significantly below the rate card is? And then...
Speaker 4: I had a follow-up question. If I look at the wholesale gross margin, it was down sequentially. Is it just because of the scale being down sequentially or did anything change in terms of arbitration rates going on or anything else going on?
Speaker 3: So I can handle the first question and then Sam if you want to speak to the second question or Go ahead Sam, I should take the personal
Speaker 7: Okay, happy to take that one and jump in later if you'd like. Naveid, thanks for asking. I want to keep reminding that our car-sid number, which has grown so
Speaker 7: successfully year over year and quarter over quarter at 9% year over year.
Speaker 7: We're thrilled with, but it doesn't just come from the ABRs. I'll take your question because it's a good one. I just want to remind that Carcid is growing because we're bringing on new customers at a higher price point. We're upselling customers to hire higher packages, premium packages. We're cross selling new products and programs like this new Selmaikar top dealer offer. It's a tremendous opportunity to keep growing our subscription revenue. On ABR specifically, we've said that we're going to renew about 20% of our base this year so that last quarter is happening right now. Those were the largest price point customers away from the market rate, if you will. They were the lowest price customers. As you can tell, each quarter, we've gone after the next set of price point customers slightly below the market rate for us. We're still seeing that success, as Jason just said, renewing them agreeing to the price point.
Speaker 7: And if they say no for a short period of time, coming back on again.
Speaker 7: Our thought is that there will always be ABR components to our car-sid growth. By next year, as our lead volume continues to grow, we can keep producing an ROI for our customers. There will be more customers that we will be able to renew on an annual basis. So we can't tell you what percent is that will be, we'll continue to go after that ABR component as part of our car-sid growth. The beauty is though, that's only one portion of that car-sid growth. We know we're gonna keep acquiring customers as the question just came up, we're winning more new business and acquiring that at higher rates. We're gonna keep adding to our premium packages. So customers move up to a higher platform. Digital Deal now in our featured premium package. That's gonna be a tremendous lift to car-sid as we go forward. And then obviously as we sell additional products like this new Selmaikar top dealer offer is an additional way to keep growing car-sid. So ABR, we're very excited about continuing it, but it's just one of those many levers that growth car-sid for our business. Hope that answers the question in the vet.
Speaker 4: Yes, and then I'll go to the spam. On the cell, my car or the top dealer offer, what's the subscription pricing on that? Have you determined that or that's still something that you're just...
Speaker 7: Yeah, I don't think we've announced that publicly in the Fed. It's a great question. And it would be looked upon as a product at similar price points to the others that are out there in the marketplace.
Speaker 7: What's been great about that product, we're still what we call it in a pilot mode. We're out at 18 regions of the country.
Speaker 7: and we're not fully out to market yet, but we've launched this in the fourth quarter from a pricing perspective. It's had great take rates.
Speaker 7: I think what you want to think about this sell my car top dealer offer program.
Speaker 7: is number one, it allows the consumers something very different in the marketplace.
Speaker 7: they can choose the white glove experience and say, I like what IMCO is, pick the vehicle up from my home, let me get a digital payment and you can drive it away from me.
Speaker 7: but consumers are now getting a second offer, which is a choice. Would you like to drop that off at your local dealership and get a higher price point there? Well, there isn't the same convenience factor. You got a higher price.
Speaker 7: Dealer's requested us to build this product. Our largest dealer said, could you build something like this? We're not satisfied with the tool sets that are out there in the marketplace. You heard about the NPS score. We're getting from our customers on it thus far. They're getting a great return on that subscription investment. And it's adding significantly to car sit and will be a long-term growth lever for our business as we scale it. We're only in 18 markets, right?
Speaker 3: And then on your second question around wholesale and arbitration. So wholesale unit prices have been, you know,
Speaker 3: trending down this year. There's the lowest, I think, this past month than they have been since the spring of 21. So it has been a steady decline since then. And we've expected to...
Speaker 3: probably continue to decline and aggregate over the next to the balance or you know till the end of next
Speaker 3: Conversion rate as a result is down so that the number of transactions that actually occur in wholesale versus those that were attempted is also down. And it's up a little bit recently because the UAW strike tends to be down. And but our offer and those two factors would point to all else being equal arbitration increases.
Speaker 3: But as you've heard us talk about our operational and product related improvements that we've made at car offer are really limiting in a nice way arbitration. And those are things like inspection, integrity, ability to see cars, a different product machinations that we've built off the matrix, ability to have a more discrete matrix.
Speaker 3: faster delivery times, text style registration processing, and all the things that go into transparency of a transaction and customer satisfaction have helped keep our arbitration levels really nicely low.
Speaker 1: Our next question is from Kunal Mendeckar with UBS. Please proceed.
Speaker 4: Hi, thank you for taking the questions a couple. If I could, what on the sell my car top dealer offer? How does that work technically in the sense?
Speaker 4: I thought that dealers would enter the prices in the matrix and that is what would be shown to the consumer. So where does the second offer come in into play? How long does that take? Is that also instant and effective? How does that work? And then on this one, is the delta between the two offers, really the cost of picking up the car, or is it something else?
Speaker 4: And then the second one will be on the car set as we look at next year. How should we think of the involvement of, or the growth of car set into 24?
Speaker 7: So now thanks to Sam Zales. I'll start with it. And I'm not sure I heard the second part of the question. But I'll come back to that in a minute because we really are excited about sell my car top dealer offer. You asked is it an instant offer it is. And the reason it is is that the dealer is setting up to matrix offers, they're setting up an offer for IMCO, which is, you know, a vehicle that's going to be picked up at the consumer, and then dropped off. That's that's a different experience for that.
Speaker 7: The second is I have a chance to win that consumer who might want to buy another vehicle.
Speaker 7: So they're making an offer for that consumer dropping it directly at the dealership and gives them an opportunity to have a buy sell opportunity, which is much more lucrative to the dealer. This is exactly why they came to us and said, I use some other products in the marketplace. I want to compete for a buy seller opportunity for that consumer. I will therefore pay more for that consumer that comes into the dealership and and transact with them.
Speaker 7: So you asked about the Delta. It has been a terrific Delta right now. Not only is it a Delta where it's meaningful and consumers are choosing the drop-off to sell my car top dealer.
Speaker 7: that's presented at a greater extent than they're taking IMCO. That's why we guided to IMCO will be cannibalized a bit by this product being launched.
Speaker 7: Number two is the delta is significant versus our competitors in the marketplace. So consumers today can sell to CarMax, Carvana, Point Solutions. When dealers are competing to win this business at the local dealership in a drop-off scenario, we're winning significantly and we've had great success for consumers and for dealers in this early stage of Sell My Car.
into play? How long does that take? Is that also instant instant? And if it is, how does that work? And then, you know, on this one, is the delta between the two offers really the cost of picking up the car? Or is it something else?
And then the second one would be on the on the car said as we as we look at next year How should we think of the evolvement of you know, or the growth of? of course it into 24
Speaker 3: I'd wait for, sorry, the second part of the question was, Jason, do you want to take that one? Yeah, I can take it. It's related to car-side next year, so it's a different topic. So we have not given guidance for car-side next year. But I'll just quickly run through what are the drivers of car-side?
Thank you.
I'll start with it and I'm not sure I heard the second part of the question but I'll come back to that in a minute because we really are excited about Sell My Car Top Dealer offer. You asked is it an instant offer? It is.
Speaker 3: and cars that is but one factor and dealer growth is the other factor. So new and
And the reason it is is that the dealer is setting up two matrix offers. They're setting up an offer for IMCO which is
Speaker 3: You know, customers who are bringing on for the first time or that we're re-winning at market rate.
Speaker 3: is a significant driver versus those who were legacy customers on at Lower Ramp.
you know, a vehicle that's going to be picked up at the consumer and then dropped off. That's a different experience for them.
Speaker 3: upgrading to new packages is a key driver. You know, we talk about ABRs and I think they probably get overplayed a bit because they're one manifestation of us renewing customers and there are many ways that we renew customers and ABRs have are sort of the most extreme of those that are underpriced, but...
The second is I have a chance to win that consumer who might want to buy another vehicle.
So they're making an offer for that consumer, dropping it directly at the dealership, and gives them an opportunity to have a buy-sell opportunity, which is much more lucrative to the dealer. This is exactly why they came to us and said, I use some other products in the marketplace, I want to compete for a buy-seller opportunity for that consumer. I will therefore pay more for that consumer that comes into the dealership and transacts with us. So you asked about the Delta, it has been a terrific Delta right now. Not only is it a Delta where it's meaningful and consumers are choosing the drop-off sell-my-car top dealer offer.
Speaker 3: We are renewing and resigning customers all the time.
Speaker 3: other products. So we are adding in and building a broader portfolio of other products like highlight, nucar highlight, geographic, geo expansion, digital deal. Now you've heard us talk about popular offer. So there's a number of other products.
Speaker 3: And then we also, you heard us talk about dealer data insights. And so these are features that we don't charge all a cart for, but they're features that we are confident add value to what our dealers are getting from us. And if we do that successfully and in meaningful enough ways, then we think we'll have even more success, helping dealers realize the value that we're driving them.
that's presented at a greater extent than they're taking IMCO. So that's why we guided to IMCO will be cannibalized a bit by this product being launched.
Number two is the Delta is significant versus our competitors in the marketplace. So consumers today can sell to CarMax, Carvana, Point Solutions. And dealers are competing to win this business.
at the local dealership in a drop-off scenario, we're winning significantly and we've had great success for consumers and for dealers in this early stage of Sell My Car.
Speaker 1: Our next question is from Doug Arthur with Huber Research Partners. Please proceed.
I'd wait for, sorry, the second part of the question was, Jason, do you want to take that one? Yeah, I can take it. It's related to CARSID next year, so it's a different topic. So we have not given guidance for CARSID next year, but I'll just quickly run through what are the drivers of CARSID, and CARSID is but one factor, and dealer growth is the other factor. So new and...
Speaker 8: Jason, I guess looking at the products side of the business, I mean, what set of circumstances if you're predicting price in the wholesale market is likely to decline through the balance of next year, which I think is pretty rational.
Speaker 8: sell my car, cannibalization issue. Are you beginning to look at ways to pivot away from the original IMC?
customers were bringing on for the first time that we're re-winning at market rates.
is a significant driver versus those who were legacy customers on at lower rates.
Speaker 3: Sure. Thanks so much. So yeah, if wholesale prices continue to decline,
Upgrading to new packages is a key driver.
We talk about ABRs and I think they probably get overplayed a bit because they're one manifestation of us renewing customers.
Speaker 3: which there's, you know, I would say that's the general consensus view. We think, I mean, digital penetration in wholesale is still quite small. And, and so we know that we have an opportunity for digital to take much more share than it is. The ranges of what digital represents today range from, you know, maybe low double.
There are many ways that we renew customers and ABRs.
are sort of the most extreme of those that are underpriced.
we are renewing and re-signing customers all the time.
Other products. So we are adding in and building a broader portfolio of other products like Highlight, New Car Highlight, Geo Expansion, Digital Deal, now you've heard us talk about Top Dealer Offer. There's a number of other products.
Speaker 3: 30-ish percent. I mean, so there's still the majority of the market that is offline that we think we can go after. Number two is we do think we're making these operational and product changes already, which are opening up new customer segments who are historically not going to be an early adopter to buying site unseen and they're now willing to try a product that's more like a matrix rather than an auction.
And then we also, you heard us talk about dealer data insights. And so these are features that we don't charge a la carte for, but they're features that we are confident add value to what our dealers are getting from us. And if we do that successfully and in meaningful enough ways, then we think we'll have even more success helping dealers realize the value that we're driving them.
Speaker 3: The third is that as we now are one unified company, 100% together, we are excited about the acceleration for product innovation.
Thank you so much.
Our next question is from Doug Arthur with Hoover Research Partners. Please proceed..
Speaker 3: And our long term vision is that we can have full visibility on data and give this to dealers from wholesale all the way to retail. And the easiest example of that is we are seeing the retail trends. We can tell a dealer what types of cars they should be sourcing and then we can help them source those exact cars. So.
Yeah, thanks.
Jason, I guess looking at the product side of the business, what set of circumstances, if you're predicting price.
in the wholesale market is likely to decline.
Speaker 3: That's one example from a product and data perspective. Another one is tighter integration on our sales and account management and go to market. And so it's early days and digital adoption. It's still early days that CARA offer from a total life of company perspective. It's still a young business.
through the balance of next year, which I think is pretty rational.
What set of circumstances is going to jumpstart this business?
and then there's just sort of a follow up on this sell my car cannibalization issue. Are you beginning to look at ways to pivot away from the original.
Speaker 3: And now with that coming into his role, we have...
I am CEO of you know
proposition.
Speaker 3: couple of decades of expertise from other digital platforms and also. So, you know, I don't...
Sure. Thanks, Doug. So, yeah, if wholesale prices continue to decline,
Speaker 3: You said jumpstart. I mean, none of the things that I just said are an overnight thing, but we think it's setting that business up for a really nice future. And the Instamax Cash Offer cannibalization point, no, I wouldn't say we're pivoting away by any means. I mean, I think the whole.
which there's, you know, I would say that's the general consensus view. We think, I mean, digital penetration in wholesale is still quite small. And so we know that we have an opportunity for digital to take much more share than it is. The ranges of what digital represents today range from, you know.
Speaker 3: excitement is this concept that we're offering consumers selection convenience price better than anyone else we think and this is a great example of that. So most other places where you're offered to sell your car, it's either come drop it off or pick it up. And some segments like to have it picked up and are willing to sacrifice some costs for it. Others are going to maximize costs and want to bring a local
maybe low double digits to
30-ish percent. I mean, so there's still the majority of the market that is offline that we think we can go after.
Number two is we do think we're making these operational and product changes already, which are opening up new customer segments who are historically
Speaker 3: So we're giving them the selection by having the top dealer offer or the top matrix offer, we're giving them the price.
not going to be an early adopter to buying sight unseen, and they're now willing to try.
Speaker 3: And then, you know, we're letting them decide, which is the convenience. So we're the only offering that in the market that has both like that.
a product that's more like a matrix rather than an auction.
The third is that as we now are one unified company, 100% together, we are excited about the acceleration for product innovation.
Speaker 1: Our next question is from Ralph. Checker with Billion Blair, please proceed.
And our long term vision is that we can have full visibility on data and give this to dealers from wholesale all the way to retail. And the easiest example of that is we are seeing the retail trends, we can tell a dealer what types of cars they should be sourcing, and then we can help them source those exact cars. So
Speaker 5: Hi, thanks for taking the question. On CarOffer, Jason, you noted some operational improvements in a prior question. Just curious if you sort of expand on that a little bit and talk more broadly where you are in that process in terms of making operational improvements. And then now that you'll own all of CarOffer, does that significantly increase your ability? You know, should you need to make operational improvements or further ones going forward? Does that increase your ability to do that at a much faster rate? Thank you.
That's one example from a product and data perspective. Another one is tighter integration on our sales and account management and go to market. And so, you know, it's early days in digital adoption. It's still early days.
Speaker 7: Ralph, I'll take it, I'm close to that business day to day. So thanks for having me here.
Speaker 7: The operational improvements we talked about the last few quarters have been tremendous. We've talked about mechanical inspections. We've talked about
had car offer from a total life of company perspective. It's still a young business. And now with Zach coming into his role, I think that we have...
Speaker 7: the ability to look inside a vehicle for frame damage. We've done electrical, we've done much more in the upfront.
couple decades of expertise from other digital platforms and also. So, you know, I don't...
Speaker 7: process of understanding customer vehicle quality, and that's led to arbitration dropping dramatically. We needed to do that to have a trusted process for buyers and sellers, and that's been tremendous. Our transportation efficiency has been phenomenal. We've got much more margin out of how we've led that business. So.
You said jumpstart. I mean, none of the things that I just said are an overnight thing, but we think it's setting that business up for a really nice future. In the Instamax Cash Offer cannibalization point, no, I wouldn't say we're pivoting away by any means. I mean, I think the whole...
Our excitement is this concept that we're offering consumers selection, convenience, price better than anyone else we think, and this is a great example of that. Most other places where you're offered to sell your car, it's either come drop it off or pick it up. Some segments like to have it picked up and are willing to sacrifice some cost for it, others are going to maximize cost and want to bring it locally. We're giving them the selection by having a top dealer offer or the top matrix offer, we're giving them the price and then we're letting them decide which is the convenience. We're the only offering in the market that has both like that.
Speaker 7: as an industry expert, 25 years of digitizing two of the largest business in the wholesale arena. When you think about it, Jason said, it's very early in the market for digital takeover wholesale. So we think of his opportunity to watch the operation as well as define market fit, product market fit. We know we have a platform that has been created that is phenomenal, that it leads to largest buyers and sellers in the marketplace using programmatic. They're comfortable if they use it. It's getting to the rest of the market to grow our business by continuing to improve those operations.
Speaker 7: two of the largest business in the wholesale arena. When you think about it, Jason said, it's very early in the market for digital takeover wholesale. So we think of his opportunity to watch.
Okay, thank you very much.
Speaker 7: the operation as well as defined market fit, product market fit. We know we have a platform that has been created at this phenomenal that it leads to largest
You bet.
Our next question is from Ralph Shacker with William Blair. Please proceed.
All right, thanks for taking the question. And Karoffer, Jason, you noted some operational improvements in a prior question. Just curious if you sort of expand on that a little bit and talk so more broadly where you are in that process in terms of making operational improvements. And then now that you'll own all of Karoffer, does that significantly increase your ability, you know, should you need to make operational improvements or further ones going forward? Is that increase your ability to do that at a much faster rate? Thank you.
Speaker 7: buyers and sellers in the marketplace using programmatic. They're comfortable with the use it. It's getting to the rest of the market to grow our business.
Speaker 7: by continuing to improve those operations and defining the perfect product market fit with things like 24 hour or buy it now combined with a programmatic effort. And we with a guy like Zach taking over that day to day, we think the operational improvements are there for us to continue advancing and run a business that's not only growth, but profitable for the long term.
Ralph I'll take it. I'm close to that business day-to-day. So thanks for asking Sam here
Speaker 3: I'll just add one thing to compliment what Dan said. You know, anytime there's an urn out structure, which effectively step two and step three were, it's just tough to perfectly align incentives if nothing else, you know, the set three measurement was on EBITDA, so we're aligned on EBITDA, but you're not aligned on time-erizing.
The operational improvements we've talked about the last few quarters have been tremendous. We've talked about mechanical inspections. We've talked about the ability to look inside a vehicle for frame damage. We've done electrical. We've done much more in the upfront process of understanding customer vehicle quality, and that's led to arbitration dropping dramatically. We needed to do that to have a trusted process for buyers and sellers, and that's been tremendous. Our transportation efficiency has been phenomenal. We've gotten much more margin out of how we've led that business. All of the efforts on operations have been terrific, but I think you're speaking to the exact point here. Number one, by being able to manage the business directly day to day, which has been...
Speaker 3: And you're also limited in how closely you can integrate because you want to let that business perform to its highest potential. And so, you know, 100% ownership there allows total alignment of incentives, of time horizon, of integration, and an efficiency of operations if you can do things at a greater scale rather than as two different entities.
sort of a third party relationship and advisory. You know, it gives you the opportunity to do the same thing we've done at CarGurus is run a predictable, efficient, highly profitable business. And we'd like to take control. And the opportunity came to us to be able to do that earlier than later. And as Jason said, Zach Hallowell came out of nowhere as an industry expert. 25 years of digitizing a, um,
Speaker 9: Our next question is from Marin Vong with BTIG. Please proceed. Great evening. Thanks for sleeping.
Speaker 10: the new cellular car product. So from CarGurus's standpoint, do you guys have like a different margin profile between the...
two of the largest business in the wholesale arena. When you think about it, as Jason said, it's very early in the market for digital takeover wholesale. So we think of his opportunity to watch.
Speaker 10: The INCO matrix, TRIVIN-WAY, which I think is kind of a transaction fee based versus, it sounds like a subscription model for the, sort of like the in-store drop off. So do you guys have a preference and sort of a second part of that question? So is there no arbitration risk given the drop off at the dealer? Is the dealer responsible for inspection and all that?
the operation as well as defined market fit, product market fit. We know we have a platform that has been created that is phenomenal, that it leads to largest buyers and sellers in the marketplace using Programmatic. They're comfortable that they use it. It's getting to the rest of the market to grow our business by continuing to improve those operations and defining the perfect product market fit with things like 24 hour or buy it now, combined with a Programmatic effort. And with a guy like Zach taking over that day to day, we think the operational improvements are there for us to continue advancing and run a business that's not only growth but profitable for the long term.
Speaker 3: Sure. Thanks, Marvin, for the question. Yeah, they're, they're very different. So the sell my car top dealer offer is a subscription product. It's, it is oriented around the leads that are driven to that dealer. And so it's extremely high margin similar to our listings business.
I'll just add one thing to complement with what Sam said. Anytime there's an earn-out structure, which effectively step two and step three were, it's just tough to perfectly align incentives. If nothing else, the step three measurement was on EBITDA, so we're aligned on EBITDA, you're not aligned on time horizon for instance.
Speaker 3: The instant max cash offer, as you know, is a gross revenue rev-rex dynamic, and it's more transaction fee-based.
Speaker 3: I wouldn't say, I wouldn't think of it as whether we have a preference.
And you're also limited in how closely you can integrate because you want to let that business perform to its highest potential. And so, you know, 100% ownership there allows total alignment of incentives, of time horizon, of integration and an efficiency of operations if you can do things at a greater scale rather than as two different entities.
Speaker 3: The preference is to give the consumer selection and convenience. And so we think we're doing that. Uh, and especially by giving them the two highest offers the white glove highest offer and the local dealer highest offer, we're sort of doing most right by the consumer and giving the most control to dealers by allowing them to bid whatever they feel is appropriate to bid. Um, so That's another great point about Lars.
Speaker 3: You know, we are very early days in cell my car, really excited by it. And, but it's, I wouldn't try to compare the two because there's such different treatments and it's really about giving the consumer and the dealer, frankly, more options.
Great, that's helpful. Thanks Jason. Thanks John .
Our next question is from Marvin Vong with BTIG. Please proceed. You may proceed.
Great, good evening. Thanks for speaking.
Speaker 10: I understand. And maybe a follow-up question, I mean, I guess, I tackle a different topic. I mean, it's great to hear that both, or the UK is not profitable, I think Canada as well. You guys obviously narrowed your focus a couple of years ago. I mean, would you entertain expanding internationally again, or do you feel like you have enough on your plate?
TEDDY BIC establishment Cloud and Data
the new cellular car products. So from Car-Doo's standpoint, do you guys have a different margin profile between the...
the INCO matrix, which I think is kind of a transaction fee basis versus what sounds like a subscription model for the in-store drop-off. So do you guys have a preference? And sort of a second part of that question, so is there no arbitration risk if it's dropped off at the dealer? Is the dealer responsible for inspection and all that vetting?
Speaker 3: That's not on the shortlist of our priorities right now. We think there's so much opportunity in our expansion to move into supporting all the transaction types that you're hearing us roll out now that that's where our focus is.
Speaker 3: And by the way, doing that in Canada and the UK as well, where we're bringing modified versions there of the things that we're doing here. And that's a small reason that those countries are those countries rather achieving the success that they are, but it's certainly contributing.
Sure. Thanks, Marvin, for the question. Yeah, they're very different. So the Sell My Car Top Dealer offer is a subscription product. It is oriented around the leads that are driven to that dealer. And so it's extremely high margin, similar to our listings business.
Speaker 3: There's just a lot of runway in those countries, even with our existing model. And as we get more scale, then that gives us more, a little more pricing power, but also more brand recognition and more dealer customer satisfaction.
The instant max cash offer, as you know, is a gross revenue Rev-Rec dynamic. And it's more transaction fee based. I wouldn't say I wouldn't think of it as whether we have a preference. The preference is to give the consumer selection and convenience. And so we think we're doing that. And especially by giving them the two highest offers the white glove highest offer and the local dealer highest offer. We're sort of doing most right by the consumer and giving the most control to dealers by allowing them to bid whatever they feel is appropriate to bid. So
Speaker 1: Our next question is from John Cantel Solani with Jeffries. Please proceed.
Speaker 11: Hey guys, thanks for taking my questions. This is Vincent Carter's on for John and Jeffries. May 1st question, talk about digital deal a little bit. You've talked a lot about the 2X conversion on leads and then 5X conversion on leads that you've had to see a bit further down the funnel. Can you talk a little bit about the features that make that product such a great tool for converting leads and then weather?
You know, we are very early days in Sell My Car, really excited by it. And, but it's, I wouldn't try to compare the two because they're such different treatments. And it's really about giving the consumer and the dealer, frankly, more options.
Speaker 11: 2x is kind of about where you'd expect the conversion to stick around at long term. Or if there are, you know, product enhancements or new features or ways to channel in more down from the leads that could, that could push that multiple higher time. Thanks.
Understood, thanks. And maybe a follow-up question, I mean, I guess to tackle a different topic, I mean, it's great to hear that both, or the UK is not profitable, I think Canada as well. You guys obviously narrowed your focus a couple of years ago. I mean, would you entertain expanding internationally again, or do you feel like you have enough on your plate?
Speaker 3: Thanks for the question. I think, Vincent, what's your name? We cut out there for your name. But so yes, we've given a two to 5X Drag ESP I mean we're talking about 5X a +/- 5X?
that's not on the short list of our priorities right now. We think there's so much opportunity in our expansion to move into supporting all the transaction types that you're hearing us roll out now, that that's where our focus is. And by the way, doing that in Canada and the UK as well, where we're bringing modified versions there of the things that we're doing here. And that's a small reason that those countries are achieving the success that they are, but it's certainly a contributing factor.
Speaker 3: times higher conversion rate data point on digital deal. And that range has a reflects that a user can do different aspects in the digital deal funnel. So for example, if they do simply a pre-qualification, financing pre-qualification, then that may only increase their close rate at the lower end of the...
Speaker 3: But as they start to do some or all of things like getting a trade in appraisal or setting up an appointment or if they do a hard pull on financing to get actual penny perfect deals or if they put down a deposit, with each of those items, you're getting just so much further and further down the funnel and ready to purchase that those conversion rates get to the higher end. And in some cases with some combinations,
there's just a lot of runway in those countries, even with our existing model. And as we get more scale, then that gives us more, a little more pricing power, but also more brand recognition and more dealer customer satisfaction.
Thanks so much, Jason.
Speaker 3: at some of the best run dealers, they're getting just phenomenal close rates. And so what we're pushing for as a company and within the digital deal product is giving the consumer and the dealer as much choice as they can. I mean, we talk about it as
Thanks, Roman.
Speaker 3: a consumer who's sort of going down this path to buying a car, they can decide to pull on any of these levers that they'd like, and then they can decide to get off the highway and go into the dealer at any point that they'd like, and give them that selection, so they don't feel as if they're boxed in to doing all of it online, or if they're boxed in to not doing any of it online. So...
Speaker 3: summarize its different elements in different combinations and given the skill set of the dealership that will drive the close rate and
Speaker 1: And our next question is from Judd Kelly with Oppenheimer, please proceed.
Speaker 3: Hey, great. Thanks for sneaking me in. Just to if I may, can you talk about how you view higher interest rates? And do you see this as an ability to gain more share? And then just on the subscription for the top dealer off.
Speaker 7: Do you potentially see that evolving into more of a transactional pay-by-lead product as that product gains more scale?
Speaker 3: Thanks, Chad. I'll take the first and first, if you want to take the second. So, yeah, I mean, very high interest rates. I...
Speaker 3: was reading this morning that the average interest rate right now in auto loans is 16%. It's incredibly high, car payments are incredibly high. We are seeing more searches for lower price cars as a result. We're seeing more searches that are predicated on payment rather than total price of the car or even type of the car. And so we're absolutely seeing how the consumer behavior is changing because of it.
Speaker 3: and dealers who tend to stock.
Speaker 3: lower price cars are seeing much faster lead growth in our platform than dealers who stock high
Speaker 3: So I think any time a consumer has new search criteria or is going to have a harder time finding the car that's right for them.
Speaker 3: It gives us an opportunity to get more share because we strongly believe we're the most transparent marketplace available to consumers.
Speaker 3: And as we give consumers the ability to do a prequal or to do a hard pull or to get a near penny perfect deal or to get a trade in offer, then we're also going to be much more valuable to dealers because they're not going to get people coming in who are excited about a car only to learn that they can't afford it.
Speaker 3: So I do think that our transparency and the features that we have on our site.
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