Q3 2024 CarGurus Inc Earnings Call
Good day and welcome to the CarGurus Earnings Conference Call.
Please note, this event is being recorded.
Speaker Change: I would now like to turn the conference over to Kirndeep Singh, Vice President and Head of Investor Relations.
please go ahead.
Kirndeep Singh: Thank you, Operator. Good afternoon. I'm delighted to welcome you to Carguru's third quarter 2024 earnings call. With me on the call today are Jason Trevisan, Chief Executive Officer, Sam Zales, President and Chief Operating Officer, and Elisa Palazzo, Chief Financial Officer. During the call, we will be making forward-looking statements, which are based on our current expectations and beliefs.
Kirndeep Singh: These statements are subject to risks and uncertainties which could cause our actual results to differ materially from those reflected in such statements.
Kirndeep Singh: 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.
Kirndeep Singh: We undertake no obligation to update or revise forward-looking statements except as required by law.
Kirndeep Singh: Further, during the course of our call today, we will refer to certain non-GAAP financial measures.
Kirndeep Singh: 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.
Kirndeep Singh: We believe that these non-GAAP financial measures and other business metrics provide useful information about our operating results.
Speaker Change: 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 the call over to Jason.
Jason Trevisan: Thank you, Kirndeep, and thanks to all of you for joining us today.
Jason Trevisan: We are extremely proud of our third quarter results. Our marketplace revenue growth further accelerated, and our impressive revenue performance, combined with flat operating expenses, drove consolidated adjusted EBITDA above the high end of our guidance range.
Jason Trevisan: We are executing well against our strategic priorities as we have continued to provide increasingly more value to our dealer partners.
Jason Trevisan: As a result, we are outperforming our competitors and gaining market share in the broader auto marketplace industry.
Jason Trevisan: We continue to build a transaction-enabled platform that leverages our unique and extensive consumer data to deliver actionable insights, tools, and functionalities for our dealer partners, supporting them in their daily decision-making processes.
Jason Trevisan: Simultaneously, we are deepening our connection with consumers and enhancing the shopper experience across our channels.
Jason Trevisan: Together, these efforts are growing our wallet share among dealers, while leveraging our existing cost base to increase operational efficiency.
Jason Trevisan: Importantly, our strong execution this quarter allowed for continued robust investment in innovation and a new product pipeline while we delivered ongoing earnings growth.
Jason Trevisan: In the third quarter, we continue to strengthen our executive team, attracting exceptional talent to Cargurus.
Jason Trevisan: In September, we welcome Jennifer Hansen as our new Chief People Officer and Michael Hanlon as our new Chief Revenue Officer.
Jason Trevisan: We are thrilled to have Jennifer and Mike join us and contribute their expertise to our team.
Jason Trevisan: Like last quarter, I'll begin with a high-level summary of our financials, followed by updates on the progress we've made across our four drivers of value creation.
Jason Trevisan: We ended the third quarter at the high end of our forecasted revenue range, and exceeded consolidated adjusted EBITDA guidance range.
Jason Trevisan: Our non-GAAP consolidated adjusted EBITDA grew 33% year-over-year and margin expanded about 590 basis points year-over-year to 28%.
Thank you for watching.
Jason Trevisan: Marketplace revenue accelerated again this quarter, delivering 15% year-over-year growth, or $26 million year-over-year expansion.
despite comparisons to prior year results getting increasingly difficult.
Jason Trevisan: Growth was driven by ongoing expansion in revenue from new dealer ads globally, migration towards higher subscription tiers, and greater adoption of value added products and services.
Jason Trevisan: Marketplace EBITDA grew 36% year-over-year, with margins expanding approximately 540 basis points versus the prior year period to 34%.
Jason Trevisan: Our international business was again a great contributor to our performance as we continue to experience strong momentum with revenue growing 23% year over year.
Jason Trevisan: In Canada, we further expanded our traffic share and continue to experience session growth ahead of our competitors.
Jason Trevisan: We grew our dealer base and market share in both geographies, and replicated our domestic playbook to introduce new products such as Digital Deal and Next Best Deal Rating.
Jason Trevisan: Finally, our OEM advertising business delivered two consecutive quarters of double-digit year-over-year revenue growth as the level of new car supply continued to normalize.
Jason Trevisan: New cars days on lot is increasing and OEM advertisers are ramping up their efforts to target in-market shoppers for both traditional and electric vehicles.
Jason Trevisan: The strong results we achieved in the third quarter highlight the ongoing progress across our four key drivers of value creation.
Jason Trevisan: A dedicated focus on delivering greater value to our dealer partners.
consistently enhancing the consumer experience.
enabling online transactions and rebuilding and integrating our wholesale business.
I'll now share more details on each.
provide more value to dealers.
Jason Trevisan: Core to our DNA is relentless product innovation, as we seek to enhance the value proposition we offer to our dealer partners, enabling them to source, market, and sell cars efficiently and effectively.
Jason Trevisan: In yet another third-party survey, CarGurus was ranked number one among dealers surveyed for providing the best ROI.
Jason Trevisan: Nearly three times as many dealers in the same survey ranked CarGurus number one in ROI versus our next competitor.
Jason Trevisan: We are confident that offering an integrated platform with tools, insights, and services across the transaction lifecycle will continue to drive adoption, boost engagement, and increase retention.
Jason Trevisan: In the third quarter, we concentrated our dealer efforts across three key areas. One, enhance our existing product offerings, resulting in greater engagement across our dealer base.
Jason Trevisan: Two, deliver more reports and functionalities that increase the adoption of our dealer data insights products. And three, introduce new services that deliver value beyond leads to our dealer partners.
Jason Trevisan: As a result, our listings revenue grew by 15% year-over-year, driven by net dealer ads at market rates, migration toward higher subscription tiers, and greater adoption of value-added products and services.
Jason Trevisan: Starting with our existing products, in the third quarter we launched a major feature for Highlight, one of our long-standing products that allows dealers to promote their inventory at the top of search result pages.
Jason Trevisan: With the most recent product update, dealers have the flexibility to optimize for multiple variables, including market factors like most days on lot, newest inventory or model, market day supply, and many more.
Jason Trevisan: Since implementing this update, we've seen an increase in dealer adoption and engagement.
Jason Trevisan: In our Dealer Data Insights Initiative, we have released several reports and functionalities in recent quarters. Next Best Deal Rating, Acquisition Insights Report, Maximized Margin, and Merchandising Health Report.
Jason Trevisan: Nearly half of our eligible paying dealers in the U.S. utilize Insights from Next Best Deal Rating, and our average dealer adjusted prices based on our recommendation 70 times during last quarter.
Jason Trevisan: Since its launch in Q4 2023, we have observed over 1.7 million price adjustments based on our recommendations.
Jason Trevisan: We also recently introduced Next Best Deal Rating to our international paying dealer base and early engagement has been tracking similarly to the rapid uptake we have seen in the U.S.
Jason Trevisan: Last, our partnership with dealers extends well beyond the high volume of leads we deliver. We have become a strategic, consultative partner, collaborating with our customers throughout more stages of their workflow.
Jason Trevisan: In fact, we have a dedicated team focused on direct, in-person, dealership-level training and engagement, which helps dealers implement best practices for lead handling, resulting in higher lead conversion rates, improved close rates, and better ROI on their spend.
Jason Trevisan: To conclude, our dedication to providing more value to dealers and embedding our services into their workflow has led to increased spend, stronger retention, and willingness to establish longer-term contracts.
Jason Trevisan: More than half of the dealers who have been with us for more than 2 years have increased their spend with us through listings upgrades and adoption of value-added products globally has increased by 60% during the last 2 years.
Jason Trevisan: Additionally, approximately 40% of all contracts signed this quarter were six months or longer.
Build a Better Consumer Experience
Jason Trevisan: Improving our consumer experience throughout the entire vehicle buying and selling journey remains a top priority for us.
Jason Trevisan: We are making strides to deliver an experience that truly meets consumers' needs every step of the way.
Jason Trevisan: This past quarter, we focused on enhancing our website and mobile app to give consumers a faster, more seamless journey to find the right car.
Jason Trevisan: The results show that our efforts are resonating, as we saw a double-digit increase in direct app and website sessions, and conversion has increased across owned channels.
Jason Trevisan: Our mobile app, which is now rated an industry best 4.9 stars on iOS, continues to be a powerful tool for consumers, driving nearly 30% of our leads and showing very deep engagement with two times the conversion relative to web.
Jason Trevisan: Recent updates have made browsing even more intuitive, with swipable photos in search and an upgraded lead submission experience, including streamlined options that make connecting with dealers faster and more intuitive than ever.
Jason Trevisan: These updates, along with a growing user base, reflect our dedication to delivering an app experience consumers love and rely on in their car search.
Jason Trevisan: Beyond the app, we're delivering an improved website experience that keeps consumers coming back.
Jason Trevisan: In the third quarter, we formally launched a new homepage along with rebranded key pages, including search result, vehicle detail, and post lead pages to address key pain points identified through extensive consumer research.
Jason Trevisan: These changes bring a new level of consistency and ease of use, boosting consumer satisfaction and confidence in their car search.
Jason Trevisan: We've increased personalization features, so we're helping returning users pick up midstream where they left off with tailored recommendations and relevant vehicles.
Jason Trevisan: This personalized experience is resonating with shoppers, driving a 10% increase in lead conversion on recommendations, a testament to the value consumers are finding through a more tailored search experience.
Jason Trevisan: With these updates, we're not only helping consumers find the right car faster, with greater confidence, but we're also helping them connect with dealers more effectively, as seen in higher lead volume and growth in other high-intent leads.
Jason Trevisan: These efforts underscore our ongoing commitment to creating an automotive marketplace that's as easy and enjoyable for our consumers as it is effective in buying and selling for our dealers.
Jason Trevisan: We ended the quarter as the number one visited listing site with 58% more average monthly visits than our closest competitor.
Jason Trevisan: With the largest dealer network and widest inventory selection, we continue to attract our market-leading, high-intent audience, achieving a monthly average of 20% more unique visitors than our nearest competitor.
Enable digital transactions
Jason Trevisan: The transaction elements of car buying and selling continue to shift online, and we are enhancing and expanding our digital capabilities to empower our dealer partners to compete on a broader scale beyond their local presence, while sourcing and selling inventory more efficiently online.
Jason Trevisan: Digital Deal is our fastest-growing product in the U.S. and we are very pleased with its continued strong adoption and elevated customer satisfaction.
Jason Trevisan: Digital deal penetration has grown approximately 14% quarter-over-quarter and nearly 150% year-over-year to 8,474 dealers.
Jason Trevisan: In Q3, nearly 20% of a dealer's overall leads came from DigitalDeal, a compelling value proposition for dealers as these leads closed up to three times higher than email leads.
Jason Trevisan: Similarly, digital deal with geographic expansion doubled year-over-year as dealers are eager to service shoppers outside of their local demographic area and consumers in more rural areas are leveraging digitally enabled listings to find their desired vehicle and complete more of the shopping journey online.
Jason Trevisan: With increasing demand for more digitally enabled solutions from both consumers and dealers, we see significant opportunities to replicate the success of our transaction enablement playbook as our international business continues to mature and gain share.
Jason Trevisan: Recently we launched Digital Deal in Canada, now live across thousands of vehicle listings, helping hundreds of participating dealers connect with higher converting leads for faster, more efficient sales.
Jason Trevisan: We are excited to introduce new products and solutions to our international dealer partners that we believe will empower them to serve consumers in ways that best meet their needs while prioritizing high-intent, ready-to-purchase shoppers.
Jason Trevisan: In the area of sourcing, Top Dealer offers our subscription-based consumer vehicle sourcing product powered by our Digital Wholesale Matrix technology has expanded to 80 metro areas with approximately 500 dealers participating in the program, growing nearly 30% quarter over quarter.
Jason Trevisan: We remain focused on ensuring it's an exceptional user experience, which includes onboarding and training dealers on how to manage the leads they receive, and leveraging the intake tool to ensure customer service consistency.
Jason Trevisan: We are committed to partnering with dealers to develop tools that support their processes and streamline their operations.
Jason Trevisan: and given the importance of sourcing within the dealer value chain, we will ensure that this part of the workflow is optimized before we scale more rapidly.
Top Dealer offers has many synergies with our marketplace business.
Jason Trevisan: With 50% of trade-in consumers in the market for a new vehicle, we are able to send high-intense shoppers to dealers.
Jason Trevisan: Over 60% of individuals who submit a lead using top dealer offers are also visiting search results pages for a new purchase, and 53% of lead submitters visit the vehicle detail page, highlighting a key trade-in opportunity for dealers.
Thank you for watching!
Rebuild and Integrate Digital Wholesale.
Speaker Change: I'd like to close by highlighting the progress made in our digital wholesale business.
Speaker Change: Our goal is to create a user experience that delivers market insights directly into wholesale buying and selling decisions.
Speaker Change: This empowers dealers to identify the most profitable opportunities and execute transactions within a data-driven wholesale platform.
Speaker Change: As previously shared, execution efforts are underway to, one, improve operations, two, refine our product market fit, and three, reignite the commercial engine.
Speaker Change: We have been focused on improving our operations for several quarters, driving consistency and predictability in our wholesale operations.
Speaker Change: In an effort to ensure a more reliable and improved experience for our dealers, we have reduced our transaction fulfillment times by nearly 12% year-to-date, significantly improved transportation margins, and we continue to enhance our customer experience with the aim of improving unit economics over time.
Speaker Change: To improve our product market fit, we are piloting enhanced matrix functionalities that create programmatic buying rules based on pre-selected parameters.
Speaker Change: Leveraging real-time market trends and insights from Karguru's extensive retail and consumer data, leading indicators, and localized competitive intelligence, the platform provides each dealer with a unique inventory grading system.
Speaker Change: The system is designed to automate recommendations based on dealer-specific criteria to maximize profitability.
Speaker Change: Finally, on the commercial side, our performance managers have become more effective, using these same insights to help dealers build data-driven fulfillment strategies, optimize inventory acquisition and disposal, and streamline operations.
Speaker Change: Performance managers work closely with dealers using precise touch points to refine vehicle preferences.
optimizing for the best fit for their inventory needs.
Speaker Change: While early days, pilot dealers are experiencing better than average satisfaction scores and greater engagement.
Speaker Change: Overall, we have continued to execute our key priorities and remain thoughtful and disciplined in our investments to revitalize our digital wholesale business, which we believe is instrumental to our vision of building a transaction-enabled platform.
Speaker Change: Over the long term, we see more than just data synergies on our platform, as dealers piloting insights on CarOffer could over time join CarGurus Marketplace and benefit from the value of our integrated suite of products.
Speaker Change: To conclude, we are proud of our strong performance as we are driving growth within our marketplace business and at the same time expanding event margins on a year over year basis.
Speaker Change: While our platform has continued to perform exceptionally well, we are also focused on laying the groundwork for sustainable growth and future innovation.
Speaker Change: By executing on our drivers of value creation, we are enhancing our platform to better serve both our dealer partners and consumer audience through ongoing product innovation and offering transaction capabilities across the car buying and selling lifecycle.
Speaker Change: Now let me turn the call over to Elisa to discuss our financial results.
Speaker Change: Thank you, Jason, and thank you all for joining us today.
Elisa Palazzo: My commentary will cover a detailed overview of our third quarter performance, followed by our guidance for the fourth quarter.
Short Quarter Consolidated Revenue was $231 million.
Elisa Palazzo: up 5% year over year, driven by double digit expansion of our marketplace business.
Elisa Palazzo: partly upset by lower wholesale and product volume versus prior year.
Marketplace revenue was $204 million for the third quarter.
Elisa Palazzo: up 15% year-over-year and in line with the high end of our guidance range.
The sustained acceleration of our marketplace business
Elisa Palazzo: was given by continued strength in subscription-based listings revenue, which grew $25 million year-over-year.
Elisa Palazzo: reflecting net dealer ads at market rate, greater reduction of value-added products and services, as well as upgrades to higher subscription tiers.
Elisa Palazzo: Our global paying dealer count was up 332 dealers this quarter, as we have continued to gain market share in a consolidating industry.
Elisa Palazzo: This is a reflection of our customer-centric approach, which drives engagement and retention, and fosters long-term relationships with our dealer partners.
Elisa Palazzo: The impressive growth in our international business continued in the third quarter.
Elisa Palazzo: Revenue was up 23% year-over-year driven by expansion of our dealer base and car seat growth.
which were up 4% and 20% year-over-year, respectively.
Elisa Palazzo: Postal revenue was $12 million for the third quarter, down 44% year-over-year, and down 8% sequentially.
Elisa Palazzo: driven by a decline in dealer-to-dealer transaction volume as we continue to optimize unit economics.
and Focus Director on Improving Transportation Operations and Customer Experience.
Lastly, product revenue was $15 million for the third quarter.
down 23% year-over-year but up 46% sequentially.
Elisa Palazzo: We saw stronger volume in the third quarter due to favorable market conditions related to one of our origination partners.
Elisa Palazzo: Volumes have normalized in October and we expect fourth quarter activity to be slightly below the second quarter.
Elisa Palazzo: As a reminder, product volumes have an outsized impact on revenue, but a minor impact on our gross profit in EBITDA.
Elisa Palazzo: I will now discuss our predictability and expenses on a non-GAAP basis.
Per quarter, non-GAAP consolidated gross profit was $192 million.
up 13% year-over-year.
MilGap's gross margin was 83%.
Elisa Palazzo: up from 77% in the prior year quarter and approximately flat sequentially.
Elisa Palazzo: The meaningful year-over-year expansion in non-GAAP gross margin was primarily due to the ongoing revenue-mix shift toward our high-margin marketplace business.
Marketplace non-gap gross profit was up 17% year-over-year.
Elisa Palazzo: A non-GAAP gross margin expanded by about 170 basis points year-over-year to 93%.
driven by favorable product mix and higher OEM advertising revenue.
in our wholesale business.
Elisa Palazzo: Sequential non-gap gross margin improvement reflected better unit economics and transport costs optimization.
Elisa Palazzo: While sequentially higher product volume and lower cost base drove improved gross margins.
Consolidated adjusted EBITDA was $64.9 million, up 33% year-over-year.
Consolidated Adjusted EBITDA Margin was 28%.
approximately 590 basis points year-over-year and 265 basis points sequentially.
Elisa Palazzo: reflecting the continued momentum in marketplace revenue and high to approve margins.
Thank you for watching.
Elisa Palazzo: Marketplace adjusted EBITDA grew 36% year-over-year to approximately 70 million as we gained leverage across our operating cost phase while revenue growth continues to accelerate.
Digital wholesale adjusted EBITDA loss was approximately $5.2 million.
Elisa Palazzo: and modest sequential improvement driven by higher non-gap cross profit and margin.
Elisa Palazzo: Per quarter, non-GAAP operating expenses totaled $132 million, up 5% year-over-year, and flat sequentially.
Elisa Palazzo: highlighting our ability to continue to leverage our fixed cost base.
Elisa Palazzo: OPEX trends are in line with our initial guidance and consistent with seasonal cost fluctuations within the year.
Elisa Palazzo: During the quarter, we recognized a $16.8 million non-cash impairment charge in our digital wholesale segment.
related to the discontinuation of CG by online pilots.
Elisa Palazzo: One of the initiatives that allowed consumers to purchase dealer's vehicles on our site.
Elisa Palazzo: This charge is reflected in our GAAP financials, and we booked $9.8 million under Cost of Revenue and $7 million under Operating Expenses.
We periodically assess our invested capital base.
Elisa Palazzo: to ensure that we are optimizing resource allocation based on a number of criteria, including financial return, strategic set,
Execution Capabilities
and Marked Demand.
Elisa Palazzo: Although we decided, after careful review, to discontinue CGByOnline and redeploy resources internally to other growth and innovation initiatives.
Elisa Palazzo: This decision does not affect our commitment to continue to build a transaction-enabled platform going forward, as exemplified by our growth in digital deal and top dealer offers.
Now back to our quarterly results.
Elisa Palazzo: Non-GAAP-diluted earnings per share, attributable to common shareholders, was $0.45 for the third quarter.
Elisa Palazzo: reflecting the increasing consolidated adjusted EBITDA in lower diluted share counts.
Elisa Palazzo: We ended the third quarter with $247 million in cash and cash equivalents.
Elisa Palazzo: an increase of $31 million from the end of the second quarter.
Elisa Palazzo: The higher cash balance was primarily driven by $47.1 million in non-GAAP net income.
Elisa Palazzo: currently upset by CapEx and capitalized costs for approximately $15 million, related in part to the build-out of our new headquarters and other cash flow items.
Thank you for watching.
Elisa Palazzo: We moved into the new headquarters at the end of September, and we expect the construction-related cash outlays for the rest of the year, next of tenant improvement allowance.
to be minimal and to be completed by your end.
During the third quarter, we repurchased 164,000 shares.
for an aggregate purchase price of $3.7 million.
Elisa Palazzo: As of September 30th, we had repurchased a total of $146 million worth of shares in 2024, and approximately $104 million remaining available for share repurchases under the 2024 program.
Elisa Palazzo: Additionally, I am pleased to share that our board has authorized a $200 million dollar share repurchase program effective January 2025.
Elisa Palazzo: as we expect strong cash flow generation to continue into the new year.
This highlights our commitment to return value to our shareholders.
Elisa Palazzo: I will now close my prepared remarks with our guidance and outlook for the fourth quarter.
We expect our fourth quarter consolidated revenue.
to be in the range of 219 to 239 million.
down 2% and up 7% year-over-year, respectively.
Elisa Palazzo: We expect the momentum in our marketplace business to continue in the fourth quarter.
Elisa Palazzo: with revenue expected to be in the range of $208 to $213 million.
up between 14% and 17% year-over-year.
driven by strong bookings and continued growth in OEM advertising.
Comparable period results will get increasingly difficult into 2025.
Elisa Palazzo: as our business has continued to perform well and we start lapping a year of double-digit growth.
Elisa Palazzo: Moving to digital wholesale, we expect fourth quarter volume to decline sequentially.
as wholesale activity is typically slower in the fourth quarter.
Elisa Palazzo: We expect our fourth quarter non-gas consolidated adjusted EBITDA to be in the range of $72 million to $80 million.
Elisa Palazzo: In the marketplace segment, we expect further margin expansion in the fourth quarter.
Elisa Palazzo: driven by continued operating leverage and lower media spend during the holiday season.
As a reminder,
Elisa Palazzo: Following the seasonal reduction in the fourth quarter, we typically ramp up marketing spend significantly in the first quarter.
Elisa Palazzo: For digital wholesale, we expect segment EBITDA losses to improve modestly on a sequential basis.
due to better unit economics.
partly offset by lower volumes.
Elisa Palazzo: Finally, we expect fourth quarter non-GAAP earnings per share to be in the range of $0.50 to $0.55.
Elisa Palazzo: And diluted weighted average common shares of funding could be approximately $106 million.
Thank you for watching.
With that, let's open the call for Q&A.
We will now begin the question and answer session.
Elisa Palazzo: To ask a question, you may press star then 1 on your telephone keypad.
Elisa Palazzo: If you are using a speakerphone, please pick up your handset before pressing the keys.
Thank you for tuning in.
To withdraw your question, please press star then 2.
Elisa Palazzo: Please limit yourself to one question and one follow-up. If you have further questions, you may re-enter the question queue.
Speaker Change: And our first question will come from Marvin Fong of BTIG. Please go ahead.
Marvin Fong: Oh, great. Thanks for taking my questions and congratulations on the quarter.
Marvin Fong: Yeah, I'd just like to kind of start, you know, clearly the business is doing very well, especially the core marketplace and throwing up a lot of cash.
Marvin Fong: Can you just kind of update us on how you're thinking about
Marvin Fong: investing in the brand. I think you've had some various brand campaigns.
you know, should we kind of think about...
You possibly
Marvin Fong: in next year, leaning back into more brand marketing to kind of generate more consumer awareness and create a flywheel effect there. And the second question, we'd just like to dive a little bit deeper into the decision to discontinue CG by online.
Speaker Change: You know, was it something about the construction of the product or was it a concern about dealer acceptance or any other factors that left some more color on what you saw there that didn't seem like it was going to work? Thanks.
Thank you for tuning in.
Jason Trevisan: Thanks Marvin, this is Jason. I'll take the first one. So from a brand perspective and I would say more broadly marketing perspective
Jason Trevisan: You heard in Elisa's remarks that there is seasonality to it and so you can expect an increase.
Jason Trevisan: at the New Year, we are getting more and more sophisticated with
Jason Trevisan: our marketing and our advertising. As we think about capturing bigger audience at different parts of the funnel, so to speak, of their shopping journey, we have historically been very low funnel-oriented, and a lot of our brand effort is to go mid-funnel and higher funnel, and that's to grow our brand awareness.
Jason Trevisan: That's also supported or complemented by the fact that our product portfolio keeps growing. And you heard also in the prepared remarks a number of ways in which we're improving the user experience on our site.
And so it's not just advertising to...
Jason Trevisan: to do a presentation on the WebEx. I'll let you know when it's available. We'll be back in about a minute. Thank you. And I'll let you know when it's available. Thank you. Thank you, everyone. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.
Jason Trevisan: with the product itself. And then lastly, I'd say we're trying new channels all the time and we've found some success in a number of new brand channels that we're really excited about. So we're going to continue to try to build brand as best and as quickly as we can, so that we're not as focused in a handful of performance channels.
Marvin Fong: Yeah and that will take the financial part of CG by online. So Marvin, we have a very disciplined capital allocation process and approach and so we periodically undergo a review of our invested capital base.
Speaker Change: And we assess opportunities based on a number of criteria, including financial returns, strategic fit, our ability to execute in a differentiated way, and end market demands.
Speaker Change: And so, in the third quarter, after careful consideration and a very detailed analysis, we concluded that it was appropriate for us to redeploy the resources of CGE BioNLine pilots to other projects.
Speaker Change: Okay, got it. Thanks so much. I'll get back in queue.
Thank you.
Speaker Change: The next question comes from Nick Jones of Citizens JMP Securities. Please go ahead.
Speaker Change: Great, thanks for taking the questions. I guess, too, just around CARCID,
Speaker Change: As we think about car set over time, you know, how should we think about maybe the algorithm to driving growth here? I mean, what amount can you take maybe annually as it relates to inflation? Can you kind of do 100, 200 bps above inflation?
Speaker Change: with folks, and I guess can you maybe speak to the product pipeline?
Speaker Change: Thank you, Nick. So, I will comment on, you know, the growth pipeline that we are seeing at the moment. So, as the business performs well and continues to grow,
Comps are going to get more difficult into 2025.
Speaker Change: This said, we feel very good about the quality of our growth as we believe that the drivers of expansion are durable.
Speaker Change: So we are seeing higher dealer engagement. They use more of our products and more frequently, and so they are increasing their level of spend with us.
Speaker Change: We are seeing higher adoption of value-added products and services and data insights that really help dealers run their business better on a daily basis. And so this is resulting in stronger retention.
and also long-term contracts becoming more prevalent.
and so
Speaker Change: even if you know we don't expect the business to accelerate further in 2025 we do expect growth to be strong and we have visibility into that growth pipeline.
Speaker Change: and maybe Sam or Jason wanted to comment on the product.
Sure. Hey, next, Jason. From a product standpoint, it's both.
Jason Trevisan: We do feel really good about our pipeline. I would think of it in two buckets, upsells and cross-sells from a product standpoint. From an upsell perspective.
Jason Trevisan: We, as you know, continue to pack more and more value and features into our higher tier packages.
Jason Trevisan: So, that's things around dealer data insights and brand exposure on our site and new marketing channels in our marketplace and off-site as well.
Jason Trevisan: From a cross-health perspective, you know, there's a lot of other marketing products that we have introduced already, and we'll continue to introduce those. But I think what is even more exciting than that, though, is that.
Jason Trevisan: As we're leveraging data more and more to inform dealers how they can run ever-improving dealerships.
Jason Trevisan: We're starting to help them with more aspects of their workflow beyond just marketing, and so that is stretching as early as sourcing in their workflow with Top Dealer Offer and Car Offer and so forth, but also now includes Insights.
Jason Trevisan: around pricing, merchandising, clearly more and more around marketing, and then also selling so that they can convert the leads that we deliver them even better. As we're
Jason Trevisan: getting our foot in the door in those different aspects of their workflow. That opens up opportunities for us to introduce new features and products there as well.
Speaker Change: The next question comes from Rajat Gupta of J.P. Morgan. Please go ahead.
Speaker Change: Great, thanks for taking the question. I had a couple quick ones on the international business, you know, pretty good sequential improvement there.
Speaker Change: in the Corsid, as well as Deagle County. Maybe if you could speak to the initiatives in the region a bit more.
Speaker Change: What innings of growth would you say the company is in?
Speaker Change: How should we think about the growth trajectory? And I also noticed that the OPEX went up a little more than revenue sequentially. I don't know if there's just more leaning into marketing to actually grow there. Any card you can give on that as well would be helpful. I have just one follow-up.
Speaker Change: Rajat, it's Sam Zales. I'll take the first part of the question. We couldn't be more proud of the results in the international businesses, both the UK and Canada, growing fast.
Speaker Change: profitable and adding to our bottom line and That's it's no longer de minimis These are these are big businesses for us and we're really proud of where we are on that front we're following the playbook from the US which is we gain adoption of dealers because we go in at a price point that we know versus the very large competitors in their market and
Speaker Change: are adaptive, and we're winning customer acquisition. As you can see, those numbers going up in new dealer counts.
Speaker Change: tremendously in the international markets and then we're following that same playbook of Carcid growth. You know that Carcid growth comes from the factors of that new business coming in at the right price points.
Speaker Change: upselling those dealers to our premium packages, cross-selling products to them, and then doing our AVR process for those dealers who are underpriced.
Speaker Change: So, all of those motions are working effectively and driving that growth in that market.
in both of those markets.
Speaker Change: And then you heard that we launched some of the products in the U.S. into the Canada market with Digital Deal being launched. Think about transaction-enabled platform. You want to be able to drive the consumers down the funnel, and then your dealers are saying, those are tremendous high close rate consumers.
coming down the funnel.
Speaker Change: and either providing some financial information, in many cases trade-in information or appointment setting. And those are just tremendously high-value actions for our dealers to close business with. And we launched Next Best Deal Rating, the first of the dealer data insights to those customers, which leads to better retention of your customers, and a differentiated offering that is a profit maximization platform dealers can use to price more effectively. So with all of those tools in the markets, we're finding both new customers.
Speaker Change: growth, CARCID growth, and the retention of our customers at record rates for us, and that's driving both revenue growth and profitability in those markets.
And Rajat, on the OPEX, we have a one-off.
Speaker Change: related to sales tax in Canada which is causing the the OPEX to step up this quarter. It should normalize going into the next quarter. We are seeing a lot of traction in terms of traffic share gains and so we are also investing in the international business.
Speaker Change: Got it, got it, yeah, that's clear on the text. And then maybe, you know, just on your dealer account, I think in the past you've indicated that the mix of franchise dealer customers has trended higher.
Speaker Change: on the platform. Could you maybe elaborate on, you know, just incremental monetization opportunities or any low-hanging fruit opportunity available with the manufacturers, you know, as the marketplaces get gradually transformed, you know, in terms of the deal count.
Thanks.
Speaker Change: Rajat, it's Sam on the dealer account. I'm assuming you're talking globally or U.S. focused, but in the U.S.
Speaker Change: We've led, all of the dealer segments are moving well for us. We've had tremendous growth in the franchise arena that's been really strong and driven.
Speaker Change: some of that car seat growth you've heard about. You know that we have small dealers because we offer a broader set of inventory to our consumers than any of our competitors in the market. And for those consumers who are searching for the $5,000 or $8,000 vehicle, we want to serve that market for both our consumers' and dealers' success.
Speaker Change: So, all of those segments have been successful for us, both independent and franchised, but franchised, the larger dealers, have been more and more successful for us. And you see us taking more wallet share, and both wallet share and market share is both.
winning customers and having plus net dealer ads.
Speaker Change: and growing carcid and doing that faster than the rest of the market.
You also asked about the OEM.
Customer base.
Speaker Change: You see growth in our advertising business. That's really nice to see. It comes.
Speaker Change: two-quarters worth of double-digit growth. It comes because supply is coming back in the new car arena. Days on market is lengthening. And for both EVs and ICE vehicles, they're turning to the best down-funnel shoppers and saying, this platform is the one to work for.
Speaker Change: And so we've won back both domestic and import brands when the last couple of years have been slow for their investments in the market. We'll always be focused on leads more than advertising, but we're really proud of the highly profitable advertising business we have.
Speaker Change: and some of those OEM relationships drive a lead generation program for their dealers. And so, it's a win-win and synergistic opportunity for us and we're really proud of that growth.
Got it. Makes sense. Thanks for all the color.
Speaker Change: The next question comes from Doug Arthur of Huber Research Partners. Please go ahead.
Speaker Change: Yeah, thanks. This question may have been asked in a slightly different form already, but Jason, obviously the CARCID numbers have been terrific in really for the last five or six quarters.
Speaker Change: When you think about the comparison for Carson in 2025, are you confident that the value added, the new products, the digital deal, penetration, etc., will continue to drive that at a pretty stout rate, or are you going to face a tough comp there?
Speaker Change: Sure. Well, as you heard Elisa say, we do have tougher comps, no question, by N25. But, I mean, I think if you look at the drivers of CAR CID,
Speaker Change: with insights that we have a really robust pipeline on, that's gonna continue to entice dealers to move up because they are able to...
Speaker Change: much more successful on our platform when they have access to those insights.
Speaker Change: unlimited because we can just keep adding more insights there. Other products, I spoke about those just a few minutes ago in terms of some of the other cross-sell opportunities that we have that start to span across dealer workflows and are not just limited to marketing, which is where we've kind of lived in the past.
Speaker Change: Lead quality, in addition to lead quantity, but lead quality I think is a probably an underestimated factor for a lot of dealers that are, as in looking at CARCID rather, that a lot of dealers really focus on and while it's hard to measure exact quality and attribution
Speaker Change: We work very hard at making sure that the quality is better so that the ROI is better for dealers.
Speaker Change: so that they can be excited about investing more with us. So we're very focused on these different levers of CARCID. It's all predicated on ensuring that we deliver a great ROI. And so we're never gonna get over our skis on that. And you heard us talk about even more surveys that validated that. And so we feel pretty good that as long as we're ROI focused, we will have a runway in CARCID.
Great, thank you.
Speaker Change: The next question comes from Joseph Stack of UBS. Please go ahead.
Speaker Change: Hi, it's Zach Wall, Jasper. I'm from Joe's SPAC today. So I have two quick questions. So one is how does pricing kind of work in the business? Is it a kind of seasonal aspect or is it kind of linear? Especially I heard a comment earlier about customers are signing like longer-term contracts in like six months. Is there an opportunity to price the middle or kind of wait to the end? How do we think about that?
Speaker Change: And then just a quick follow-up, you know, verse 90 days ago, how would you assess the health of the consumer and the activity you are seeing at your dealer customers? Thank you.
Speaker Change: Hey Zach, it's Sam Zales. I'll try to take the first and then can weigh in with thoughts on the consumer and Jason you might need more for that one.
Speaker Change: Pricing works in a way that we look at our lead volume and the quality of our leads.
Speaker Change: and assess the value we think we're going to drive to that dealer from the expensive
Speaker Change: years of experience we've had now growing that business and producing for our customers. I want to reference that market probe survey with customers.
Speaker Change: saying that we're by far the number one provider in ROI in the market and almost three times
Speaker Change: chosen over our closest competitor, and with that, it gives you more price leverage. So, we're looking at our close rates, knowing what we think we can drive to that dealer. It's not seasonally based. It's based on their inventory and the expected
Speaker Change: volume of leads and what the close rate we've known has been at the success rate we've had, and that drives the price point for those dealers. Those numbers, as we've said, are moving all in the right direction. Car Sid grows first because we bring in dealers at the right price point in the market and a higher price point. And so over time, you've heard us talk about our ABRs, our Annual Business Reviews. That's taking the dealers who are underpriced against the market and raising those over time. So we're really proud at what we're doing on that front. That's driven that Car Sid growth.
Speaker Change: You asked about consumer demand. I think the third quarter was interesting. We saw a stronger used retail market and wholesale market.
Speaker Change: partly because we know interest rates came down at the very end of the quarter, but the third quarter is typically down for the industry and used car sales, and it was a little bit stronger. I hope the interest rates will help that continue to be a success for our dealer community. We still know that inventory is sitting on lots longer than it has previously, and so we hope
Speaker Change: Our product, we know, is the best ROI in the marketplace. Dealers are saying, I have to be on the CarGurus program. That's my biggest and fastest way to get to that consumer who's in the market. You know, Q4 is typically more weak, the weakest time of the four quarters in terms of used vehicle sales.
Speaker Change: And in those times when it's hard to sell, dealers will turn first to the biggest audience, the most down-funnel audience, and the largest quantity and quality of leads, and that makes us the first choice.
Hope that answers your question. Thank you so much.
Speaker Change: This concludes our question and answer session. I would like to turn the call over to Jason Trevisan for any closing remarks.
Jason Trevisan: Thank you very much. We'd just like to thank everyone for joining us this evening and as always want to thank all of our colleagues at CarGurus for your dedication and passion and these outstanding results. I hope everyone has a nice evening.
Speaker Change: The conference is now concluded. Thank you for attending today's presentation and you may now disconnect.