CarGurus (CARG) is out with earnings today. We are quite impressed by the results. In fact, they were much better than anticipated. We suspect the stock will rally tomorrow on this news. Below are the highlights:

Revenue

  • Total revenue was $83.0 million, an increase of 56% compared to $53.1 million in the third quarter of 2016.
  • Marketplace subscription revenue was $73.9 million, an increase of 59% compared to $46.5 million in the third quarter of 2016.
  • Advertising and other revenue was $9.1 million, an increase of 36% compared to $6.7 million in the third quarter of 2016.

Operating Income

  • GAAP operating income was $2.9 million, or 3% of total revenue, compared to $3.3 million or 6% of total revenue in the third quarter of 2016.
  • Non-GAAP operating income was $2.9 million, or 4% of total revenue, compared to $3.3 million or 6% of total revenue in the third quarter of 2016.

Net Income & Adjusted EBITDA

  • GAAP net income was $2.4 million.  GAAP net income attributable to common stockholders was $1.0 million, or $0.02 per share based on 46.6 million weighted average diluted shares outstanding, compared to $0.9 million or $0.02 per share based on 48.1 million weighted average diluted shares outstanding in the third quarter of 2016.
  • Non-GAAP net income was $2.2 million, or $0.02 per share based on 107.1 million weighted average diluted shares outstanding, compared to $2.2 million or $0.02 per share based on 112.2 million weighted average diluted shares outstanding in the third quarter of 2016.
  • Because the company closed its initial public offering on October 16, 2017, the shares sold in the offering as well as the automatic conversion of the company’s convertible preferred stock into shares of Class A common stock will be reflected in the financial statements in the fourth quarter of 2017.
  • Adjusted EBITDA, a non-GAAP metric, was $4.0 million, compared to $3.9 million in the third quarter of 2016.

Balance Sheet and Cash Flow

  • As of September 30, 2017, CarGurus had cash, cash equivalents, and short-term investments of $85.6 million.
  • The company generated $8.5 million in cash from operations and $5.6 million in free cash flow, which is a non-GAAP metric, during the third quarter of 2017 compared to $13.9 million in cash from operations and $11.1 million in free cash flow during the third quarter of 2016.
  • Subsequent to September 30, 2017, CarGurus closed its initial public offering of Class A common stock on October 16, 2017, which generated net proceeds to the company of approximately $43.0 million.

Recent Business Metrics and Highlights

  • Total paying dealers were 26,553 at the end of the period, an increase of 37% compared to 19,403 at the end of the third quarter of 2016.  Of the total paying dealers at the end of the period, U.S. and international accounted for 24,313 and 2,240, respectively, compared to 18,777 and 626, respectively, at the end of the third quarter of 2016.
  • Average annual revenue per subscribing dealer (AARSD) in the U.S. was $11,526, an increase of 16% compared to $9,939 in the third quarter of 2016.
  • International revenue was $2.6 million, compared to $0.7 million in the third quarter of 2016.
  • Website traffic and consumer engagement metrics grew as follows:
    ° US average monthly unique users were 26.0 million, an increase of 24% compared to 20.9 million in the third quarter of 2016. US average monthly sessions were 67.4 million, an increase of 38% compared to 48.9 million in the third quarter of 2016.
    ° International average monthly unique users were 2.6 million, an increase of 55% compared to 1.7 million in the third quarter of 2016. International average monthly sessions were 5.5 million, an increase of 73% compared to 3.2 million in the third quarter of 2016.

Fourth Quarter and Full-Year 2017 Guidance

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

Fourth Quarter 2017:

  • Total revenue
$85 to $86 million
  • Non-GAAP operating income
$1.2 to $2.2 million
  • Non-GAAP EPS
$0.01 to $0.02

The fourth quarter 2017 net income per share calculation assumes 113.7 million diluted weighted average common shares outstanding, which includes the shares of Class A common stock issued by the company in the initial public offering, as well as the automatic conversion of the company’s convertible preferred stock into shares of Class A common stock that occurred concurrently with the closing of the offering.

Full-Year 2017:

  • Total revenue
$311.3 to $312.3 million
  • Non-GAAP operating income
$16.7 to $17.7 million
  • Non-GAAP EPS
$0.11 to $0.12

The full-year net income per share calculation assumes 113.7 million diluted weighted average common shares outstanding, which includes the shares of Class A common stock issued by the company in the initial public offering, as well as the automatic conversion of the company’s convertible preferred stock into shares of Class A common stock that occurred concurrently with the closing of the offering. Guidance for the fourth quarter and full-year 2017 does not include any potential impact of foreign exchange gains or losses. Langley Steinert, Founder and Chief Executive Officer of CarGurus stated:

“We are very pleased with our third quarter results, which are highlighted by robust top line growth and ongoing profitability. Our strategy of building the world’s most trusted and transparent automotive marketplace is delivering a disruptive value proposition to consumers. The recent completion of our initial public offering was an important milestone for our company.  CarGurus now has greater brand awareness and enhanced resources to execute our growth strategy and further extend our rapidly growing leadership position.”

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