CarGurus Inc

Previous wording

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited interim condensed consolidated financial statements, or the Unaudited Condensed Consolidated Financial Statements, and the related notes thereto, appearing elsewhere in this Quarterly Report, and our consolidated financial statements and the related notes and other financial information included in our Annual Report. Some of the information contained in this discussion and analysis or elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business and our performance and future success, includes forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements.” For a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis you should review our Annual Report, including those cautionary statements set forth under Part I, Item 1A “Risk Factors.” We qualify all of our forward-looking statements by such cautionary statements.

Current wording

You should read the following discussion and analysis of our financial condition and results of operations together with our unaudited interim condensed consolidated financial statements, or the Unaudited Condensed Consolidated Financial Statements, and the related notes thereto, included elsewhere in this Quarterly Report, and our consolidated financial statements and the related notes and other financial information included in our Annual Report. Some of the information contained in this discussion and analysis or elsewhere in this Quarterly Report, including information with respect to our plans and strategy for our business and our performance and future success, includes forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements.” For a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis you should review our Annual Report, including those cautionary statements set forth under Part I, Item 1A “Risk Factors,” and in Part II, Item 1A, “Risk Factors,” of this Quarterly Report. We qualify all of our forward-looking statements by such cautionary statements.

Previous wording

For the three months ended March 31, 2024, we generated revenue of $215.8 million, a 7% decrease from $232.0 million of revenue for the three months ended March 31, 2023. For the three months ended March 31, 2024, we generated consolidated net income of $21.3 million and Consolidated Adjusted EBITDA of $50.4 million, compared to consolidated net income of $11.9 million and Consolidated Adjusted EBITDA of $40.8 million for the three months ended March 31, 2023.

Current wording

For the three months ended June 30, 2024, we generated revenue of $218.7 million, a 9% decrease from $239.7 million of revenue for the three months ended June 30, 2023. For the three months ended June 30, 2024, we generated consolidated net loss of $68.7 million and Consolidated Adjusted EBITDA of $55.6 million, compared to consolidated net income of $13.8 million and Consolidated Adjusted EBITDA of $45.2 million for the three months ended June 30, 2023.

Previous wording

See “Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest” below for more information regarding our use of Adjusted EBITDA, a non-GAAP financial measure, and a reconciliation of Adjusted EBITDA to our consolidated net income.

Current wording

See below for more information regarding our use and reconciliation of these non-GAAP financial measures.

Previous wording

We define Consolidated Adjusted EBITDA as consolidated net income, adjusted to exclude: depreciation and amortization, impairment of long-lived assets, stock‑based compensation expense, transaction-related expenses, other income, net, and provision for income taxes.

Current wording

We define Consolidated Adjusted EBITDA as consolidated net income, adjusted to exclude: depreciation and amortization, goodwill and other long-lived asset impairment, stock‑based compensation expense, stock-based compensation expense for CarOffer, LLC Units (as defined below), transaction-related expenses, other income, net, and (benefit from) provision for income taxes.

Previous wording

We define Adjusted EBITDA attributable to redeemable noncontrolling interest as net loss attributable to redeemable noncontrolling interest, adjusted to exclude: depreciation and amortization, impairment of long-lived assets, stock‑based compensation expense, other expense, net, and provision for income taxes. These exclusions are adjusted for redeemable noncontrolling interest of 38% by taking the noncontrolling interest's full financial results and multiplying each line item in the reconciliation by 38%. We note that we use 38%, versus 49%, to allocate the share of loss because it represents the portion attributable to the redeemable noncontrolling interest. The 38% is exclusive of CO Incentive Units, Subject Units, and 2021 Incentive Units (as each term is defined in Note 2 to our consolidated financial statements contained within our Annual Report), which are liability-classified awards that do not participate in the share of loss. Adjusted EBITDA attributable to redeemable noncontrolling interest is reflective of our acquisition of the remaining minority equity interests in CarOffer completed on December 1, 2023, or the 2023 CarOffer Transaction. Following the 2023 CarOffer Transaction there was no redeemable noncontrolling interest as of December 1, 2023, and as a result, Consolidated Adjusted EBITDA is equivalent to Adjusted EBITDA for the three months ended March 31, 2024.

Current wording

We define Adjusted EBITDA attributable to redeemable noncontrolling interest as net loss attributable to redeemable noncontrolling interest, adjusted to exclude: depreciation and amortization, impairment of long-lived assets, stock‑based compensation expense, stock-based compensation expense for CarOffer, LLC Units, other expense, net, and (benefit from) provision for income taxes. These exclusions are adjusted for redeemable noncontrolling interest of 38% by taking the noncontrolling interest's full financial results and multiplying each line item in the reconciliation by 38%. We note that we use 38%, versus 49%, to allocate the share of loss because it represents the portion attributable to the redeemable noncontrolling interest. The 38% is exclusive of CO Incentive Units, Subject Units, and 2021 Incentive Units (as each term is defined in Note 2 to our consolidated financial statements contained within our Annual Report), which are liability-classified awards that do not participate in the share of loss. Adjusted EBITDA attributable to redeemable noncontrolling interest is reflective of our acquisition of the remaining minority equity interests in CarOffer completed on December 1, 2023, or the 2023 CarOffer Transaction. Following the 2023 CarOffer Transaction there was no redeemable noncontrolling interest as of December 1, 2023, and as a result, Consolidated Adjusted EBITDA is equivalent to Adjusted EBITDA for the three and six months ended June 30, 2024.

Previous wording

Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest exclude impairment of long-lived assets and, although these are non-cash adjustments, the assets being impaired may have to be replaced in the future;

Current wording

Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest exclude goodwill and other long-lived asset impairment, which include non-cash one-time expenses associated with the impairment of the CarOffer reporting unit as well as other long-lived asset impairments, certain of which may have to be replaced in the future;

Previous wording

For the three months ended March 31, 2024 and 2023, the following table presents a reconciliation of Consolidated Adjusted EBITDA and Adjusted EBITDA to consolidated net income, the most directly comparable measure calculated in accordance with GAAP for each of the periods presented.

Current wording

For the three months ended June 30, 2024 and 2023 and for the six months ended June 30, 2024 and 2023, the following table presents a reconciliation of Consolidated Adjusted EBITDA and Adjusted EBITDA to consolidated net (loss) income, the most directly comparable measure calculated in accordance with GAAP for each of the periods presented.

Previous wording

For the three months ended March 31, 2024 and 2023, the following table presents a reconciliation of Adjusted EBITDA attributable to redeemable noncontrolling interest to net loss attributable to redeemable noncontrolling interest, the most directly comparable measure calculated in accordance with GAAP, for each of the periods presented.

Current wording

For the three months ended June 30, 2024 and 2023 and for the six months ended June 30, 2024 and 2023, the following table presents a reconciliation of Adjusted EBITDA attributable to redeemable noncontrolling interest to net loss attributable to redeemable noncontrolling interest, the most directly comparable measure calculated in accordance with GAAP, for each of the periods presented.

Previous wording

Marketplace cost of revenue includes expenses related to supporting and hosting marketplace service offerings. These expenses include personnel and related expenses for our customer support team, including salaries, benefits, incentive compensation, and stock-based compensation; third-party service provider expenses such as advertising, data, and hosting expenses; amortization of developed technology; amortization of capitalized website development; amortization of capitalized hosting arrangements; and allocated overhead expenses.

Current wording

Marketplace cost of revenue includes expenses related to supporting and hosting marketplace service offerings. These expenses include personnel and related expenses for our customer support team, including salaries, benefits, incentive compensation, and stock-based compensation; third-party service provider expenses such as advertising, data, and hosting expenses; amortization of developed technology; amortization and impairment of capitalized website development; amortization of capitalized hosting arrangements; and allocated overhead expenses.

Previous wording

Wholesale cost of revenue includes expenses related to supporting and hosting Digital Wholesale service offerings, including Dealer-to-Dealer transactions and vehicles sold to dealers acquired at other marketplaces on the CarOffer Matrix. These expenses include vehicle transportation and inspection expenses; net losses on vehicles related to guarantees offered to dealers through Dealer-to-Dealer transactions; personnel and related expenses for employees directly involved in the fulfillment and support of transactions, including salaries, benefits, incentive compensation, and stock-based compensation; third-party service provider expenses; amortization of developed technology; amortization of capitalized website development; and allocated overhead expenses.

Current wording

Wholesale cost of revenue includes expenses related to supporting and hosting Digital Wholesale service offerings, including Dealer-to-Dealer transactions and vehicles sold to dealers acquired at other marketplaces on the CarOffer Matrix. These expenses include vehicle transportation and inspection expenses; net losses on vehicles related to guarantees offered to dealers through Dealer-to-Dealer transactions; personnel and related expenses for employees directly involved in the fulfillment and support of transactions, including salaries, benefits, incentive compensation, and stock-based compensation; third-party service provider expenses; amortization of developed technology; amortization and impairment of capitalized website development; and allocated overhead expenses.

Previous wording

Sales and marketing expenses consist primarily of personnel and related expenses for our sales and marketing team, including salaries, benefits, incentive compensation, commissions, and stock-based compensation; expenses associated with consumer marketing, such as traffic acquisition, brand building, and public relations activities; expenses associated with dealer marketing, such as content marketing, customer and promotional events, and industry events; consulting services; software subscription expenses; travel expenses; amortization of capitalized hosting arrangements; and allocated overhead expenses. A portion of our commissions that are related to obtaining a new contract are capitalized and amortized over the estimated benefit period of customer relationships. All other sales and marketing expenses are expensed as incurred. We expect sales and marketing expenses to fluctuate from quarter to quarter as we respond to changes in the macroeconomic and competitive landscapes affecting our existing dealers, consumer audience, and brand awareness.

Current wording

Sales and marketing expenses consist primarily of personnel and related expenses for our sales and marketing team, including salaries, benefits, incentive compensation, commissions, and stock-based compensation; expenses associated with consumer marketing, such as traffic acquisition, brand building, and public relations activities; expenses associated with dealer marketing, such as content marketing, customer and promotional events, and industry events; consulting services; software subscription expenses; travel expenses; amortization of capitalized hosting arrangements; and allocated overhead expenses. A portion of our commissions that are related to obtaining a new contract are capitalized and amortized over the estimated benefit period of customer relationships. All other sales and marketing expenses are expensed as incurred. We expect sales and marketing expenses to fluctuate from quarter to quarter due to seasonality and as we respond to changes in the macroeconomic and competitive landscapes affecting our existing dealers, consumer audience, and brand awareness.

Previous wording

Product, technology, and development expenses consist primarily of personnel and related expenses for our research and development team, including salaries, benefits, incentive compensation, and stock-based compensation; software subscription expenses; consulting services; and allocated overhead expenses. Other than website development, internal-use software, and hosting arrangement expenses, research and development expenses are expensed as incurred. We expect product, technology, and development expenses to fluctuate as we invest in additional engineering resources to develop new solutions and make improvements to our existing platform.

Current wording

Product, technology, and development expenses consist primarily of personnel and related expenses for our research and development team, including salaries, benefits, incentive compensation, and stock-based compensation; software subscription expenses; consulting services; and allocated overhead expenses. Other than website development, internal-use software, and hosting arrangement expenses, research and development expenses are expensed as incurred. We expect product, technology, and development expenses to remain relatively flat for the remainder of the year.

Previous wording

General and administrative expenses consist primarily of personnel and related expenses for our executive, finance, legal, people & talent, and administrative teams, including salaries, benefits, incentive compensation, and stock-based compensation; expenses associated with professional fees for audit, tax, external legal, and consulting services; payment processing and billing expenses; insurance expenses; software subscription expenses; and allocated overhead expenses. General and administrative expenses are expensed as incurred. We expect general and administrative expenses to fluctuate as we continue to scale our business.

Current wording

General and administrative expenses consist primarily of personnel and related expenses for our executive, finance, legal, people & talent, and administrative teams, including salaries, benefits, incentive compensation, and stock-based compensation; expenses associated with professional fees for audit, tax, external legal, and consulting services; payment processing and billing expenses; insurance expenses; software subscription expenses; and allocated overhead expenses. General and administrative expenses are expensed as incurred. We expect general and administrative expenses to remain relatively flat for the remainder of the year.

Previous wording

We are subject to federal and state income taxes in the U.S. and taxes in foreign jurisdictions in which we operate. For the three months ended March 31, 2024 and 2023, a provision for income taxes was recognized as a result of the consolidated taxable income position.

Current wording

We are subject to federal and state income taxes in the U.S. and taxes in foreign jurisdictions in which we operate. For the three and six months ended June 30, 2024, a benefit from income taxes was recognized as a result of the discrete tax benefit associated with the impairment charge despite our consolidated taxable income position. For the three and six months ended June 30, 2023, a provision for income taxes was recognized as a result of the consolidated taxable income position.

Previous wording

For the three months ended March 31, 2024, income tax expense recognized related to uncertain tax provisions was immaterial. An immaterial amount of the reserve relating to uncertain tax positions was released as a result of settlement with taxing authorities. As of March 31, 2024, the income tax liability related to uncertain tax positions, exclusive of immaterial interest or penalties related to uncertain tax provisions, was $0.8 million, which would have favorably affected our effective tax rate, if recognized.

Current wording

For the three and six months ended June 30, 2024, income tax expense recognized related to uncertain tax provisions was immaterial. An immaterial amount of the reserve relating to uncertain tax positions was released as we would be more-likely-than-not to prevail should these tax positions be challenged by the respective tax authorities. As of June 30, 2024, the income tax liability related to uncertain tax positions, exclusive of immaterial interest or penalties related to uncertain tax provisions, was $0.9 million, which would have favorably affected our effective tax rate, if recognized.

Previous wording

For the three months ended March 31, 2023, we did not recognize income tax expense related to uncertain tax positions. As of December 31, 2023, the income tax liability related to uncertain tax positions, exclusive of immaterial interest or penalties related to uncertain tax provisions, was $0.8 million, which would have favorably affected our effective tax rate, if recognized.

Current wording

For the three and six months ended June 30, 2023, we did not recognize income tax expense related to uncertain tax provisions. As of December 31, 2023, the income tax liability related to uncertain tax positions, exclusive of immaterial interest or penalties related to uncertain tax provisions, was $0.8 million, which would have favorably affected our effective tax rate, if recognized.

Previous wording

For the three months ended March 31, 2024 and 2023, the Unaudited Condensed Consolidated Income Statements are as follows:

Current wording

For the three months ended June 30, 2024 and 2023 and for the six months ended June 30, 2024 and 2023, the Unaudited Condensed Consolidated Income Statements are as follows:

Previous wording

For the three months ended March 31, 2024 and 2023, our segment revenue and our segment income (loss) from operations are as follows:

Current wording

For the three months ended June 30, 2024 and 2023 and for the six months ended June 30, 2024 and 2023, our segment revenue and our segment income (loss) from operations are as follows:

Previous wording

For the three months ended March 31, 2024 and 2023, the Unaudited Condensed Consolidated Income Statements as a percentage of total revenue are as follows (amounts in the table below may not sum due to rounding):

Current wording

For the three months ended June 30, 2024 and 2023 and for the six months ended June 30, 2024 and 2023, the Unaudited Condensed Consolidated Income Statements as a percentage of total revenue are as follows (amounts in the table below may not sum due to rounding):

Previous wording

For the three months ended March 31, 2024 and 2023, our segment revenue as a percentage of total revenue and our segment income (loss) from operations as a percentage of segment revenue are as follows (amounts in the table below may not sum due to rounding):

Current wording

For the three months ended June 30, 2024 and 2023 and for the six months ended June 30, 2024 and 2023, our segment revenue as a percentage of total revenue and our segment income (loss) from operations as a percentage of segment revenue are as follows (amounts in the table below may not sum due to rounding):

Previous wording

Marketplace revenue increased $20.1 million, or 12%, in the three months ended March 31, 2024, compared to the three months ended March 31, 2023, and represented 87% of total revenue for the three months ended March 31, 2024, compared to 72% of total revenue for the three months ended March 31, 2023. The increase was due to an increase in Listings revenue, inclusive of certain digital add-on products, as a result of growth in QARSD, which was driven by signing on new dealers with higher average monthly recurring revenue and revenue expansion through product upgrades and price increases for existing dealers.

Current wording

Marketplace revenue increased $24.2 million, or 14%, in the three months ended June 30, 2024, compared to the three months ended June 30, 2023, and represented 89% of total revenue for the three months ended June 30, 2024, compared to 71% of total revenue for the three months ended June 30, 2023. The increase was due to an increase in Listings revenue, inclusive of certain digital add-on products, as a result of growth in QARSD, which was driven by signing on new dealers with higher average subscription revenue and revenue expansion through product adoption or upgrades and price increases for existing dealers. The increase was additionally driven by an increase in TDO revenue as we expanded into more geographies following the completion of the pilot in the three months ended June 30, 2024.

Previous wording

Wholesale revenue decreased $9.1 million, or 36%, in the three months ended March 31, 2024, compared to the three months ended March 31, 2023, and represented 7% of total revenue for the three months ended March 31, 2024, compared to 11% of total revenue for the three months ended March 31, 2023. The decrease was due primarily to a 41% decrease in Transactions, which includes Dealer-to-Dealer transactions and IMCO transactions, to 10,302 for the three months ended March 31, 2024, from 17,505 for the three months ended March 31, 2023, as a result of our focus on improving the performance of our sales team and enhancing how dealers interact with the CarOffer Matrix over unit volume.

Current wording

Wholesale revenue decreased $18.8 million, or 59%, in the three months ended June 30, 2024, compared to the three months ended June 30, 2023, and represented 6% of total revenue for the three months ended June 30, 2024, compared to 13% of total revenue for the three months ended June 30, 2023. The decrease was due primarily to a 58% decrease in Transactions, which includes Dealer-to-Dealer transactions and IMCO transactions, to 8,778 for the three months ended June 30, 2024, from 20,793 for the three months ended June 30, 2023.

Previous wording

Product revenue decreased by $27.2 million, or 69%, in the three months ended March 31, 2024, compared to the three months ended March 31, 2023, and represented 6% of total revenue for the three months ended March 31, 2024, compared to 17% of total revenue for the three months ended March 31, 2023. The decrease was due primarily to a decrease in proceeds received from the sale of vehicles through IMCO transactions, including lower average vehicle selling prices and lower transaction fees, due to the decrease in Transactions. The decrease in product revenue was also due in part to a decrease in proceeds received from the sale of vehicles acquired through arbitration as a result of decreased arbitration claims primarily due to decreased Transactions.

Current wording

Product revenue decreased $26.4 million, or 72%, in the three months ended June 30, 2024, compared to the three months ended June 30, 2023, and represented 5% of total revenue for the three months ended June 30, 2024, compared to 15% of total revenue for the three months ended June 30, 2023. The decrease was due primarily to a decrease in proceeds received from the sale of vehicles through IMCO transactions, including lower average vehicle selling prices and lower transaction fees, due to the decrease in Transactions. The decrease in product revenue was offset in part by an increase in proceeds received from the sale of vehicles acquired through arbitration.

Previous wording

U.S. Marketplace segment revenue increased $17.4 million, or 11%, in the three months ended March 31, 2024, compared to the three months ended March 31, 2023, and represented 80% of total revenue for the three months ended March 31, 2024, compared to 67% of total revenue for the three months ended March 31, 2023. The increase was due primarily to a $20.1 million increase in marketplace revenue, as described above.

Current wording

U.S. Marketplace segment revenue increased $21.6 million, or 14%, in the three months ended June 30, 2024, compared to the three months ended June 30, 2023, and represented 82% of total revenue for the three months ended June 30, 2024, compared to 66% of total revenue for the three months ended June 30, 2023. The increase was due primarily to a $24.2 million increase in marketplace revenue, as described above.

Previous wording

Digital Wholesale segment revenue, which is comprised of wholesale revenue and product revenue, decreased $36.3 million, or 56%, in the three months ended March 31, 2024, compared to the three months ended March 31, 2023, and represented 13% of total revenue for the three months ended March 31, 2024, compared to 28% of total revenue for the three months ended March 31, 2023. The decrease in Digital Wholesale segment revenue was due to a decrease in wholesale revenue and product revenue, as described above.

Current wording

Digital Wholesale segment revenue, which is comprised of wholesale revenue and product revenue, decreased $45.3 million, or 66%, in the three months ended June 30, 2024, compared to the three months ended June 30, 2023, and represented 11% of total revenue for the three months ended June 30, 2024, compared to 29% of total revenue for the three months ended June 30, 2023. The decrease in Digital Wholesale segment revenue was due to an $18.8 million decrease in wholesale revenue and a $26.4 million decrease in product revenue, as described above.

Previous wording

Marketplace cost of revenue decreased $1.1 million, or 7%, in the three months ended March 31, 2024, compared to the three months ended March 31, 2023, and represented 7% of total revenue for both the three months ended March 31, 2024 and 2023. The decrease was due primarily to a $1.1 million decrease in fees related to provisioning advertising.

Current wording

Marketplace cost of revenue decreased $2.3 million, or 15%, in the three months ended June 30, 2024, compared to the three months ended June 30, 2023, and represented 6% of total revenue for both the three months ended June 30, 2024 and 2023. The decrease was due primarily to a $1.4 million decrease in fees related to provisioning advertising campaigns on our websites.

Previous wording

Wholesale cost of revenue decreased $7.8 million, or 36%, in the three months ended March 31, 2024, compared to the three months ended March 31, 2023, and represented 7% of total revenue for the three months ended March 31, 2024, compared to 10% of total revenue for the three months ended March 31, 2023. The decrease was due in part to a $3.4 million decrease in transportation expense and a $1.1 million decrease in inspection expense as a result of lower Transaction volume. The decrease was also due in part a $3.2 million decrease in amortization, primarily due to the acquired developed technology intangible asset as it became fully amortized during the quarter.

Current wording

Wholesale cost of revenue decreased $11.8 million, or 48%, in the three months ended June 30, 2024, compared to the three months ended June 30, 2023, and represented 6% of total revenue for the three months ended June 30, 2024, compared to 10% of total revenue for the three months ended June 30, 2023. The decrease was due primarily to a $6.0 million decrease in transportation expense and a $1.4 million decrease in inspection expense as a result of lower Transaction volume. The decrease was also due in part to a $3.8 million decrease in amortization, primarily due to the acquired developed technology intangible asset as it became fully amortized during the first quarter of 2024.

Previous wording

Sales and marketing expense increased $6.7 million, or 9%, in the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The increase was due primarily to a $6.7 million increase in advertising and marketing expense due to new brand campaign and marketing efforts.

Current wording

Sales and marketing expense increased $4.5 million, or 6%, in the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The increase was due primarily to a $4.0 million increase in advertising and marketing expense for strategic advertising spend with our performance marketing vendors to maintain year-over-year lead volume and grow with the market. The increase in sales and marketing expense was further driven by our new brand campaign and marketing efforts.

Previous wording

Depreciation and amortization expense decreased $1.0 million, or 27%, in the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The decrease was the result of the customer relationships intangible asset related to the Digital Wholesale segment becoming fully amortized during the quarter.

Current wording

Depreciation and amortization expense decreased $1.7 million, or 43%, in the three months ended June 30, 2024, compared to the three months ended June 30, 2023. The decrease was due primarily to the customer relationships intangible asset related to the Digital Wholesale segment becoming fully amortized during the first quarter of 2024.

Previous wording

Provision for income taxes increased $1.9 million, or 28%, in the three months ended March 31, 2024, compared to the three months ended March 31, 2023, primarily due to increased profitability. This was partially offset by an aggregated $0.4 million tax expense related to shortfalls on the taxable compensation of stock-based awards and the Section 162(m) excess officer compensation limitation recorded during the three months ended March 31, 2024, compared to a $3.4 million tax expense related to shortfalls on the taxable compensation of stock-based awards and the Section 162(m) excess officer compensation limitation recorded during the three months ended March 31, 2023.

Current wording

(Benefit from) provision for income taxes changed $30.3 million, or 352%, in the three months ended June 30, 2024, compared to the three months ended June 30, 2023, primarily due to increased federal and state research development tax credits and a $31.5 million discrete deferred tax benefit in association with the goodwill and long-term assets impairment charges related to the CarOffer reporting unit recognized during the three months ended June 30, 2024. This was partially offset by a net $1.2 million tax expense related to the windfalls on the taxable compensation of stock-based awards and the Section 162(m) excess officer compensation limitation recognized during the three months ended June 30, 2024, compared to an aggregated $2.6 million shortfalls on the taxable compensation of stock-based awards and the Section 162(m) excess officer compensation limitation recognized during the three months ended June 30, 2023.

Previous wording

U.S. Marketplace segment income from operations increased $7.7 million, or 29%, in the three months ended March 31, 2024, compared to the three months ended March 31, 2023, and represented 20% of U.S. Marketplace segment revenue for the three months ended March 31, 2024, and 17% of U.S. Marketplace segment revenue for the three months ended March 31, 2023. The increase was due to an increase in revenue of $17.4 million, a decrease in cost of revenue of $1.1 million, and an increase in operating expenses of $10.8 million.

Current wording

U.S. Marketplace segment income from operations increased $17.4 million, or 71%, in the three months ended June 30, 2024, compared to the three months ended June 30, 2023, and represented 23% of U.S. Marketplace segment revenue for the three months ended June 30, 2024, compared to 16% of U.S. Marketplace segment revenue for the three months ended June 30, 2023. The increase was due to an increase in revenue of $21.6 million, a decrease in cost of revenue of $2.3 million, and an increase in operating expenses of $6.5 million.

Previous wording

Digital Wholesale segment loss from operations decreased $0.9 million, or 8%, in the three months ended March 31, 2024, compared to the three months ended March 31, 2023, and represented (36)% of Digital Wholesale segment revenue for the three months ended March 31, 2024 and (17)% of Digital Wholesale segment revenue for the three months ended March 31, 2023. The decrease in the loss was due to a decrease in revenue of $36.3 million, a decrease in cost of revenue of $35.0 million, and a decrease in operating expenses of $2.2 million.

Current wording

Digital Wholesale segment loss from operations increased $131.9 million, or 2,091%, in the three months ended June 30, 2024, compared to the three months ended June 30, 2023, and represented (587)% of Digital Wholesale segment revenue for the three months ended June 30, 2024, compared to (9)% of Digital Wholesale segment revenue for the three months ended June 30, 2023. The increase in the loss was due to a decrease in revenue of $45.3 million, a decrease in cost of revenue of $37.0 million, and an increase in operating expenses of $123.6 million. The increase in operating expenses was inclusive of $127.5 million of impairment expense related to the CarOffer reporting unit. For further discussion of impairments related to right-of-use assets, intangible assets and goodwill in the CarOffer reporting unit, refer to Note 6 of the Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.

Previous wording

Product cost of revenue decreased $27.2 million, or 69%, in the three months ended March 31, 2024, compared to the three months ended March 31, 2023, and represented 6% of the total revenue for the three months ended March 31, 2024, compared to 17% of total revenue for the three months ended March 31, 2023. The decrease was due primarily to a decrease in expenses related to vehicles sold to dealers through IMCO transactions as a result of decreased Transactions. The decrease in product cost of revenue was also due in part to a decrease in expenses related to vehicles sold to dealers acquired through arbitration as a result of decreased arbitration claims primarily due to lower Transaction volume.

Current wording

Product cost of revenue decreased $52.4 million, or 70%, in the six months ended June 30, 2024, compared to the six months ended June 30, 2023, and represented 5% of total revenue for the six months ended June 30, 2024, compared to 16% of total revenue for the six months ended June 30, 2023. The decrease was due primarily to a decrease in expenses related to vehicles sold to dealers through IMCO transactions as a result of decreased Transactions. The decrease in product cost of revenue was also due in part to a decrease in expenses related to vehicles sold to dealers acquired through arbitration as a result of decreased arbitration claims primarily due to lower Transaction volume.

Previous wording

Overall revenue decreased $16.2 million, or 7%, in the three months ended March 31, 2024, compared to the three months ended March 31, 2023.

Current wording

Sales and marketing expense increased $11.2 million, or 7%, in the six months ended June 30, 2024, compared to the six months ended June 30, 2023. The increase was due primarily to a $10.7 million increase in advertising and marketing expense for strategic advertising spend with our performance marketing vendors to maintain year-over-year lead volume and grow with the market. The increase in sales and marketing expense was further driven by our new brand campaign and marketing efforts.

Previous wording

Product, technology, and development expense decreased $1.1 million, or 3%, in the three months ended March 31, 2024, compared to the three months ended March 31, 2023. The decrease was due primarily to a $2.3 million decrease in expense as a result of increased website development capitalization and a $1.3 million decrease in consulting services. The decrease was offset in part by a $1.2 million increase in salaries and employee-related expenses due primarily to a 5% increase in headcount and a $0.5 million increase in rent and utilities.

Current wording

Product, technology, and development expense decreased $1.9 million, or 3%, in the six months ended June 30, 2024, compared to the six months ended June 30, 2023. The decrease was due primarily to a $4.6 million decrease in expenses as a result of increased website development capitalization and a $1.7 million decrease in consulting services. The decrease was offset in part by a $2.5 million increase in salaries and employee-related expenses due primarily to merit increases and a $0.9 million increase in software subscriptions.

Previous wording

As of March 31, 2024, our principal sources of liquidity were cash and cash equivalents of $246.3 million. As of December 31, 2023, our principal sources of liquidity were cash and cash equivalents of $291.4 million and short-term investments of $20.7 million. As of March 31, 2024, our borrowing capacity under the 2022 Revolver (as defined below) was $390.4 million.

Current wording

As of June 30, 2024, our principal sources of liquidity were cash and cash equivalents of $216.2 million. As of December 31, 2023, our principal sources of liquidity were cash and cash equivalents of $291.4 million and short-term investments of $20.7 million. As of June 30, 2024, our borrowing capacity under the 2022 Revolver (as defined below) was $390.6 million.

Previous wording

During the three months ended March 31, 2024 and 2023, our cash flows from operating, investing, and financing activities, as reflected in the Unaudited Condensed Consolidated Statements of Cash Flows, were as follows:

Current wording

During the six months ended June 30, 2024 and 2023, our cash flows from operating, investing, and financing activities, as reflected in the Unaudited Condensed Consolidated Statements of Cash Flows, were as follows:

Previous wording

Our operations have been financed primarily from operating activities. During the three months ended March 31, 2024 and 2023, we generated cash from operating activities of $52.0 million and $66.3 million, respectively.

Current wording

Our operations have been financed primarily from operating activities. During the six months ended June 30, 2024 and 2023, we generated cash from operating activities of $123.6 million and $95.7 million, respectively.

Previous wording

We believe that our existing sources of liquidity, including access to the 2022 Revolver, will be sufficient to fund our operations for at least the next 12 months from the date of the filing of this Quarterly Report. Our future capital requirements will depend on many factors, including our revenue; expenses associated with our sales and marketing activities and the support of our product, technology, and development efforts; expenses associated with our facilities build-out under our 1001 Boylston Street lease in excess of tenant allowance; payments received in advance from a third-party transaction processor; activity under the 2024 Share Repurchase Program (as defined below); and our investments in international markets. Cash from operations could also be affected by various risks and uncertainties, including, but not limited to, macroeconomic effects and other risks detailed more specifically in the “Risk Factors” section in Part I, Item 1A in our Annual Report.

Current wording

We believe that our existing sources of liquidity, including access to the 2022 Revolver, will be sufficient to fund our operations for at least the next 12 months from the date of the filing of this Quarterly Report. Our future capital requirements will depend on many factors, including our revenue; expenses associated with our sales and marketing activities and the support of our product, technology, and development efforts; expenses associated with our facilities buildout under our 1001 Boylston Street lease in excess of tenant improvement allowance; payments received in advance from a third-party transaction processor; activity under the 2024 Share Repurchase Program; and our investments in international markets. Cash from operations could also be affected by various risks and uncertainties, including, but not limited to, macroeconomic effects and other risks detailed more specifically in the “Risk Factors” section in Part I, Item 1A in our Annual Report and in the “Risk Factors” section in Part II, Item 1A in this Quarterly Report.

Previous wording

On September 26, 2022, we entered into a Credit Agreement with PNC Bank, National Association, as administrative agent and collateral agent and an L/C Issuer (as defined in the Credit Agreement), and the other lenders, L/C Issuers and parties thereto from time to time, or the Credit Agreement. The Credit Agreement consists of a revolving credit facility, or the 2022 Revolver, which allows us to borrow up to $400.0 million, $50.0 million of which may be comprised of a letter of credit sub-facility. The borrowing capacity under the Credit Agreement may be increased in accordance with the terms and subject to the adjustments as set forth in the Credit Agreement. Specifically, the borrowing capacity may be increased by an amount up to the greater of $250.0 million or 100% of Four Quarter Consolidated EBITDA (as defined in the Credit Agreement) if certain criteria are met and subject to certain restrictions. Any such increase requires lender approval. Proceeds of any borrowings may be used for general corporate purposes. The 2022 Revolver is scheduled to mature on September 26, 2027. As of both March 31, 2024 and December 31, 2023, there were no borrowings and $9.6 million in letters of credit outstanding under the 2022 Revolver, which reduces the borrowing capacity under the 2022 Revolver to $390.4 million.

Current wording

On September 26, 2022, we entered into a Credit Agreement with PNC Bank, National Association, as administrative agent and collateral agent and an L/C Issuer (as defined in the Credit Agreement), and the other lenders, L/C Issuers and parties thereto from time to time, or the Credit Agreement. The Credit Agreement consists of a revolving credit facility, or the 2022 Revolver, which allows us to borrow up to $400.0 million, $50.0 million of which may be comprised of a letter of credit sub-facility. The borrowing capacity under the Credit Agreement may be increased in accordance with the terms and subject to the adjustments as set forth in the Credit Agreement. Specifically, the borrowing capacity may be increased by an amount up to the greater of $250.0 million or 100% of Four Quarter Consolidated EBITDA (as defined in the Credit Agreement) if certain criteria are met and subject to certain restrictions. Any such increase requires lender approval. Proceeds of any borrowings may be used for general corporate purposes. The 2022 Revolver is scheduled to mature on September 26, 2027. As of June 30, 2024, there were no borrowings and $9.4 million in letters of credit outstanding under the 2022 Revolver, which reduced the borrowing capacity under the 2022 Revolver to $390.6 million. As of December 31, 2023, there were no borrowings and $9.6 million in letters of credit outstanding under the 2022 Revolver, which reduced the borrowing capacity under the 2022 Revolver to $390.4 million.