# CarGurus, Inc. (CARG) FY 2024 MD&A Verbatim Item 7 Management's Discussion and Analysis from CarGurus, Inc.'s 10-K for fiscal year 2024. SEC filing source: https://www.sec.gov/Archives/edgar/data/1494259/000095017025024181/carg-20241231.htm Accession: 0000950170-25-024181 Filing date: 2025-02-20 Report date: 2024-12-31 Extracted structurally from real Item 7 body heading to real Item 7A/8 boundary. Confidence: high Company profile: /company/CARG/ All MD&A years: /company/CARG/mda/ Previous year: /company/CARG/mda/fy2023/ (FY 2023) Next year: /company/CARG/mda/fy2025/ (FY 2025) Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Annual Report. Some of the information contained in this discussion and analysis or elsewhere in this Annual 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.” You should review the “Risk Factors” section of this Annual Report 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. We qualify all of our forward-looking statements by such cautionary statements. In this discussion, we use financial measures that are considered non-GAAP financial measures under SEC rules. These rules regarding non-GAAP financial measures require supplemental explanation and reconciliation, which are included elsewhere in this Annual Report. Investors should not consider non-GAAP financial measures in isolation from or in substitution for, financial information presented in compliance with U.S. generally accepted accounting principles, or GAAP. This section of this Annual Report discusses 2024 and 2023 items and year-to-year comparisons between 2024 and 2023. Discussions of 2022 items and year-to-year comparisons between 2023 and 2022 can be found in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in Part II, Item 7 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2023. The period‑to‑period comparison of financial results is not necessarily indicative of future results. Company Overview CarGurus is a multinational, online automotive platform for buying and selling vehicles that is building upon its industry-leading listings marketplace with both digital retail solutions and the CarOffer online wholesale platform. The CarGurus platform gives consumers the confidence to purchase and/or sell a vehicle either online or in person, and it gives dealerships the power to accurately price, effectively market, instantly acquire, and quickly sell vehicles, all with a nationwide reach. We use proprietary technology, search algorithms, and data analytics to bring trust, transparency, and competitive pricing to the automotive shopping experience. We operate the following marketplaces: [[GREPCENT_TABLE]] [["U.S., U.K., and Canada","U.S.","U.K."]] [[/GREPCENT_TABLE]] CarOffer is a subsidiary of CarGurus and operates as an independent brand. Autolist and PistonHeads operate as independent brands. We have subsidiaries in the U.S., Canada, Ireland, and the U.K. and we have two reportable segments, U.S. Marketplace and Digital Wholesale. See Note 14 to our consolidated financial statements included elsewhere in this Annual Report for further segment reporting and geographic information. 43 Table of Contents We derive our revenue from marketplace revenue, wholesale revenue, and product revenue. Marketplace revenue is included in the U.S. Marketplace segment and Other category of segment reporting. Wholesale revenue and product revenue are primarily included in the Digital Wholesale segment. We generate marketplace revenue from (i) dealer subscriptions to our Listings packages and RPM, our digital advertising suite, Digital Retail, and Top Dealer Offers, (ii) advertising revenue from auto manufacturers and other auto‑related brand advertisers, and (iii) revenue from partnerships with financing services companies. We generate wholesale revenue primarily from (x) transaction fees earned from Dealer-to-Dealer transactions, (y) transaction fees earned from the sale of vehicles to dealers that we acquire at other marketplaces, and (z) transaction fees earned from performing inspection and transportation services, inclusive of Dealer-to-Dealer transactions, other marketplace-to-dealer transactions, and Instant Max Cash Offer transactions (as defined below). We generate product revenue primarily from (A) aggregate proceeds received from the sale of vehicles to dealers that were acquired directly from customers, or Instant Max Cash Offer transactions, and (B) proceeds received from the sale of vehicles that were acquired through arbitration. For the year ended December 31, 2024, we generated revenue of $894.4 million, a 2% decrease from $914.2 million of revenue for the year ended December 31, 2023. For the year ended December 31, 2024, we generated consolidated net income of $21.0 million and Consolidated Adjusted EBITDA, a non-GAAP measure, of $247.2 million, compared to consolidated net income of $22.1 million and Consolidated Adjusted EBITDA of $195.8 million for the year ended December 31, 2023. See below for more information regarding our use and reconciliation of Consolidated Adjusted EBITDA and other non-GAAP financial measures. Key Business Metrics We regularly review a number of metrics, including the key metrics listed below, to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections, and make operating and strategic decisions. We believe it is important to evaluate these metrics, as applicable, for the U.S. and International geographic regions. The International region derives revenue from marketplace revenue from customers outside of the U.S. International markets perform differently from the U.S. market due to a variety of factors, including our operating history in each market, our rate of investment, market size, market maturity, competition, and other dynamics unique to each country. Historically, we have used data from Google Universal Analytics, or Google Analytics, to measure two of our key business metrics: monthly unique users and monthly sessions. Effective July 1, 2024, Google Analytics 4, or GA4, replaced Google Analytics. The methodologies used in GA4 are different and not comparable to the methodologies used in Google Analytics. As discussed below, we also make certain adjustments to the GA4 data in order to improve the accuracy of the reported monthly unique users and monthly sessions. Due to the change in methodology, we are unable to provide comparable monthly unique user and monthly session information for prior periods, including any periods prior to June 30, 2024. Monthly Unique Users For each of our websites (excluding the CarOffer website), we define a monthly unique user as an individual who has visited any such website and taken a Visitor Action (as defined below) within a calendar month, based on data as measured by GA4. We calculate average monthly unique users as the sum of the monthly unique users of each of our websites in a defined period, divided by the number of months in that period. Effective July 1, 2024, we count a unique user the first time a computer or mobile device with a unique device identifier accesses any of our websites or application during a calendar month and takes an action on such website or in such application, such as performing a search, visiting vehicle detail pages, and connecting with a dealer, which we refer to as a Visitor Action. If an individual accesses a website or application using a different device within a given month, the first Visitor Action taken by each such device is counted as a separate unique user. If an individual uses multiple browsers on a single device and/or clears their cookies and returns to our website or application and takes a Visitor Action within a calendar month, each such Visitor Action is counted as a separate unique user. We eliminate any duplicate unique users that may arise when users visit a webview within our native application. We view our average monthly unique users as a key indicator of the quality of our user experience, the effectiveness of our advertising and traffic acquisition, and the strength of our brand awareness. Measuring unique users is important to us and we believe it provides useful information to our investors because our marketplace revenue depends, in part, on our ability to provide dealers with connections to our users and exposure to our marketplace audience. We define connections as interactions between 44 Table of Contents consumers and dealers on our marketplace through phone calls, email, managed text and chat, and clicks to access the dealer’s website or map directions to the dealership. [[GREPCENT_TABLE]] [["","","Three Months Ended December 31,"],["Average Monthly Unique Users","","2024","","","2023 (1)"],["","","(in thousands)"],["United States","","","29,282","","","N/A"],["International","","","9,139","","","N/A"],["Total","","","38,421","","","N/A"]] [[/GREPCENT_TABLE]] (1) As a result of the change from Google Analytics to GA4, we are unable to provide comparable monthly unique user information for this period. Monthly Sessions We define monthly sessions as the number of distinct visits to our websites (excluding the CarOffer website) that include a Visitor Action that take place each month within a given time frame, as measured and defined by GA4. We calculate average monthly sessions as the sum of the monthly sessions in a defined period, divided by the number of months in that period. Effective July 1, 2024, a session is defined as beginning with the first Visitor Action from a computer or mobile device and ending at the earliest of when a user closes their browser window or after 30 minutes of inactivity. We eliminate any duplicate monthly sessions that may arise when users visit a webview within our native application. We believe that measuring the volume of sessions in a time period, when considered in conjunction with the number of unique users in that time period, is an important indicator to us of consumer satisfaction and engagement with our marketplace, and we believe it provides useful information to our investors because the more satisfied and engaged consumers we have, the more valuable our service is to dealers. [[GREPCENT_TABLE]] [["","","Three Months Ended December 31,"],["Average Monthly Sessions","","2024","","","2023 (1)"],["","","(in thousands)"],["United States","","","74,591","","","N/A"],["International","","","19,230","","","N/A"],["Total","","","93,821","","","N/A"]] [[/GREPCENT_TABLE]] (1) As a result of the change from Google Analytics to GA4, we are unable to provide comparable monthly sessions information for this period. Number of Paying Dealers We define a paying dealer as a dealer account with an active, paid marketplace subscription at the end of a defined period. The number of paying dealers we have is important to us and we believe it provides valuable information to investors because it is indicative of the value proposition of our marketplace products, as well as our sales and marketing success and opportunity, including our ability to retain paying dealers and develop new dealer relationships. [[GREPCENT_TABLE]] [["","","As of December 31,"],["Number of Paying Dealers","","2024","","","2023"],["United States","","","24,692","","","","24,318"],["International","","","7,318","","","","6,617"],["Total","","","32,010","","","","30,935"]] [[/GREPCENT_TABLE]] Transactions We define Transactions within the Digital Wholesale segment as the number of vehicles processed from car dealers, consumers, and other marketplaces through the CarOffer website within the defined period. Transactions consists of each unique vehicle (based on vehicle identification number) that reaches “sold and invoiced” status on the CarOffer website within the defined period, including vehicles sold to car dealers, vehicles sold at third-party auctions, vehicles ultimately sold to a different buyer, and vehicles that are returned to their owners without completion of a sale transaction. We exclude vehicles processed within CarOffer’s intra-group trading solution (Group Trade) from the definition of Transactions, and we only count any unique vehicle once even if it reaches sold status multiple times. The Digital Wholesale segment includes Dealer-to-Dealer transactions and Instant Max Cash Offer transactions. We view Transactions as a key business metric and we believe it provides useful information to investors because it provides insight into growth and revenue for the Digital Wholesale segment. Transactions drive a significant portion of Digital Wholesale segment revenue. 45 Table of Contents We believe growth in Transactions demonstrates consumer and dealer utilization and our market share penetration in the Digital Wholesale segment. [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["Transactions","","2024","","","2023"],["Transactions","","","34,395","","","","65,418"]] [[/GREPCENT_TABLE]] Quarterly Average Revenue per Subscribing Dealer (QARSD) We define QARSD, which is measured at the end of a fiscal quarter, as the marketplace revenue primarily from subscriptions to our Listings packages and RPM, our digital advertising suite, and other digital add-on products during that trailing quarter divided by the average number of paying dealers in that marketplace during the quarter. We calculate the average number of paying dealers for a period by adding the number of paying dealers at the end of such period and the end of the prior period and dividing by two. This information is important to us, and we believe it provides useful information to investors, because we believe that our ability to grow QARSD is an indicator of the value proposition of our products and the ROI that our paying dealers realize from our products. In addition, increases in QARSD, which we believe reflect the value of exposure to our engaged audience in relation to subscription cost, are driven in part by our ability to grow the volume of connections to our users and the quality of those connections, which result in increased opportunity to upsell package levels and cross-sell additional products to our paying dealers. [[GREPCENT_TABLE]] [["","","For the three months ended December 31,"],["Quarterly Average Revenue per Subscribing Dealer (QARSD)","","2024","","","2023"],["United States","","$","7,337","","","$","6,532"],["International","","$","2,072","","","$","1,773"],["Consolidated","","$","6,144","","","$","5,503"]] [[/GREPCENT_TABLE]] Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA Attributable to Redeemable Noncontrolling Interest To provide investors with additional information regarding our financial results, we have presented within this Annual Report Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest, each of which is a non-GAAP financial measure. These non-GAAP financial measures are not based on any standardized methodology prescribed by GAAP, and are not necessarily comparable to any similarly titled measures presented by other companies. We define Consolidated Adjusted EBITDA as consolidated net income adjusted to exclude: depreciation and amortization, impairments, stock‑based compensation expense, stock-based compensation expense for CarOffer, LLC Units (as defined below), transaction-related expenses, other income, net, and provision for income taxes. We define Adjusted EBITDA as Consolidated Adjusted EBITDA adjusted to exclude: Adjusted EBITDA attributable to redeemable noncontrolling interest. We define Adjusted EBITDA attributable to redeemable noncontrolling interest as net loss attributable to redeemable noncontrolling interest adjusted to exclude: depreciation and amortization, impairments, stock‑based compensation expense, stock-based compensation expense for CarOffer, LLC Units, 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 included elsewhere in this 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 year ended December 31, 2024. 46 Table of Contents We use Consolidated Adjusted EBITDA and Adjusted EBITDA because they are key measures used by our management and Board of Directors to understand and evaluate our operating performance, generate future operating plans, and make strategic decisions regarding the allocation of capital. We believe Consolidated Adjusted EBITDA and Adjusted EBITDA help identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude. Accordingly, we believe that Consolidated Adjusted EBITDA and Adjusted EBITDA provide useful information to investors and others in understanding and evaluating our operating results, enhancing the overall understanding of our past performance and future prospects, and allowing for greater transparency with respect to key financial metrics used by our management in its financial and operational decision making. We use Adjusted EBITDA attributable to redeemable noncontrolling interest because it is used by our management to reconcile Consolidated Adjusted EBITDA to Adjusted EBITDA. It represents the portion of Consolidated Adjusted EBITDA that is attributable to our redeemable noncontrolling interest and enables an investor to gain a clearer understanding of the portion of Consolidated Adjusted EBITDA that is attributable to our redeemable noncontrolling interest. Adjusted EBITDA attributable to redeemable noncontrolling interest is not intended to be reviewed on its own. Our Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest are not prepared in accordance with GAAP, and should not be considered in isolation of, or as an alternative to, measures prepared in accordance with GAAP. There are a number of limitations related to the use of Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest rather than consolidated net income and net loss attributable to redeemable noncontrolling interest, respectively, which are the most directly comparable GAAP equivalents. Some of these limitations are: • Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest exclude depreciation and amortization expense and, although these are non-cash expenses, the assets being depreciated may have to be replaced in the future; • Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest exclude impairments, which include non-cash one-time expenses associated with the impairment of the CarOffer reporting unit as well as impairments of certain other assets, which may have to be replaced in the future; • Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest exclude stock-based compensation expense, which will be, for the foreseeable future, a significant recurring expense for our business and an important part of our compensation strategy; • Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest exclude stock-based compensation expense for CarOffer, LLC Units, which consists of one-time modifications and expense associated with our CO Incentive Units, Subject Units, and Noncontrolling Interest Units (as defined in Note 2 to our consolidated financial statements included elsewhere in this Annual Report); • Consolidated Adjusted EBITDA and Adjusted EBITDA exclude transaction-related expenses incurred by us during a reporting period, which are inclusive of certain transaction and integration costs associated with the 2023 CarOffer Transaction and which may not be reflective of our operational performance during such period, for acquisitions that have been completed as of the filing date of our annual or quarterly report (as applicable) relating to such period; • Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest exclude other income, net, which consists primarily of interest income earned on our cash, cash equivalents, and short-term investments, and foreign exchange gains and losses; • Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest exclude the provision for income taxes; • Adjusted EBITDA excludes Adjusted EBITDA attributable to redeemable noncontrolling interest, which is calculated as the net loss attributable to redeemable noncontrolling interest, adjusted for all exclusions used to calculate Consolidated Adjusted EBITDA as described above; and • other companies, including companies in our industry, may calculate Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest differently, which reduces their usefulness as a comparative measure. Because of these limitations, we consider, and you should consider, Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest together with other operating and financial performance measures presented in accordance with GAAP. 47 Table of Contents For the years ended December 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. [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["","","2024","","","2023"],["","","(in thousands)"],["Reconciliation of Consolidated Adjusted EBITDA and Adjusted EBITDA:"],["Consolidated net income","","$","20,972","","","$","22,053"],["Depreciation and amortization","","","25,360","","","","48,474"],["Impairment","","","144,431","","","","184"],["Stock-based compensation expense","","","62,492","","","","57,913"],["Stock-based compensation expense for CarOffer, LLC Units","","","\u2014","","","","55,543"],["Transaction-related expenses","","","1,536","","","","1,044"],["Other income, net","","","(11,245",")","","","(19,060",")"],["Provision for income taxes","","","3,685","","","","29,634"],["Consolidated Adjusted EBITDA","","","247,231","","","","195,785"],["Adjusted EBITDA attributable to redeemable noncontrolling interest","","","\u2014","","","","83"],["Adjusted EBITDA","","$","247,231","","","$","195,702"]] [[/GREPCENT_TABLE]] For the years ended December 31, 2024 and 2023, the following table presents a reconciliation of Adjusted EBITDA attributable to redeemable noncontrolling interest to net loss attributable to redeemable noncontrolling interest, the most directly comparable measure calculated in accordance with GAAP, for each of the periods presented. [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["","","2024 (2)","","","2023"],["","","(in thousands)"],["Reconciliation of Adjusted EBITDA attributable to redeemable noncontrolling interest:"],["Net loss attributable to redeemable noncontrolling interest","","$","\u2014","","","$","(14,889",")"],["Depreciation and amortization (1)","","","\u2014","","","","10,863"],["Impairment (1)","","","\u2014","","","","67"],["Stock-based compensation expense (1)","","","\u2014","","","","783"],["Stock-based compensation expense for CarOffer, LLC Units (1)","","","\u2014","","","","2,249"],["Other expense, net (1)","","","\u2014","","","","985"],["Provision for income taxes (1)","","","\u2014","","","","25"],["Adjusted EBITDA attributable to redeemable noncontrolling interest","","$","\u2014","","","$","83"]] [[/GREPCENT_TABLE]] (1) These exclusions are adjusted to reflect the noncontrolling interest of 38% for the period prior to the 2023 CarOffer Transaction. (2) 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 year ended December 31, 2024. 48 Table of Contents Components of Consolidated Income Statements Revenue We derive our revenue from marketplace revenue, wholesale revenue, and product revenue. Marketplace revenue is included in the U.S. Marketplace segment and Other category of segment reporting. Wholesale revenue and product revenue are primarily included in the Digital Wholesale segment. We generate marketplace revenue from (i) dealer subscriptions to our Listings packages, RPM, our digital advertising suite, Digital Retail, and Top Dealer Offers, (ii) advertising revenue from auto manufacturers and other auto‑related brand advertisers, and (iii) revenue from partnerships with financing services companies. We generate wholesale revenue primarily from (x) transaction fees earned from Dealer-to-Dealer transactions, (y) transaction fees earned from the sale of vehicles to dealers that we acquire at other marketplaces, and (z) transaction fees earned from performing inspection and transportation services, inclusive of Dealer-to-Dealer transactions, other marketplace-to-dealer transactions, and Instant Max Cash Offer transactions. We generate product revenue primarily from (A) aggregate proceeds received from the sale of vehicles that were acquired through Instant Max Cash Offer transactions, and (B) proceeds received from the sale of vehicles that were acquired through arbitration. Marketplace Revenue We offer multiple types of marketplace Listings packages to our dealers for our CarGurus U.S. platform (availability varies on our other marketplaces): Restricted Listings, which is free; and various levels of Listings packages, which each require a paid subscription under a monthly, quarterly, semiannual, or annual subscription basis. Our subscriptions for customers generally auto-renew on a monthly basis and are cancellable by dealers with 30 days’ advance notice prior to the commencement of the applicable renewal term. Subscription pricing is determined based on a dealer’s inventory size, region, and our assessment of the connections and ROI the platform will provide them and is subject to discounts and/or fee reductions that we may offer from time to time. We also offer all dealers on the platform access to our Dealer Dashboard, which includes a performance summary, Dealer Insights tool, and user review management platform. Only dealers subscribing to a paid Listings package have access to the Pricing Tool, Market Analysis tool, and IMV Scan tool. We also offer paid Listings packages for the Autolist and PistonHeads websites. In addition to displaying inventory in our marketplace and providing access to the Dealer Dashboard, we offer dealers subscribing to certain of our Listings packages other subscription advertising and customer acquisition products and enhancements marketed under RPM and our digital advertising suite. Through RPM, dealers can buy advertising that appears in our marketplace, on other sites on the internet, and/or on high-converting social media platforms. Such advertisements can be targeted by the user’s geography, search history, CarGurus website activity, and a number of other targeting factors, allowing dealers to increase their visibility with in-market consumers and drive qualified traffic for dealers. We also offer dealer advertising products for the PistonHeads website. We also offer dealers subscribing to certain of our Listings packages other subscription advertising and customer acquisition products and enhancements such as Digital Retail, which allows shoppers to complete much of the vehicle-purchase process online through the Dealers’ Listings page. Digital Retail is comprised of (i) the Digital Deal Platform, which gives dealers higher quality leads through upfront consumer-provided information; (ii) Geo Expansion, which expands the visibility of a dealer’s inventory in the search results beyond its local market; and (iii) Hard Pull Financing, which provides loan information. We also offer dealers subscribing to certain of our Listings packages other subscription advertising and customer acquisition products and enhancements such as Top Dealer Offers, which allows dealers to pay for leads to receive direct access to shoppers actively looking to sell their vehicles. Dealers can acquire inventory from shoppers who are looking to sell directly through the CarGurus Sell My Car page. Marketplace revenue also consists of non-dealer advertising revenue from auto manufacturers and other auto-related brand advertisers sold on a cost-per-thousand impressions basis, or CPM basis. An impression is an advertisement loaded on a web page. In addition to advertising sold on a CPM basis, we also have advertising sold on a cost-per-click basis. Pricing is primarily based on advertisement size and position on our websites and mobile applications. Auto manufacturers and other brand advertisers can execute advertising campaigns that are targeted across a wide variety of parameters, including demographic groups, behavioral characteristics, 49 Table of Contents specific auto brands, categories such as Certified Pre-Owned, and segments such as hybrid vehicles. We do not provide minimum impression guarantees or other types of minimum guarantees in our contracts with customers. Advertising is also sold indirectly through revenue sharing arrangements with advertising exchange partners. We also offer non-dealer advertising products for the Autolist and PistonHeads websites. Marketplace revenue also includes revenue from partnerships with certain financing services companies pursuant to which we enable eligible consumers on our CarGurus U.S. website to pre-qualify for financing on cars from dealerships that offer financing through such companies. We primarily generate revenue from these partnerships based on the number of funded loans from consumers who pre-qualify with our lending partners through our site. Wholesale Revenue The CarOffer Matrix enables buying dealers to create standing buy orders and provides instant offers to selling dealers. Wholesale revenue includes transaction fees earned from Dealer-to-Dealer transactions, where we collect fees from both the buying and selling dealers. We also sell vehicles to dealers that we acquire at other marketplaces, where we collect a transaction fee from the buying dealers. Wholesale revenue also includes fees earned from performing inspection and transportation services, where we collect fees from the buying dealer. Inspection and transportation service revenue is inclusive of Dealer-to-Dealer transactions, other marketplace-to-dealer transactions, and Instant Max Cash Offer transactions. Wholesale revenue also includes arbitration in which the vehicle is rematched to a new buyer and not acquired by us. Arbitration is the process by which we investigate and resolve claims from buying dealers. Wholesale revenue also includes fees earned from certain guarantees offered to dealers (which include 45-Day Guarantee and OfferGuard products), where we collect fees from the buying dealer or selling dealer, as applicable. Product Revenue The CarOffer Matrix enables consumers who are selling vehicles to be instantly presented with an offer. Product revenue includes the aggregate proceeds received from the sale of vehicles through Instant Max Cash Offer transactions, including vehicle sale price and transaction fees collected from the buying dealers. Product revenue also includes proceeds received from the sale of vehicles acquired through arbitration, including vehicle sale price and transaction fees collected from buying dealers. Arbitration is the process by which we investigate and resolve claims from buying dealers. We control the vehicle in these transactions and, therefore, act as the principal. Cost of Revenue Marketplace Cost of Revenue 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. We allocate overhead expenses, such as rent and facility expenses, software expense, and employee benefit expense, to all departments based on headcount. As such, general overhead expenses are reflected in cost of revenue and each operating expense category. Wholesale Cost of Revenue 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 50 Table of Contents expenses. We allocate overhead expenses, such as rent and facility expenses, software expense, and employee benefit expense, to all departments based on headcount. As such, general overhead expenses are reflected in cost of revenue and each operating expense category. Product Cost of Revenue Product cost of revenue includes expenses related to vehicles sold to dealers through Instant Max Cash Offer transactions and vehicles sold to dealers acquired through arbitration. These expenses include the cost of the vehicle and transportation expenses. Operating Expenses Sales and Marketing Sales and marketing expense consists 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. Other than commissions amortization, all other sales and marketing expenses are expensed as incurred. We expect sales and marketing expense 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. Product, Technology, and Development Product, technology, and development expense consists 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 expense to increase as we invest in additional engineering resources to develop new solutions and make improvements to our existing platform. General and Administrative General and administrative expense consists 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 expense is expensed as incurred. We expect general and administrative expense to increase as we continue to scale our business. Impairment During the three months ended June 30, 2024, we identified a triggering event that required an interim impairment test at the CarOffer reporting unit due to recent organizational changes and Transaction volume declines, which resulted in revisions to our financial projections for the CarOffer reporting unit. As a result, we performed an updated fair value analysis of the CarOffer reporting unit, and subsequently recognized impairment losses of $4.7 million, $7.6 million, and $115.2 million for right-of-use assets, intangible assets, and goodwill, respectively. For the year ended December 31, 2024, we recognized Digital Wholesale segment impairment charges related to the CarOffer reporting unit of $127.5 million as impairment operating expense. During the three months ended September 30, 2024, we decided to end our CG Buy Online pilot in order to redirect those resources toward other investment opportunities, including continued product innovation and development across our business. The CG Buy Online pilot was one of the initiatives that allowed consumers to purchase vehicles online. As a result, we recognized impairment losses of $15.8 million, $0.5 million, and $0.5 million for property and equipment, net; prepaid expenses, prepaid income taxes, and other current assets; and other non-current assets, respectively. For the year ended December 31, 2024, we recognized Digital Wholesale segment impairment charges related to the CG Buy Online reporting unit of $9.8 million and $7.0 million as wholesale cost of revenue and impairment operating expense, respectively. 51 Table of Contents For further discussion of impairments, see Note 6 to our consolidated financial statements included elsewhere in this Annual Report. Depreciation and Amortization Depreciation and amortization expense consists of depreciation on property and equipment and amortization of intangible assets and internal-use software. Other Income, Net Other income, net consists primarily of interest income earned on our cash, cash equivalents, and short-term investments, as well as foreign exchange gains and losses. Provision for Income Taxes The provision for income taxes consists of federal and state income taxes in the U.S. and taxes in foreign jurisdictions in which we operate. The provision for income taxes differs from the federal statutory rate primarily due to federal and state research and development tax credits, partially offset by state and local income taxes, non-deductible meals and entertainment and transportation expenses, and Section 162(m) excess officers compensation disallowance. Results of Operations For the years ended December 31, 2024 and 2023, our consolidated income statements were as follows: [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["","","2024","","","2023"],["","","(dollars in thousands)"],["Revenue:"],["Marketplace","","$","796,599","","","$","698,236"],["Wholesale","","","51,201","","","","100,908"],["Product","","","46,584","","","","115,098"],["Total revenue","","","894,384","","","","914,242"],["Cost of revenue:"],["Marketplace","","","54,950","","","","60,020"],["Wholesale","","","54,340","","","","90,066"],["Product","","","46,149","","","","112,702"],["Total cost of revenue","","","155,439","","","","262,788"],["Gross profit","","","738,945","","","","651,454"],["Operating expenses:"],["Sales and marketing","","","322,249","","","","304,070"],["Product, technology, and development","","","144,432","","","","146,169"],["General and administrative","","","112,066","","","","152,757"],["Impairment","","","134,501","","","","\u2014"],["Depreciation and amortization","","","12,285","","","","15,831"],["Total operating expenses","","","725,533","","","","618,827"],["Income from operations","","","13,412","","","","32,627"],["Other income, net:"],["Interest income","","","12,189","","","","18,430"],["Other (expense) income, net","","","(944",")","","","630"],["Total other income, net","","","11,245","","","","19,060"],["Income before income taxes","","","24,657","","","","51,687"],["Provision for income taxes","","","3,685","","","","29,634"],["Consolidated net income","","","20,972","","","","22,053"],["Net loss attributable to redeemable noncontrolling interest","","","\u2014","","","","(14,889",")"],["Net income attributable to common stockholders","","$","20,972","","","$","36,942"]] [[/GREPCENT_TABLE]] 52 Table of Contents For the years ended December 31, 2024 and 2023, our segment revenue and our segment income (loss) from operations were as follows: [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["","","2024","","","2023"],["","","(dollars in thousands)"],["Segment Revenue:"],["U.S. Marketplace","","$","733,688","","","$","647,284"],["Digital Wholesale","","","97,785","","","","216,005"],["Other","","","62,911","","","","50,953"],["Total","","$","894,384","","","$","914,242"],["Segment Income (Loss) from Operations:"],["U.S. Marketplace","","$","182,738","","","$","127,724"],["Digital Wholesale","","","(179,315",")","","","(96,383",")"],["Other","","","9,989","","","","1,286"],["Total","","$","13,412","","","$","32,627"]] [[/GREPCENT_TABLE]] For the years ended December 31, 2024 and 2023, our consolidated income statements as a percentage of total revenue were as follows (amounts in the table below may not sum due to rounding): [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["","","2024","","","2023"],["Revenue:"],["Marketplace","","","89","%","","","76","%"],["Wholesale","","","6","","","","11"],["Product","","","5","","","","13"],["Total revenue","","","100","","","","100"],["Cost of revenue:"],["Marketplace","","","6","","","","7"],["Wholesale","","","6","","","","10"],["Product","","","5","","","","12"],["Total cost of revenue","","","17","","","","29"],["Gross profit","","","83","","","","71"],["Operating expenses:"],["Sales and marketing","","","36","","","","33"],["Product, technology, and development","","","16","","","","16"],["General and administrative","","","13","","","","17"],["Impairment","","","15","","","","\u2014"],["Depreciation and amortization","","","1","","","","2"],["Total operating expenses","","","81","","","","68"],["Income from operations","","","1","","","","4"],["Other income, net:"],["Interest income","","","1","","","","2"],["Other (expense) income, net","","","(0",")","","","0"],["Total other income, net","","","1","","","","2"],["Income before income taxes","","","3","","","","6"],["Provision for income taxes","","","0","","","","3"],["Consolidated net income","","","2","","","","2"],["Net loss attributable to redeemable noncontrolling interest","","","\u2014","","","","(2",")"],["Net income attributable to common stockholders","","","2","%","","","4","%"]] [[/GREPCENT_TABLE]] 53 Table of Contents For the years ended December 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 were as follows (amounts in the table below may not sum due to rounding): [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["","","2024","","","2023"],["Segment Revenue:"],["U.S. Marketplace","","","82","%","","","71","%"],["Digital Wholesale","","","11","","","","24"],["Other","","","7","","","","6"],["Total","","","100","%","","","100","%"],["Segment Income (Loss) from Operations:"],["U.S. Marketplace","","","25","%","","","20","%"],["Digital Wholesale","","","(183",")","","","(45",")"],["Other","","","16","","","","3"],["Total","","","1","%","","","4","%"]] [[/GREPCENT_TABLE]] Year Ended December 31, 2024 Compared to Year Ended December 31, 2023 Revenue Revenue by Source [[GREPCENT_TABLE]] [["","","Year Ended December 31,","","","Change"],["","","2024","","","2023","","","Amount","","","%"],["","","(dollars in thousands)"],["Revenue:"],["Marketplace","","$","796,599","","","$","698,236","","","$","98,363","","","","14","%"],["Wholesale","","","51,201","","","","100,908","","","","(49,707",")","","","(49",")"],["Product","","","46,584","","","","115,098","","","","(68,514",")","","","(60",")"],["Total","","$","894,384","","","$","914,242","","","$","(19,858",")","","","(2",")%"],["Percentage of total revenue:"],["Marketplace","","","89","%","","","76","%"],["Wholesale","","","6","","","","11"],["Product","","","5","","","","13"],["Total","","","100","%","","","100","%"]] [[/GREPCENT_TABLE]] Overall revenue decreased $19.9 million, or 2%, in the year ended December 31, 2024, compared to the year ended December 31, 2023. Marketplace revenue increased $98.4 million, or 14%, in the year ended December 31, 2024, compared to the year ended December 31, 2023, and represented 89% of total revenue for the year ended December 31, 2024, compared to 76% of total revenue for the year ended December 31, 2023. The increase was due primarily 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 also due in part to an increase in advertising revenue due primarily to increased spend by advertisers related to new and existing campaigns. Wholesale revenue decreased $49.7 million, or 49%, in the year ended December 31, 2024, compared to the year ended December 31, 2023, and represented 6% of total revenue for the year ended December 31, 2024, compared to 11% of total revenue for the year ended December 31, 2023. The decrease was due primarily to a 47% decrease in Transactions, which includes Dealer-to-Dealer transactions and Instant Max Cash Offer transactions, to 34,395 for the year ended December 31, 2024, compared to 65,418 for the year ended December 31, 2023. 54 Table of Contents Product revenue decreased $68.5 million, or 60%, in the year ended December 31, 2024, compared to the year ended December 31, 2023, and represented 5% of total revenue for the year ended December 31, 2024, compared to 13% of total revenue for the year ended December 31, 2023. The decrease was due primarily to a decrease in proceeds received from the sale of vehicles through Instant Max Cash Offer transactions, driven by a decrease in Transactions. The decrease in product revenue was also due in part to a decrease in proceeds received from the sale of vehicles acquired through arbitration as a result of decreased arbitration claims due primarily to lower Transaction volume. Segment Revenue [[GREPCENT_TABLE]] [["","","Year Ended December 31,","","","Change"],["","","2024","","","2023","","","Amount","","","%"],["","","(dollars in thousands)"],["Revenue:"],["U.S. Marketplace","","$","733,688","","","$","647,284","","","$","86,404","","","","13","%"],["Digital Wholesale","","","97,785","","","","216,005","","","","(118,220",")","","","(55",")"],["Other","","","62,911","","","","50,953","","","","11,958","","","","23"],["Total","","$","894,384","","","$","914,242","","","$","(19,858",")","","","(2",")%"],["Percentage of total revenue:"],["U.S. Marketplace","","","82","%","","","71","%"],["Digital Wholesale","","","11","","","","24"],["Other","","","7","","","","6"],["Total","","","100","%","","","100","%"]] [[/GREPCENT_TABLE]] U.S. Marketplace segment revenue increased $86.4 million, or 13%, in the year ended December 31, 2024, compared to the year ended December 31, 2023, and represented 82% of total revenue for the year ended December 31, 2024, compared to 71% of total revenue for the year ended December 31, 2023. The increase was due to a $98.4 million increase in marketplace revenue, as described above. Digital Wholesale segment revenue, which is comprised of wholesale revenue and product revenue, decreased $118.2 million, or 55%, in the year ended December 31, 2024, compared to the year ended December 31, 2023, and represented 11% of total revenue for the year ended December 31, 2024, compared to 24% of total revenue for the year ended December 31, 2023. The decrease in Digital Wholesale segment revenue was due to a $49.7 million decrease in wholesale revenue and a $68.5 million decrease in product revenue, as described above. Cost of Revenue [[GREPCENT_TABLE]] [["","","Year Ended December 31,","","","Change"],["","","2024","","","2023","","","Amount","","","%"],["","","(dollars in thousands)"],["Cost of Revenue:"],["Marketplace","","$","54,950","","","$","60,020","","","$","(5,070",")","","","(8",")%"],["Wholesale","","","54,340","","","","90,066","","","","(35,726",")","","","(40",")"],["Product","","","46,149","","","","112,702","","","","(66,553",")","","","(59",")"],["Total","","$","155,439","","","$","262,788","","","$","(107,349",")","","","(41",")%"],["Percentage of total revenue:"],["Marketplace","","","6","%","","","7","%"],["Wholesale","","","6","","","","10"],["Product","","","5","","","","12"],["Total","","","17","%","","","29","%"]] [[/GREPCENT_TABLE]] Overall cost of revenue decreased $107.3 million, or 41%, in the year ended December 31, 2024, compared to the year ended December 31, 2023. 55 Table of Contents Marketplace cost of revenue decreased $5.1 million, or 8%, in the year ended December 31, 2024, compared to the year ended December 31, 2023, and represented 6% of total revenue for the year ended December 31, 2024, compared to 7% of total revenue for the year ended December 31, 2023. The decrease was due primarily to a $4.4 million decrease in fees related to provisioning advertising campaigns on external websites. Wholesale cost of revenue decreased $35.7 million, or 40%, in the year ended December 31, 2024, compared to the year ended December 31, 2023, and represented 6% of total revenue for the year ended December 31, 2024, compared to 10% of total revenue for the year ended December 31, 2023. The decrease was due primarily to an $18.9 million decrease in amortization related to the CarOffer acquired developed technology intangible asset as it became fully amortized during the first quarter of 2024. The decrease was also due in part to a $22.6 million decrease in transportation expense, inspection expense, and data fees as a result of lower Transaction volume. The decrease was offset in part by a $9.8 million increase in impairment of capitalized website development costs due to the end of the CG Buy Online pilot. Product cost of revenue decreased $66.6 million, or 59%, in the year ended December 31, 2024, compared to the year ended December 31, 2023, and represented 5% of total revenue for the year ended December 31, 2024, compared to 12% of total revenue for the year ended December 31, 2023. The decrease was due primarily to a decrease in expenses related to vehicles sold to dealers through Instant Max Cash Offer transactions as a result of lower Transaction volume. The decrease in product cost of revenue was also due in part to a decrease in expenses related to vehicles sold to dealers acquired through arbitration as a result of decreased arbitration claims due primarily to lower Transaction volume. Operating Expenses Sales and Marketing Expense [[GREPCENT_TABLE]] [["","","Year Ended December 31,","","","Change"],["","","2024","","","2023","","","Amount","","","%"],["","","(dollars in thousands)"],["Sales and marketing","","$","322,249","","","$","304,070","","","$","18,179","","","","6","%"],["Percentage of total revenue","","","36","%","","","33","%"]] [[/GREPCENT_TABLE]] Sales and marketing expense increased $18.2 million, or 6%, in the year ended December 31, 2024, compared to the year ended December 31, 2023. The increase was due primarily to a $17.6 million increase in advertising and marketing expense for strategic advertising spend with our performance marketing vendors to maintain year-over-year lead volume and grow with the market as well as our brand awareness campaigns. Product, Technology, and Development Expense [[GREPCENT_TABLE]] [["","","Year Ended December 31,","","","Change"],["","","2024","","","2023","","","Amount","","","%"],["","","(dollars in thousands)"],["Product, technology, and development","","$","144,432","","","$","146,169","","","$","(1,737",")","","","(1",")%"],["Percentage of total revenue","","","16","%","","","16","%"]] [[/GREPCENT_TABLE]] Product, technology, and development expense decreased $1.7 million, or 1%, in the year ended December 31, 2024, compared to the year ended December 31, 2023. The decrease was due primarily to a $4.6 million decrease in expense as a result of increased capitalized website development and a $1.5 million decrease in stock-based compensation expense due to modifications resulting from the 2023 CarOffer Transaction, which resulted in higher stock-based compensation expense for the year-ended December 31, 2023. The decrease was offset in part by a $4.4 million increase in salaries and employee-related expense due primarily to merit increases and bonus attainment. 56 Table of Contents General and Administrative Expense [[GREPCENT_TABLE]] [["","","Year Ended December 31,","","","Change"],["","","2024","","","2023","","","Amount","","","%"],["","","(dollars in thousands)"],["General and administrative","","$","112,066","","","$","152,757","","","$","(40,691",")","","","(27",")%"],["Percentage of total revenue","","","13","%","","","17","%"]] [[/GREPCENT_TABLE]] General and administrative expense decreased $40.7 million, or 27%, in the year ended December 31, 2024, compared to the year ended December 31, 2023. The decrease was due primarily to a $46.1 million decrease in stock-based compensation expense due to modifications resulting from the 2023 CarOffer Transaction, which resulted in higher stock-based compensation expense for the year-ended December 31, 2023. The decrease was offset in part by a $4.7 million increase in salaries and employee-related expense, due primarily to an increase in headcount, merit increases, and bonus attainment. Impairment Expense [[GREPCENT_TABLE]] [["","","Year Ended December 31,","","","Change"],["","","2024","","","2023","","","Amount","","","%"],["","","(dollars in thousands)"],["Impairment","","$","134,501","","","$","\u2014","","","$","134,501","","","NM (1)"],["Percentage of total revenue","","","15","%","","","\u2014"]] [[/GREPCENT_TABLE]] (1) Not meaningful Impairment expense increased $134.5 million in the year ended December 31, 2024, compared to the year ended December 31, 2023. The increase was due to a $127.5 million CarOffer reporting unit impairment and a $7.0 million impairment due to the end of the CG Buy Online pilot. For further discussion of impairments, see Note 6 to our consolidated financial statements included elsewhere in this Annual Report. Depreciation and Amortization Expense [[GREPCENT_TABLE]] [["","","Year Ended December 31,","","","Change"],["","","2024","","","2023","","","Amount","","","%"],["","","(dollars in thousands)"],["Depreciation and amortization","","$","12,285","","","$","15,831","","","$","(3,546",")","","","(22",")%"],["Percentage of total revenue","","","1","%","","","2","%"]] [[/GREPCENT_TABLE]] Depreciation and amortization expense decreased $3.5 million, or 22%, in the year ended December 31, 2024, compared to the year ended December 31, 2023. The decrease was due primarily to the CarOffer customer relationships intangible asset becoming fully amortized during the first quarter of 2024, offset in part by increased depreciation from assets placed in service related to the 1001 Boylston Street lease. 57 Table of Contents Other Income, net [[GREPCENT_TABLE]] [["","","Year Ended December 31,","","","Change"],["","","2024","","","2023","","","Amount","","","%"],["","","(dollars in thousands)"],["Other income, net:"],["Interest income","","$","12,189","","","$","18,430","","","$","(6,241",")","","","(34",")%"],["Other (expense) income, net","","","(944",")","","","630","","","","(1,574",")","","NM(1)"],["Total other income, net","","$","11,245","","","$","19,060","","","$","(7,815",")","","","(41",")%"],["Percentage of total revenue:"],["Interest income","","","1","%","","","2","%"],["Other (expense) income, net","","","(0",")","","","0"],["Total other income, net","","","1","%","","","2","%"]] [[/GREPCENT_TABLE]] (1) Not meaningful Total other income, net decreased $7.8 million, or 41%, in the year ended December 31, 2024, compared to the year ended December 31, 2023. The $6.2 million decrease in interest income was due primarily to lower interest rates and lower average cash and short-term investment balances year over year. The change in other (expense) income, net was due primarily to moving from a foreign currency gain position in the prior year to a foreign currency loss position as of December 31, 2024, as a result of the foreign currencies weakening against the U.S. dollar. Provision for Income Taxes [[GREPCENT_TABLE]] [["","","Year Ended December 31,","","","Change"],["","","2024","","","2023","","","Amount","","","%"],["","","(dollars in thousands)"],["Provision for income taxes","","$","3,685","","","$","29,634","","","$","(25,949",")","","","(88",")%"],["Percentage of total revenue","","","0","%","","","3","%"]] [[/GREPCENT_TABLE]] Provision for income taxes decreased $25.9 million, or 88%, in the year ended December 31, 2024, compared to the year ended December 31, 2023. The decrease in the provision for income taxes recognized during the year ended December 31, 2024, was due primarily to a decline in taxable income and increased federal and state research and development tax credits. Additionally, a $2.7 million tax benefit related to excess stock-based compensation deductions was recognized during 2024 compared to $4.7 million tax expense recognized during 2023. Additional tax expense was also recorded in 2023 relating to a $6.9 million deferred state tax expense in association with the Massachusetts apportionment tax rule change and a $2.5 million tax expense was recognized in connection with the 2023 CarOffer Transaction. 58 Table of Contents Segment Income (Loss) from Operations [[GREPCENT_TABLE]] [["","","Year Ended December 31,","","","Change"],["","","2024","","","2023","","","Amount","","","%"],["","","(dollars in thousands)"],["Segment Income (Loss) from Operations:"],["U.S. Marketplace","","$","182,738","","","$","127,724","","","$","55,014","","","","43","%"],["Digital Wholesale","","","(179,315",")","","","(96,383",")","","","(82,932",")","","NM(1)"],["Other","","","9,989","","","","1,286","","","","8,703","","","","677"],["Total","","$","13,412","","","$","32,627","","","$","(19,215",")","","","(59",")%"],["Percentage of segment revenue:"],["U.S. Marketplace","","","25","%","","","20","%"],["Digital Wholesale","","","(183",")","","","(45",")"],["Other","","","16","","","","3"],["Total","","","1","%","","","4","%"]] [[/GREPCENT_TABLE]] (1) Not meaningful U.S. Marketplace segment income from operations increased $55.0 million, or 43%, in the year ended December 31, 2024, compared to the year ended December 31, 2023, and represented 25% of U.S. Marketplace segment revenue for the year ended December 31, 2024, compared to 20% of U.S. Marketplace segment revenue for the year ended December 31, 2023. The increase was due to an increase in revenue of $86.4 million, a decrease in cost of revenue of $5.9 million, and an increase in operating expenses of $37.3 million. Digital Wholesale segment loss from operations increased $82.9 million in the year ended December 31, 2024, compared to the year ended December 31, 2023, and represented (183)% of Digital Wholesale segment revenue for the year ended December 31, 2024, compared to (45)% of Digital Wholesale segment revenue for the year ended December 31, 2023. The increase was due primarily to a decrease in revenue of $118.2 million, a decrease in cost of revenue of $102.3 million, and an increase in operating expenses of $67.0 million. The increase in loss reflects a $127.5 million CarOffer reporting unit impairment and a $16.8 million impairment due to the end of the CG Buy Online pilot. For further discussion of goodwill and other asset impairments, see Note 6 to our consolidated financial statements included elsewhere in this Annual Report. Liquidity and Capital Resources Cash, Cash Equivalents, Short-term Investments, and Borrowing Capacity As of December 31, 2024, our principal sources of liquidity were cash and cash equivalents of $304.2 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 December 31, 2024 and 2023, our borrowing capacity under the 2022 Revolver was $390.1 million and $390.4 million, respectively. Sources and Uses of Cash During the years ended December 31, 2024 and 2023, our cash flows from operating, investing, and financing activities, as reflected in the consolidated statements of cash flows, were as follows: [[GREPCENT_TABLE]] [["","","Year Ended December 31,"],["","","2024","","","2023"],["","","(in thousands)"],["Net cash provided by operating activities","","$","255,494","","","$","124,527"],["Net cash used in investing activities","","","(72,966",")","","","(61,564",")"],["Net cash used in financing activities","","","(168,629",")","","","(253,644",")"],["Impact of foreign currency on cash","","","(1,596",")","","","475"],["Net increase (decrease) in cash, cash equivalents, and restricted cash","","$","12,303","","","$","(190,206",")"]] [[/GREPCENT_TABLE]] 59 Table of Contents Our operations have been financed primarily from operating activities. During the years ended December 31, 2024 and 2023, we generated cash from operating activities of $255.5 million and $124.5 million, respectively. 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 December 31, 2024, there were no borrowings and $9.9 million in letters of credit outstanding under the 2022 Revolver associated with our leases, which reduced the borrowing capacity under the 2022 Revolver to $390.1 million. As of December 31, 2023, there were no borrowings and $9.6 million in letters of credit outstanding under the 2022 Revolver associated with our leases, which reduced the borrowing capacity under the 2022 Revolver to $390.4 million. 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 Annual 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; payments received in advance from a third-party transaction processor; activity under the 2025 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 of this Annual Report. On December 8, 2022, we announced that our Board of Directors authorized a share repurchase program, or the 2022 Share Repurchase Program, pursuant to which we could, from time to time, purchase shares of our Class A common stock for an aggregate purchase price not to exceed $250.0 million. The 2022 Share Repurchase Program expired on December 31, 2023. All repurchased shares of our Class A common stock under the 2022 Share Repurchase Program were retired. We funded share repurchases under the 2022 Share Repurchase Program through cash on hand and cash generated from operations. During the year ended December 31, 2022, we repurchased and retired 1,350,473 shares for $18.7 million, exclusive of commissions and excise tax, at an average cost of $13.84 per share under the 2022 Share Repurchase Program. During the year ended December 31, 2023, we repurchased and retired 11,076,755 shares for $204.1 million, exclusive of commissions and excise tax, at an average cost of $18.43 per share under the 2022 Share Repurchase Program. On November 7, 2023, we announced that our Board of Directors authorized the 2024 Share Repurchase Program pursuant to which we could, from time to time, purchase shares of our Class A common stock for an aggregate purchase price not to exceed $250.0 million. The 2024 Share Repurchase Program expired on December 31, 2024. All repurchased shares of our Class A common stock under the 2024 Share Repurchase Program were retired. We funded share repurchases under the 2024 Share Repurchase Program through cash on hand and cash generated from operations. During the year ended December 31, 2024, we repurchased and retired 6,357,302 shares for $146.1 million, exclusive of commissions and excise tax, at an average cost of $22.98 per share under the 2024 Share Repurchase Program. On November 7, 2024, we announced that our Board of Directors authorized the 2025 Share Repurchase Program pursuant to which we may, from time to time, purchase shares of our Class A common stock for an aggregate purchase price not to exceed $200.0 million. Share repurchases under the 2025 Share Repurchase Program may be made through a variety of methods, including but not limited to open market purchases, privately negotiated transactions, and transactions that may be effected pursuant to one or more plans under Rule 10b5-1 and/or Rule 10b-18 of the Exchange Act. The 2025 Share Repurchase Program does not obligate us to repurchase any minimum dollar amount or number of shares. The 2025 Share Repurchase Program has an effective date of January 1, 2025, and an expiration date of December 31, 2025, and prior to its expiration may be modified, suspended, or discontinued by our Board of Directors at any time without prior notice. All repurchased shares under the 2025 Share Repurchase Program will be retired. We expect to fund share repurchases under the 2025 Share Repurchase Program through cash on hand and cash generated from operations. To the extent that our operating income, existing cash, cash equivalents, and our borrowing capacity under the 2022 Revolver are insufficient to fund our future activities, we may need to raise additional funds through a public or private equity or debt financing. Additional funds may not be available on terms favorable to us, or at all. See “Risk Factors—Risks Related to Our Business and Industry—We may require additional capital to pursue our business objectives and respond to business opportunities, challenges, or 60 Table of Contents unforeseen circumstances. If we are unable to generate sufficient cash flows or if capital is not available to us, our business, operating results, financial condition, and prospects could be adversely affected.” in Part I, Item 1A within this Annual Report. Operating Activities Net cash provided by operating activities of $255.5 million during the year ended December 31, 2024, was due primarily to consolidated net income of $21.0 million, adjusted for $144.4 million of goodwill and other asset impairment due to the CarOffer reporting unit impairment and the end of the CG Buy Online pilot, as discussed in Note 6 to our consolidated financial statements included elsewhere in this Annual Report, $62.3 million of stock-based compensation expense for equity classified awards to employees, and $25.4 million of depreciation and amortization expense, offset in part by $33.3 million of deferred taxes. Net cash provided by operating activities was also attributable to a $41.8 million increase in lease obligations primarily related to tenant improvement allowance costs incurred, interest accretion increasing lease liabilities, and amortization reducing the right-of-use asset related to 1001 Boylston Street, partially offset by typical lease payments decreasing the lease liability. Net cash provided by operating activities of $124.5 million during the year ended December 31, 2023, was due primarily to consolidated net income of $22.1 million, adjusted for $63.7 million of stock-based compensation expense, $48.5 million of depreciation and amortization, $11.8 million of amortization of deferred contract costs, and $0.5 million of amortization of deferred financing costs, offset in part by $37.9 million of deferred taxes. Net cash provided by operating activities was also attributable to a $15.2 million increase in lease obligations, a $11.0 million decrease in accounts receivable, a $9.1 million increase in deferred revenue, a $2.1 million increase in accounts payable, and a $2.0 million decrease in inventory. The increases in cash flow from operations were partially offset by an $18.4 million increase in deferred contract costs, a $3.4 million decrease in accrued expenses, accrued income taxes, and other liabilities, and a $1.5 million increase in prepaid expenses, prepaid income taxes, and other assets. Investing Activities Net cash used in investing activities of $73.0 million during the year ended December 31, 2024, was due primarily to $75.2 million in purchases of property and equipment primarily related to our new headquarters at 1001 Boylston Street and $18.8 million in capitalized website development costs due to continued investment on our product offerings, offset in part by $21.2 million in sales of short-term investments. Net cash used in investing activities of $61.6 million during the year ended December 31, 2023, was due primarily to $24.6 million in purchases of property and equipment, $20.6 million of purchases of short-term investments, net of sales, and $16.6 million of capitalized website development costs. Financing Activities Net cash used in financing activities of $168.6 million during the year ended December 31, 2024, was due primarily to $146.2 million related to the repurchase of our Class A common stock under the 2024 Share Repurchase Program, $24.9 million related to the payment of withholding taxes on net share settlements of restricted stock units, and $1.6 million for the payment of excise taxes on repurchases of common stock, offset in part by $4.9 million related to the proceeds from issuance of common stock upon exercise of stock options. Net cash used in financing activities of $253.6 million during the year ended December 31, 2023, was due primarily to $208.5 million of payment for repurchase of our Class A common stock under the 2022 Share Repurchase Program, $25.0 million of payment for repurchase of redeemable noncontrolling interest, $15.6 million of payment of withholding taxes on net share settlements of restricted stock units, and $4.5 million of change in gross advance payments received from third-party transaction processor. Contractual Obligations and Known Future Cash Requirements See Note 10 to our consolidated financial statements included elsewhere in this Annual Report for our contractual obligations and commitments. 61 Table of Contents Seasonality Across the retail automotive industry, consumer purchasing activity is typically greatest in the first three quarters of each year, due in part to the introduction of new vehicle models from manufacturers and the seasonal nature of consumer spending. Additionally, the volume of wholesale vehicle sales can fluctuate from quarter to quarter driven by several factors, including the timing of used vehicles available for sale from selling customers, the seasonality of the retail market for used vehicles, and/or inventory challenges in the automotive industry, which affect the demand side of the wholesale industry. Macroeconomic conditions, such as slower growth or recession, higher interest rates, unemployment, inflation, consumer confidence in the economy, consumer debt levels, labor disruptions, work stoppages, or strikes, geopolitical conflicts, foreign currency exchange rate fluctuations, and other matters that influence consumer spending and preferences, can also impact the volume of wholesale vehicle sales, as was evidenced by the global semiconductor chip shortage and other supply related shortages. The Digital Wholesale segment operating results have reflected the general seasonality of the wholesale vehicle sales market and macroeconomic conditions of the automotive industry. The U.S. Marketplace segment operating results have reflected the macroeconomic conditions of the automotive industry. However, to date, the U.S. Marketplace segment operating results have not been materially impacted by the general seasonality of the automotive industry. This could possibly change as our business and markets mature. As a result, revenue and cost of revenue related to volume will fluctuate accordingly on a quarterly basis. Typical seasonality trends may not be observed in periods where other external factors more significantly impact the wholesale industry. Off‑Balance Sheet Arrangements As of December 31, 2024 and 2023, we did not have any off-balance sheet arrangements, or material leases that are less than 12 months in duration, that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenue or expenses, results of operations, liquidity, capital expenditures, or capital resources. Critical Accounting Estimates The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expense during the reporting period. Although we regularly assess these estimates, actual results could differ materially from these estimates. We base our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ from management’s estimates if these results differ from historical experience, or other assumptions do not turn out to be substantially accurate, even if such assumptions are reasonable when made. Changes in estimates are recognized in the period in which they become known. Critical estimates relied upon in preparing the consolidated financial statements include the determination of sales allowance and variable consideration in our revenue recognition, the impairment and useful lives of long-lived assets, the capitalization and useful lives of product, technology, and development costs for website development, internal-use software, and hosting arrangements, and the valuation and recoverability of intangible assets and goodwill. Accordingly, we consider these to be our critical accounting estimates and believe that of our significant accounting policies, these involve the greatest degree of judgment and complexity. Revenue Recognition – Sales Allowance and Variable Consideration Total consideration for marketplace revenue is stated within the contracts. There are no contractual cash refund rights, but credits may be issued to a customer at our sole discretion. Dealer customers do not have the right to take possession of our software. At the portfolio level, there is also variable consideration that needs to be included in the transaction price. Variable consideration consists of sales allowances, usage fees, and concessions that change the transaction price of the unsatisfied or partially unsatisfied performance obligation. We recognize that there are times when there is a customer satisfaction issue or other circumstances that will lead to a credit. Due to the known possibility of future credits, a monthly sales allowance review is performed to defer revenue at 62 Table of Contents a portfolio level for such future adjustments in the period of incurrence. We establish sales allowances at the time of revenue recognition based on our history of adjustments and credits provided to our customers. In assessing the adequacy of the sales allowance, we evaluate our history of adjustments and credits made through the date of the issuance of the consolidated financial statements. Advertising contracts state the transaction price within the agreement with payment generally being based on the number of clicks or impressions delivered on our websites. Total consideration is based on output and deemed variable consideration constrained by an agreed upon delivery schedule and is allocated to the period in which the service was rendered. Additionally, there are generally no contractual cash refund rights. Certain contracts do contain the right for credits in situations in which impressions are not displayed in compliance with contractual specifications. At an individual contract level, we may give a credit for a customer satisfaction issue or other circumstance. Due to the known possibility of future credits, a monthly review is performed to defer revenue at an individual contract level for such future adjustments in the period of incurrence. Other marketplace revenue includes revenue from contracts for which the performance obligation is a series of distinct services with the same level of effort daily. For these contracts, primarily related to our partnerships with financing services companies, we estimate the value of the variable consideration in determining the transaction price and allocate it to the performance obligation. Revenue is estimated and recognized on a ratable basis over the contractual term. We reassess the estimate of variable consideration at each reporting period. Within wholesale and product transactions, there are typically no contractual cash refund rights, but credits may be issued to a customer at our sole discretion and refunds may be required by law in the case of a vehicle defect. At the portfolio level, there is also variable consideration that needs to be included in the transaction price. Variable consideration consists of sales allowances and concessions that change the transaction price of the unsatisfied or partially unsatisfied performance obligation. We recognize that there are times when there is a customer satisfaction issue or other circumstance that will lead to a credit or arbitration. We establish sales allowances at the time of revenue recognition based on our history of adjustments and credits provided to our customers. In assessing the adequacy of the sales allowance, we evaluate our history of adjustments and credits made through the date of the issuance of the consolidated financial statements. Long‑Lived Assets – Impairment and Useful Lives We evaluate the recoverability of long-lived assets for impairment at least annually and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. During this review, we re‑evaluate the significant assumptions used in determining the original cost and estimated lives of long-lived assets. Although the assumptions may vary from asset to asset, they generally include operating results, changes in the use of the asset, cash flows, and other indicators of value. Management then determines whether the remaining useful life continues to be appropriate, or whether there has been an impairment of long-lived assets. To test for impairment, recoverability of these assets is first measured by comparing the carrying amount of the asset to the future undiscounted cash flows the asset is expected to generate. If the asset is determined to not be recoverable, the amount of any impairment is measured as the difference between the carrying value and the fair value of the impaired asset. Website Development and Internal-Use Software Costs – Capitalization and Useful Lives We determine the amount of website development and internal-use software costs to be capitalized based on the amount of time spent by our developers on projects in the operating stage of development. There is judgment involved in estimating the time allocated to a particular project in the operating stage. A significant change in the time spent on each project could have a material impact on the amount capitalized and related amortization expense in subsequent periods. Capitalized website development and capitalized internal-use software costs are amortized on a straight‑line basis over their estimated useful life of three years beginning with the time when the product is ready for its intended use. We evaluate the useful lives of these assets when each asset is ready for its intended use, and at least annually thereafter to ensure three years remains appropriate. We also test for impairment at least annually and whenever events or changes in circumstances occur that could impact the recoverability of these assets. Impairment is evaluated as discussed in the “Long-Lived Assets – Impairment and Useful Lives” section above. 63 Table of Contents Hosting Arrangements – Capitalization and Useful Lives Our hosting arrangements consist of cloud-based hosting platforms. We determine the amount of hosting costs to be capitalized based on the amount of time spent by our developers on projects in the operating stage of development. There is judgment involved in estimating the time allocated to a particular project in the operating stage. A significant change in the time spent on each project could have a material impact on the amount capitalized and related amortization expense in subsequent periods. Capitalized implementation costs for hosting arrangements are amortized on a straight‑line basis over an estimated useful life of the term of the hosting arrangement, taking into consideration several other factors such as, but not limited to, options to extend the hosting arrangement or options to terminate the hosting arrangement, beginning with the time when the software is ready for intended use. We evaluate the useful lives of these assets when each asset is ready for its intended use, and at least annually thereafter to ensure the selected useful life remains appropriate. We also test for impairment at least annually and whenever events or changes in circumstances occur that could impact the recoverability of these assets. Impairment is evaluated as discussed in the “Long-Lived Assets – Impairment and Useful Lives” section above. Valuation and Recoverability of Intangible Assets and Goodwill Intangible Assets – Valuation and Recoverability Intangible assets are recognized at their estimated fair value at the date of acquisition. Fair value is determined based on inputs and assumptions such as discount rates, rates of return on assets, and long-term sales growth rates. We amortize intangible assets over their estimated useful lives on a straight-line basis. Useful lives are established based on analysis of all pertinent factors such as: the expected use of the asset, expected useful lives of related assets, provisions that may limit the useful life, historical experience with similar arrangements, effects of economic factors, demand, competition, obsolescence, and maintenance required to maintain the future cash flows. We evaluate the useful lives of these assets as of the acquisition date and at least annually thereafter to ensure the selected useful life remains appropriate. We also test for impairment at least annually and whenever events or changes in circumstances occur that could impact the recoverability of these assets. Impairment is evaluated as discussed in the “Long-Lived Assets – Impairment and Useful Lives” section above. Goodwill – Valuation and Recoverability Goodwill is recognized when consideration paid in a purchase acquisition exceeds the fair value of the net assets acquired. Goodwill is not amortized, but rather is tested for impairment annually or more frequently if facts and circumstances warrant a review. Conditions that could trigger a more frequent impairment assessment include, but are not limited to, a significant adverse change in certain agreements, significant underperformance relative to historical or projected future operating results, an economic downturn affecting automotive marketplaces, increased competition, a significant reduction in our stock price for a sustained period, or a reduction of our market capitalization relative to net book value. We evaluate impairment either when required following a triggering event or annually on October 1 by comparing the estimated fair value of each reporting unit to its carrying value. For the fiscal year 2024, we determined that we had three reporting units with goodwill: U.S. Marketplace, CarOffer, and U.K. Marketplace. We elect to bypass the optional qualitative test for impairment and proceed to Step 1, which is a quantitative impairment test. For the U.S. Marketplace and U.K. Marketplace reporting units, we estimate fair value using a market approach, based on market multiples derived from public companies that we identify as peers. For our U.S. Marketplace and U.K. Marketplace reporting units, we estimate forecasted revenue for the fiscal year and estimate revenue market multiples using publicly available information for each of our peers. For the CarOffer reporting unit, we estimate fair value using an income approach, based on a discounted cash flow method. The assumptions used to estimate the fair value using a discounted cash flow method include revenue and EBITDA forecasts, the weighted average cost of capital and discount rate, debt-free net working 64 Table of Contents capital forecasts, and long-term growth rate. We reconcile the aggregate fair values of all reporting units to our market capitalization following a triggering event or annually as of October 1, 2024, for reasonableness. Recently Issued Accounting Pronouncements Information concerning recently issued accounting pronouncements can be found in Note 2 to our consolidated financial statements included elsewhere in this Annual Report. 65 Table of Contents