Good day. And welcome to the CarGurus, Incorporated First Quarter 2020 Earnings Results Conference Call. Today’s conference is being recorded. And at this time, I’d like to turn the conference over to Mr. Rodney Nelson, Head of Investor Relations. Please go ahead, sir.

Thank you, operator. Good afternoon, and welcome to CarGurus’ First Quarter 2020 Earnings Call. We’ll be discussing the results announced in our press release issued today after the market closed and posted on our Investor Relations website. With me on the call today is Langley Steinert, CarGurus’ Founder and Chief Executive Officer; Jason Trevisan, Chief Financial Officer and President, International; and Sam Zales, President and Chief Operating Officer. During the call, we will make statements regarding our business that may be considered forward-looking within applicable securities laws, including statements concerning our outlook for the second quarter and full year 2020 and management’s expectations for our future financial and operational performance, our business growth and international strategies, the impact of the COVID-19 pandemic on our business and financial results and other statements regarding our plans, prospects and expectations. These statements are not promises or guarantees and are subject to risks and uncertainties, which could cause them to differ materially from our actual results. Information concerning those risks is available in our earnings press release distributed after market close today and in our most recent reports on forms 10-K and 10-Q, which, along with our other SEC filings, can be found on the SEC’s website and in the Investor Relations section of our website. We undertake no obligation to update forward-looking statements, except as required by law. Further, during the course of today’s call, we will refer to certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our press release issued today. Our updated investor presentation can also be found on the Investor Relations section of our website. With that, I will turn it over to Langley.

Thank you, Rodney. And thanks to everyone for joining us today. The world, our industry and our business have changed significantly in the months since we last spoke. Before I begin my prepared remarks, on behalf of myself and everyone at CarGurus, I want to thank all those in the medical community, both here in Boston and around the world, for all their work battling this pandemic. The doctors and nurses treating patients with COVID and other essential workers are the true heroes in this battle, putting their own lives at risk to help others in need. Our heart goes out to those families that have lost their loved ones due to this pandemic. Fundamentally, as an entrepreneur, I’m an optimist. I have faith in the vast capabilities of our scientific community to help us navigate a safe passage out of this storm. The human and economic toll of the COVID-19 pandemic is staggering, yet even in the face of these current challenges, I have seen incredible resolve and collaborative spirit from our employees and our dealer customers, which I am deeply grateful. In the midst of this industry turmoil, we are proud that as the market leader, we’ve led with our actions. We were the first major online auto marketplace in the US, Canada and UK to extend billing relief to our customers, helping them weather this difficult period. It was led by continuing to deliver value as over the last few weeks, we have seen a strong rebound in organic, direct and application-based traffic, a testament to the brand value we have built over the last few years. We’ve led with rapid innovation. Our product teams launched our real-time performance marketing suite in January, and have recently introduced contactless sales features. And our marketing teams have released timely…

Thank you, Langley. I will provide a detailed overview of our first quarter performance, followed by some directional comments on our outlook for the second quarter and full year 2020. Total first quarter revenue was $157.7 million, up 17% year-over-year and roughly in line with the midpoint of our prior guidance. Our marketplace subscription revenue grew 17% versus the year ago period to $141.9 million and advertising and other revenue grew 10% year-over-year to $15.8 million. Focusing on performance by geography, our US business accounted for 94% of total revenue in the first quarter. US revenue grew 15% year-over-year to $148 million, while international revenue grew 41% year-over-year to $9.7 million. As Langley referenced, we are ceasing operations in Germany, Italy and Spain, and halting future international expansion efforts. We expect this to have little impact on our international revenue going forward. Italy contributed only a few hundred thousand dollars in the first quarter revenue, while neither Germany nor Spain generated any revenue. Turning to paying dealer count. We ended Q1 with 35,317 total paying dealers, a decline of 798 from the end of 2019. In the US, we finished the first quarter with 27,883 paying dealers, representing a decline of 1,107 from the end of 2019. Decline in our US paying dealer count has continued into Q2 as many dealers have chosen to revert to our suspended status product, while they remain under state and local restrictions. So we are seeing stabilization in cancellation rates and an ability to win back some canceled accounts. US paying dealer count ended April roughly 6% below our first quarter total. In our international business, we added 309 net new paying dealers in the first quarter, 250 of which came from our marketplaces in Canada and the U.K. We ended the quarter with…

Thank you. [Operator Instructions] We’ll take our first question from Dan Kurnos with The Benchmark Company. Please go ahead, sir.

Great, thanks. Good afternoon. Good color, guys, just around sort of how you’re thinking about marketing spend. We know, obviously, in the marketplace that there are some pretty attractive rates out there. CPMs are way down. And so you guys have obviously been pretty aggressive on the dealer side in terms of trying to take some mind share there. Just curious, if it makes sense, even sort of pre-recovery, to get a little bit more aggressive if you think you can get incremental market share gains at extremely high ROI customer acquisition cost here.

Yeah. So Dan, it’s Langley. I think you’re going to find us to be, as we have in the past, be analytical and careful about making sure we map our marketing spend with the demand function. As we talked about in our remarks, we’ve been, frankly, positively encouraged by some of the early trends on both consumer traffic and lead flow in many markets. Probably the only thing I would say is, in addition to that is that, we are going to be careful about looking at it kind of market-by-market because what we have seen is, while there are a lot of strong signals in some markets, there are a few, like increasingly a minority of the markets, thankfully, that are still in a pretty hard lockdown. So we’re going to be careful, probably on a geographic basis to make sure we’re mapping to each regional market.

And then just maybe on the product side. Obviously, you’ve got dealers talking about maybe 25% plus permanent reductions to staff, everybody going to digital solutions. You gave a lot of color about it on the call. Obviously, you had - you launched RPM, you had other stuff in the works, alpha test trading in Q1. Does the environment create a change in the way that you are developing your product road map? Obviously, you’ve rolled out some new tools, but do you maybe focus on those or grow them deeper before you get back to what you were doing before or is it still just kind of status quo and you had the right game plan to begin there?

Dan, it’s Sam Zales. Thanks for the question. I think it’s the combination of continuing to do what we’ve done well, which is innovate with ancillary products that meet those customer needs. You talked about RPM. We were off to a very good start, and we believe as dealers continue to look at - I want to make sure you can hear me. I just saw a note that I want to make sure you can hear me. As dealers are continuing to look at not just their listings package, but also the $12 billion they are spending in digital marketing that we’ve got a product there that we think is second to none in the marketplace. We put our large audience up against retargeting and data that we know on their shopping experience to sell that to dealers. It’s a tremendous offering in the marketplace. We have launched contactless selling activity, which is helping consumers and dealers find a better match for their process of buying today. The consumer finance product that we launched about a year ago is showing great promise. We’re going to continue to invest there. And the feedback from our dealer council, which we just held a couple of weeks ago, 30-plus leading dealers in the country, feedback was, when you look at digital retail, there are many solutions out there in the marketplace, none of which work in a completely end-to-end, start of the search process to a complete digital transaction. It leaves an opportunity to a player to come in and build the solutions in shopping, finance, ancillary products that ties together that full end-to-end digital transaction. We’re going to continue to invest there as our newest set of investments and the comments Langley made at the beginning of the call, these existing products are really off the ground and exciting for us, but digital retail is the next phase because we see an open market opportunity to do something nobody else has done there.

Got it. Super helpful. Thanks, guys.

Thank you. Our next question will come from Ron Josey with JMP Securities. Please go ahead.

Hi, guys. Thanks for taking questions. Just as states start to open up, so I’m thinking specifically about Georgia and states like that, are you guys seeing dealers come back to the platform faster or higher traffic? I guess, just taking a bigger picture, kind of look at the question. So I’m really asking, as the country opens up, how correlated is that kind of to traffic and dealer results? Thanks.

Ron, Sam Zales. Thanks for the question. We certainly are seeing that happen. Big states, you look at Pennsylvania [Technical Difficulty] transportation were shut for a period of time. We are seeing states open up. As Langley said, state-by-state, yes, overall, we’re seeing lead volumes grow. State-by-state, the effects are very different. Arizona had very little impact in consumer demand, and therefore, dealers have more opportunity to make sales in those environments. New York, New Jersey, Pennsylvania, tougher situation there. We mentioned in the prepared remarks that the cancellations in our business have turned the corner, certainly in markets where we’re seeing new business come in. It’s in those markets that are opening up for business. But across the board, even in the challenging environments where dealers are forced to make sales either in an online fashion or in their service lines, we are seeing our lead volumes drive more sales and more interesting deals coming back [Technical Difficulty] consumer leads for when the dealer comes back into [Technical Difficulty] who were still interested in purchasing, they’ve just been pretty much delayed in their process because of the shutdowns are now able to transact through those dealers. So we are seeing significant grip in joining the paid program from them, and that’s the nature of our lead volume growing.

Ron, the only thing I would add to Sam’s comment, just kind of to state the obvious, is that, obviously, we’re predominantly almost, I want to say, like 95% a used car platform as opposed to new car. And in these kind of challenging economic times, I think dealers are going to fall back on used cars their profit engine, because I think new car is going to be very challenged. So, A, thinking that as a fact; and then secondly, just our sheer scale at this point as the platform really makes us kind of a must to have. It’s not really, I would argue, not really optional to have us as being your platform. So I think that’s kind of evidenced by the fact that we are seeing some pretty encouraging turn in regional dealer cancellations, which we saw a peak in kind of late March. We’re seeing a pretty good trend of people coming back on because they realize, A, that they need to be on. And B, that they’re seeing these state restrictions being lifted and really have to build their pipeline to get ready for once things do open up, and god willing, kind of June, most of the states. So I think those are the trends that we’re seeing, which are positive.

And Mr. Josey, did you have any further questions?

I am sorry. I have been put on mute. No. Thank you so much. Thanks for the answer. That was great.

Thank you. [Operator Instructions] We’ll next go to Marvin Fong with BTIG. Please go ahead.

Thanks for taking my questions. I’m glad to hear everyone’s safe and doing well. Question on some of your own advertising-driven products, I’m thinking like dealer display, SEM plus and retargeting. Should we just think of those as all kind of moving in line with how much overall car demand is going down? Or are they holding up a little better? Any color you could provide on those particular products would be great. And then I have a follow-up.

Marvin, I hope you can hear me. I’m told that my audio is not terrific. It’s Sam Zales here.

I can, Sam.

Okay. Sorry about that. The RPM products, I think, are taking off in the sense that dealers are looking to fill their pipelines. Langley just mentioned that state-by-state, depending on lockdown or openness to being able to sell, it’s the opportunity not only to expand beyond our lead program, the leads that we drive in our listings activity, but also to build the pipeline for their brands as they open up again. As I said earlier, there’s $12 billion that is spent today on online digital marketing activity. So we’re just taking advantage of having the largest audience using our data that looks at shopping experience for those consumers and retargeting them to send that consumer back to a dealer’s website. That’s a unique value proposition that’s saying, I’m now seeing that consumer who’s only looking at my inventory. So it’s an added benefit of building a completely branded experience to drive that consumer to the dealer website as an ancillary and an additional way to build pipeline during a downturn. We said in our consumer research that consumers are still planning to make purchases. They may have just expanded their deadlines for making those purchases. This is a perfect way to take advantage of pipeline building for dealers.

Great. Thanks. I appreciate that color. And then my follow-up is just, I think you or Jason alluded that national OEM advertising would be pressured going forward. Just any color on how those discussions are going? When do you have any visibility on when the OEMs might look to restart more advertising in the digital channel? Thanks.

I do, Marvin. I think what Langley characterized very well. Used car markets typically perform much better in downturn, down cycles than new cars. When you think about new car, inventory sitting on dealers’ lots, the feedback you hit well is that OEMs are thinking, not that I got to cancel all my marketing forever, if I might delay my spin until later in the year. So as we mentioned in our opening remarks, some of that hit us in the end of March into early April. I think most OEMs and - most of them are sticking with their advertising, but some of the OEMs are saying, I’m going to push out my spend to when I follow the demand curve and that may be closer to, say, third quarter, when they start want to ramping up that advertising to push people to think about new car purchases when, hopefully, the recovery comes and the economy moves forward.

Perfect. Thanks for that color. Appreciate it.

Thank you. And we’ll take our next question from Jed Kelly with Oppenheimer. Please go ahead.

Great. Thanks for taking my question. Can you hear me okay?

Yes.

Yes. Okay. Just as we start the recovery, and used cars become more popular with consumers, it kind of implies your valuation and your valuation technology is more important. Is there a way for you to sort of, A, accelerate your market share with dealers against the other marketplaces, where you can actually become the only one they use instead of dealers using multiple marketplaces?

Thanks very much for the question. This is Jason, Jed. Yes. So we believe - we have long said that there is an opportunity for, on the consumer side, a winner take most opportunity. It’s if you are able to offer the most selection, give the most information on it, sort it in the most intuitive way, and in particular, in an environment where car values are likely to be more volatile, then you should be the destination that users -- that consumers can use and solve most of their needs. And we believe, and I think the data supports, that we check all those boxes. From a dealer perspective, there is -- you could argue and more recessionary times as wallets are tighter, that there will be a flight to quality. And the two typical sort of directions that we think dealers will go is they will go to where there’s scale and where there’s ROI. And we believe that we’re in the unique and pretty attractive spot to have both the largest scale or, from an aggregate standpoint for most for our dealers, as well as terrific ROI. We are continuing to invest time and energy in demonstrating that to dealers so that we can, with more proof positive, provide more of a closed-loop attribution perspective that shows them that we are the best ROI. And that if they advertise on our platform, given the size of our audience and given the virtuous nature of the marketplace, that they may not need to advertise on two or three other marketplaces because we will bring them the bulk of the value. And then when you add on to that, some of these other products that you’ve talked about like RPM, we then help them tap even further into that audience, our audience, by helping them connect with them when they’re not on our platform.

Jed, this is Langley. I’ll probably add a little bit more color. I’ve had some discussions with a number of national franchise dealer groups, some publicly traded, who have, as much as said that in these tough times, they’re going to consolidate budgets. And thankfully, we’re in that list because of the reasons I think Jason talked about of principally scale and ROI. We’ve got the biggest audience. We’re delivering the best value to dealers from an ROI standpoint. So I do think there’s going to be a consolidation. I’m not going to get into who might - who’s out in that, but I do think we’ll benefit.

Thank you.

Thank you. We’ll next go to Derek Glynn with Consumer Edge Research. Please go ahead.

Yes. Hope you are well and thanks for taking the questions. Just to start, can you peel back the layers on how your dealer mix is impacting AARSD as dealers who may be in better shape financially probably also are the ones staying on and generating that higher AARSD, while those lower AARSD dealers maybe the ones spending their subscription? Can you just help us understand kind of what impact that had in the quarter and what you expect going forward?

Sure. Thanks. This is Jason. We’ve shared in the past that in normal times, our smaller dealers tend to be less sticky for a number of reasons. And in this environment, that - I think that general rule still applies. But I think in this environment, what’s different is what we mentioned earlier, which is the geographic nature of it. And so a stronger indicator of dealers’ willingness to stay in business and maintain sort of full throttle on marketing is whether they can have consumers come into their dealership or not. So I would say geography and the sort of societal lockdown elements of that geography are a bigger contributor. But you still have the general nature that larger dealers tend to be stickier and run more like businesses versus a smaller -- like a large business rather than a smaller rent shop. So the net-net is that I would not suggest that mix has been a material contributor to AARSD. Instead, it’s been the drivers we’ve talked about. It’s through February, which is probably the more accurate time frame when pricing was 40%, the others were about a third each. And then frankly, AARSD gets a little sort of wonky when the dealer count goes down. And so in that case, it’s a different mix of contributors.

Got it. That’s helpful. And then in light of some of the recent exits in some of your international markets, I’m wondering how you’re evaluating your presence and commitment to the U.K. and Canada, particularly given the wide range of possible economic outcomes from COVID, as you’ve mentioned. Just wanted to get your thoughts on that.

Sure. Thanks, Derek. It’s Jason again. Yes, we are -- it was a difficult decision because we had teams that have put a lot of work into launching those markets. And we believe we had very strong products. And in Italy, as an example, we had gotten really strong positive reception from the dealer community. At the end of the day, as we said in our Shareholder Letter, it’s about focus and it’s about resource allocation. And for us, it’s both capital and human resource allocation. So what I find most compelling, I guess, about the focus on Canada and UK, is that we now have our international teams focused on executing in two markets versus more than two markets. And I have already seen, to be honest, an ability to move faster by being able to focus and by being able to adapt in this environment. We led the decision for discounting in those markets, just as we did in the US, and we have had really promising support from dealers. We also just held our UK dealer council, who have said to us that we changed the game in the industry by doing that, and they are grateful for it. They’re also seeing that we are having very strong -- on a relative basis, very strong lead growth rebounding from the lows that we were at. And in some cases, dealers are getting more leads today than they were a year ago, and by coupling contactless solutions, by introducing delivery in those two markets and by introducing WhatsApp in the UK, we’ve had really impressive innovation in the last couple of months that I think is an output of being able to focus and is helping dealers during this strange time. So I’m more excited about Canada and the UK than I was simply because we have more guns and more ammunition pointed in those markets.

Great. Thank you.

Thank you. [Operator Instructions] Thank you. And it does appear we have no further questions in the queue at this time. Please go ahead.

I want to thank everyone for dialing in this evening. As we’ve talked about in our remarks, these are certainly challenging times. But we feel we’re really extremely well positioned to help our dealer partners and consumers as shopping behavior continues to build in the coming months. I want to conclude tonight’s remarks by saying again our thoughts go out to those around the world that are affected by the pandemic. And again, give our sincere thanks to the medical community, both here in Boston and around the world for all those people who are on the front line every day, trying to battle this virus. Lastly, I want to just give a special thanks for our employees, for their - both their hard work and their flexibility as we all work from home these times. As many of our employees who have small kids kind of test working from home. When you’ve got small kids running around, it’s not always easy. But anyways, I want to thank everyone for their hard work. Hopefully, we can all get back in the office soon. And with that, I’ll close it off and say goodnight to everyone.

Thank you. And again, that does conclude today’s call. We do thank you for your participation. You may now disconnect.