CarGurus(CARG) - 2021 Q4 - Annual Report

PART I Business CarGurus is a multinational online automotive platform, evolving into a transaction-enabled ecosystem with $951.4 million revenue in 2021, up 73% driven by CarOffer acquisition - CarGurus operates as a multinational online automotive platform, building upon its listings marketplace with digital retail solutions and the CarOffer online wholesale platform[10] - The company is evolving into a transaction-enabled marketplace where consumers can shop, finance, and sell cars, and dealers can source, market, and sell vehicles[11] - In January 2021, CarGurus acquired a 51% interest in CarOffer, LLC, an automated instant vehicle trade platform, which enabled the launch of CarGurus Instant Max Cash Offer (IMCO) and added digital wholesale capabilities[15][16][58] Key Business Metrics (as of Dec 31, 2021) | Metric | Value | | :--- | :--- | | Average Monthly U.S. Unique Users (2021) | 31.6 million | | Paying Dealers in U.S. Marketplace | 23,860 | | Total Paying Dealers (Consolidated) | 30,630 | | Total Full-Time Employees | 1,203 | Fiscal Year 2021 Financial Highlights | Metric | 2021 (in millions) | 2020 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Revenue | $951.4 | $551.5 | 73% | | Consolidated Net Income | $110.4 | $77.6 | 42% | | Adjusted EBITDA | $249.5 | $160.8 | 55% | Risk Factors The company faces risks from COVID-19 impacts, supply chain issues, dealer dependence, search engine reliance, regulatory complexities, and concentrated founder voting control - The COVID-19 pandemic has adversely affected business operations, contributing to inventory supply problems, such as the global semiconductor chip shortage, which could lead dealers to reduce advertising spend[124] - The business is substantially dependent on relationships with dealers, and the termination of a significant number of dealer subscription agreements would materially harm financial results[126] - The company relies heavily on internet search engines to drive traffic to its websites. A failure to appear prominently in search results could lead to a decline in traffic and adversely affect the business[130] - The company is subject to a complex framework of laws and regulations, including those related to motor vehicle sales, advertising, and consumer protection, which could challenge the business model[137] - The founder, Langley Steinert, controls a majority of the voting power through Class B common stock, which has a ten-to-one voting ratio compared to Class A common stock, allowing him to control key decisions[153][154] Unresolved Staff Comments The company reports that there are no unresolved staff comments - Not applicable[164] Properties CarGurus leases all its office spaces, with principal executive offices in Cambridge, Massachusetts, and a new Boston lease for 2023 occupancy - The company's principal executive offices are leased in Cambridge, Massachusetts, totaling approximately 185,064 square feet[165] - A new lease for office space at 1001 Boylston Street in Boston, Massachusetts, was entered into, with expected occupancy in 2023[165] Legal Proceedings The company is not currently involved in any pending or threatened litigation expected to have a material adverse effect on its business - The company is not presently subject to any pending or threatened litigation that would be expected to have a material adverse effect on the business[166] Mine Safety Disclosures This item is not applicable to the company - Not applicable[168] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities CarGurus' Class A common stock is listed on Nasdaq, and the company has never paid cash dividends, intending to retain earnings for growth - The company's Class A common stock has been listed on the Nasdaq Global Select Market under the symbol "CARG" since October 12, 2017[172] - CarGurus has never declared or paid any cash dividends and currently anticipates retaining future earnings to fund business development and growth[174] Selected Consolidated Financial Data This item is not applicable - Not applicable[179] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting a 73% revenue increase to $951.4 million in 2021, driven by CarOffer and strong liquidity - Total revenue for the year ended December 31, 2021, was $951.4 million, a 73% increase from $551.5 million in 2020[189] - The increase in revenue was primarily driven by the acquisition of a 51% interest in CarOffer, which contributed $195.1 million in wholesale revenue and $119.3 million in product revenue[250][251] - Marketplace revenue increased by 16% year-over-year, partly due to the non-recurrence of approximately $50 million in fee reductions provided to dealers in 2020 in response to the COVID-19 pandemic[249] Key Business Metrics Comparison (2021 vs. 2020) | Metric | 2021 | 2020 | | :--- | :--- | :--- | | Average Monthly Unique Users (Total, in thousands) | 39,141 | 44,563 | | Average Monthly Sessions (Total, in thousands) | 96,625 | 110,235 | | Number of Paying Dealers (Total) | 30,630 | 30,631 | | QARSD (Consolidated) | $4,731 | $4,382 | Consolidated Results of Operations (in thousands) | Line Item | 2021 (in thousands) | 2020 (in thousands) | | :--- | :--- | :--- | | Total Revenue | $951,373 | $551,451 | | Gross Profit | $657,358 | $508,745 | | Income from Operations | $148,268 | $97,756 | | Consolidated Net Income | $110,373 | $77,553 | - As of December 31, 2021, the company's principal sources of liquidity were cash and cash equivalents of $231.9 million and investments of $90.0 million[271] Quantitative and Qualitative Disclosures About Market Risk The company's market risk exposure is primarily interest rate risk on cash and investments, and foreign currency exchange risk, neither considered significant - The company is exposed to interest rate risk on its cash, cash equivalents, and investments, which totaled $321.9 million as of December 31, 2021. However, fluctuations in interest income have not been material to date[392][393] - Foreign currency exchange risk exists due to operations in the British pound, Euro, and Canadian dollar, but this exposure is not considered significant[395] Financial Statements and Supplementary Data This section presents the company's audited consolidated financial statements for 2021, including the independent auditor's report, highlighting significant growth - The report of the independent registered public accounting firm, Ernst & Young LLP, provides an unqualified opinion on the consolidated financial statements[404][405] Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2021 (in thousands) | Dec 31, 2020 (in thousands) | | :--- | :--- | :--- | | Cash and cash equivalents | $231,944 | $190,299 | | Goodwill | $158,287 | $29,129 | | Total Assets | $931,574 | $502,298 | | Total Liabilities | $251,925 | $128,712 | | Total Stockholders' Equity | $516,841 | $373,586 | Consolidated Statement of Cash Flows Highlights (in thousands) | Activity | Year Ended Dec 31, 2021 (in thousands) | Year Ended Dec 31, 2020 (in thousands) | | :--- | :--- | :--- | | Net cash provided by operating activities | $98,292 | $156,743 | | Net cash used in investing activities | ($68,149) | ($16,895) | | Net cash provided by (used in) financing activities | $17,808 | ($10,085) | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[702] Controls and Procedures Management concluded disclosure controls and internal control over financial reporting were effective, excluding CarOffer's internal controls from the assessment - Management concluded that disclosure controls and procedures were effective as of December 31, 2021[703] - Management's assessment of internal control over financial reporting concluded that it was effective as of December 31, 2021[708] - The assessment of internal control over financial reporting did not include the internal controls of CarOffer, LLC, which was acquired on January 14, 2021[707] Other Information The company reports no other information - None[717] Disclosure Regarding Foreign Jurisdictions That Prevent Inspections This item is not applicable to the company - Not Applicable[719] PART III Directors, Executive Officers and Corporate Governance Information for this item is incorporated by reference from the company's 2022 Proxy Statement - Information is incorporated by reference from the registrant's definitive Proxy Statement for its 2022 Annual Meeting of Stockholders[722] Executive Compensation Information for this item is incorporated by reference from the company's 2022 Proxy Statement - Information is incorporated by reference from the registrant's definitive Proxy Statement for its 2022 Annual Meeting of Stockholders[723] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information for this item is incorporated by reference from the company's 2022 Proxy Statement - Information is incorporated by reference from the registrant's definitive Proxy Statement for its 2022 Annual Meeting of Stockholders[724] Certain Relationships and Related Transactions, and Director Independence Information for this item is incorporated by reference from the company's 2022 Proxy Statement - Information is incorporated by reference from the registrant's definitive Proxy Statement for its 2022 Annual Meeting of Stockholders[725] Principal Accountant Fees and Services Information for this item is incorporated by reference from the company's 2022 Proxy Statement - Information is incorporated by reference from the registrant's definitive Proxy Statement for its 2022 Annual Meeting of Stockholders[726] PART IV Exhibits, Financial Statement Schedules This section lists financial statements and an index of all exhibits filed with the Annual Report on Form 10-K - This item contains the list of financial statements and an index to all exhibits filed with the Annual Report on Form 10-K[730][732] Form 10-K Summary This item is not applicable - Not applicable[734]