UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)


☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September~~June 30, ~~2017~~2023


☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________________ to _________________

Commission File Number: 001-38233

CARGURUS, INC.

(Exact Name of Registrant as Specified in its Charter)


Delaware	04-3843478
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2 Canal Park, 4th Floor Cambridge, Massachusetts	02141
(Address of principal executive offices)	(Zip Code)

(617) 354-0068

(Registrant’s telephone number, including area ~~code:~~ ~~(617) 354-0068~~code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol

Name of Exchange on Which Registered

Class A Common Stock, par value $0.001 per share

CARG

The Nasdaq Stock Market LLC (Nasdaq Global Select Market)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes☐ ☒ No ☒☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	☐☒	Accelerated filer	☐
Non-accelerated filer	☒ ~~(Do not check if a small reporting company)~~☐	Small reporting company	☐
		Emerging growth company	☒☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of ~~October 31, 2017,~~August 3, 2023, the registrant had ~~77,877,494~~97,499,021 shares of Class A common stock, $0.001 par value per share, and ~~28,213,276~~15,999,173 shares of Class B common stock, par value $0.001 per share, outstanding.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION	1
Item 1.	Financial Statements	1
	Unaudited Condensed Consolidated Balance Sheets	1
	Unaudited Condensed Consolidated Income Statements	2
	Unaudited Condensed Consolidated Statements of Comprehensive Income	3
	Unaudited Condensed Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ Equity	4
	Unaudited Condensed Consolidated Statements of Cash Flows	45
	Notes to Unaudited Condensed Consolidated Financial Statements	56
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1722
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3147
Item 4.	Controls and Procedures	3248
~~PART II.~~	~~OTHER INFORMATION~~
~~Item 1.~~PART II.	~~Legal Proceedings~~OTHER INFORMATION	3351
Item ~~1A.~~1.	~~Risk Factors~~Legal Proceedings	3351
Item 2.1A.	~~Unregistered Sales of Equity Securities and Use of Proceeds~~Risk Factors	5152
Item 6.	Exhibits	5268
Signatures		5369

SPECIAL NOTE REGARDING FORWARD‑LOOKING STATEMENTS

This ~~report~~Quarterly Report on Form 10-Q, or Quarterly Report, contains forward‑looking statements within the meaning of the federal securities laws, which statements involve substantial risks and uncertainties. Forward‑looking statements generally relate to future events or our future financial or operating performance. In some cases, you can identify forward‑looking statements because they contain words such as “aim,” “anticipates,” “believes,” “could,” “estimates,” “expects,” “goal,” “intends,” “may,” “might,~~” “likely,~~” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “target,” “will,” “would,” or similar expressions and the negatives of those terms. Forward-looking statements contained in this ~~report~~Quarterly Report include, but are not limited to, statements about:

•

our future financial performance, including our expectations regarding our revenue, cost of revenue, gross profit or gross margin, operating expenses, ability to generate cash flow, and ability to achieve, and maintain, future profitability;

•

our ~~anticipated growth and~~ growth strategies and our ability to effectively manage ~~that~~any growth;

•

the value proposition of our product offerings for dealers and consumers, and the return on investment that our dealers realize from our products;

•

our evolution to becoming a transaction-enabled platform where consumers can shop, buy, seek financing, and sell their cars and dealers can source, market, and sell their vehicles;

•

our ability to ~~maintain~~realize benefits from our acquisitions and ~~build our brand;~~

successfully implement the integration strategies in connection therewith;

•

our ~~ability to expand internationally;~~

expectations regarding future share issuances and the exercise of put and call rights in connection with potentially acquiring additional equity interests in CarOffer, LLC, or CarOffer, as well as the associated valuation of redeemable noncontrolling interests;

•

the value proposition of the CarOffer online wholesale platform;

•

our expectations for CarGurus Instant Max Cash Offer, as well as our digital retail offerings and continued investments;

•

the impact of competition in our industry and innovation by our competitors;

•

our ability to overcome challenges facing the automotive industry ecosystem, including inventory supply problems, global supply chain challenges, changes to trade policies, and other macroeconomic issues;

•

our expectations regarding cash generation and the sufficiency of our cash to fund our operations;

•

domestic and global economic conditions;

•

our ability to hire and retain necessary qualified employees to expand our operations;

•

our ability to adequately protect our intellectual property;

•

our expected returns on investments;

•

our expectations regarding our deferred tax assets;

•

our expectations regarding the funding of our share repurchase program;

•

our revolving credit facility;

•

the material weakness in our internal control over financial reporting that we have identified, and our ability to ~~stay abreast of new or modified laws~~remediate such weakness and ~~regulations that currently apply or become applicable to~~enhance our ~~business;~~

internal control environment;

•

~~the increased expenses and administrative workload associated with being a public company;~~

~~failure~~our ability to maintain an effective system of internal controls necessary to accurately report our financial results and prevent fraud; ~~and~~

•

the impact of accounting pronouncements;

•

our ability to stay abreast of, and effectively comply with, new or modified laws and regulations that currently apply or become applicable to our business and our beliefs regarding our compliance therewith;

•

the impact of litigation; and

•

the future trading prices of our Class A common stock.

iii

You should not rely upon forward‑looking statements as predictions of future events. We have based the forward‑looking statements contained in this ~~report~~Quarterly Report primarily on our current expectations and projections about future events and trends that we believe may affect our business, financial condition, operating results, and growth prospects. The outcome of the events described in these forward‑looking statements is subject to risks, uncertainties, and other factors, including those that are described in the section titled “Risk Factors” and elsewhere in this ~~report.~~Quarterly Report. Moreover, we operate in a very competitive and rapidly changing environment. New risks and uncertainties emerge from time to time, and it is not possible for us to predict all risks and uncertainties that could have an impact on the forward‑looking statements contained in this ~~report.~~Quarterly Report. Further, our forward‑looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, or joint ventures in which we may be involved, or investments we may make. We cannot assure you that the results, events, and circumstances reflected in the forward‑looking statements will be achieved or occur, and actual results, events, or circumstances could differ materially from those described in the forward‑looking statements.

The forward‑looking statements made in this ~~report relate~~Quarterly Report speak only ~~to events~~ as of the date ~~on which the statements are made.~~of this Quarterly Report. We undertake no obligation to update any forward‑looking ~~statements~~statement made in this ~~report~~Quarterly Report to reflect events or circumstances after the date of this ~~report~~Quarterly Report or to reflect new information or the occurrence of unanticipated events, except as required by law.

~~iii~~iv

PART I—~~FINANCI~~ALFINANCIAL INFORMATION

Item 1. Financial Statements.

CarGurus, Inc.

Unaudited Condensed Consolidated Balance Sheets

~~(in thousands, except share data)~~

At
September 30,
2017

At
December 31,
2016

Assets

Current assets

Cash and cash equivalents

$
25,636

$
29,476

Investments

60,000

44,774

Accounts receivable, net of allowance for doubtful accounts of $141
   and $164, respectively

10,123

6,653

Prepaid income taxes

—

1,815

Prepaid expenses and other current assets

3,485

2,789

Total current assets

99,244

85,507

Property and equipment, net (Note 4)

16,100

12,780

Restricted cash

1,783

2,044

Deferred tax assets

371

—

Other long-term assets (Note 5)

4,158

—

Total assets

$
121,656

$
100,331

Liabilities, convertible preferred stock, and stockholders’
   deficit

Current liabilities

Accounts payable

$
22,737

$
16,426

Accrued expenses (Note 6)

9,953

8,384

Deferred revenue

4,598

3,330

Accrued income taxes

156

—

Deferred rent

1,144

910

Total current liabilities

38,588

29,050

Deferred rent, net of current portion

5,701

5,673

Deferred tax liabilities

—

292

Other non-current liabilities

969

590

Total liabilities

45,258

35,605

Commitments and contingencies (Note 7)

Convertible preferred stock (Note 8)

132,698

132,698

Stockholders’ deficit:

Class A common stock, $0.001 par value per share; 120,020,700 shares
   authorized, 14,107,816 and 14,022,132 shares issued and outstanding
   at September 30, 2017 and December 31, 2016, respectively.

14

14

Class B common stock, $0.001 par value per share; 80,013,800 shares
   authorized, 28,213,276 and 28,044,264 shares issued and outstanding
   at September 30, 2017 and December 31, 2016, respectively.

28

28

Additional paid-in capital

4,225

3,714

Accumulated deficit

(60,766
)

(71,698
)
Accumulated other comprehensive income (loss)

199

(30
)
Total stockholders’ deficit

(56,300
)

(67,972
)
Total liabilities, convertible preferred stock, and stockholders’
   deficit

$
121,656

$
100,331

~~The accompanying notes are an integral part of these~~ ~~Unaudited Condensed Consolidated Financial Statements~~.

~~CarGurus, Inc.~~

~~Unaudited Condensed Consolidated Income Statements~~

(in thousands, except share and per share data)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

Revenue

$
82,989

$
53,136

$
226,264

$
137,377

Cost of revenue⁽¹⁾

4,720

2,852

12,367

6,671

Gross profit

78,269

50,284

213,897

130,706

Operating expenses:

Sales and marketing

63,891

40,510

168,495

108,823

Product, technology, and development

5,796

2,984

14,153

8,134

General and administrative

5,006

3,101

14,098

8,719

Depreciation and amortization

713

432

1,909

1,065

Total operating expenses

75,406

47,027

198,655

126,741

Income from operations

2,863

3,257

15,242

3,965

Other income, net

106

107

323

260

Income before income taxes

2,969

3,364

15,565

4,225

Provision for income taxes

590

1,226

4,633

1,566

Net income

$
2,379

$
2,138

$
10,932

$
2,659

Reconciliation of net income to net income
   attributable to common stockholders:

Net income

$
2,379

$
2,138

$
10,932

$
2,659

Net income attributable to participating securities

(1,401
)

(1,260
)

(6,446
)

(1,554
)
Net income attributable to common stockholders — basic

$
978

$
878

$
4,486

$
1,105

Net income

$
2,379

$
2,138

$
10,932

$
2,659

Net income attributable to participating securities

(1,345
)

(1,222
)

(6,198
)

(1,507
)
Net income attributable to common stockholders — diluted

$
1,034

$
916

$
4,734

$
1,152

Net income per share attributable to common stockholders:
   (Note 10)

Basic

$
0.02

$
0.02

$
0.11

$
0.02

Diluted

$
0.02

$
0.02

$
0.10

$
0.02

Weighted-average number of shares of common stock used in
   computing net income per share attributable to common
   stockholders:

Basic

42,262,035

44,692,419

42,168,904

44,665,063

Diluted

46,567,173

48,069,373

46,310,630

48,040,754


	As of June 30, 2023			As of December 31, 2022
Assets
Current assets
Cash and cash equivalents	$	363,060		$	469,517
Short-term investments		90,490			—
Accounts receivable, net of allowance for doubtful accounts of $807 and $1,809, respectively		37,820			46,817
Inventory		541			5,282
Prepaid expenses, prepaid income taxes and other current assets		21,742			21,972
Deferred contract costs		10,078			8,541
Restricted cash		11,561			5,237
Total current assets		535,292			557,366
Property and equipment, net		48,243			40,128
Intangible assets, net		38,037			53,054
Goodwill		157,638			157,467
Operating lease right-of-use assets		189,905			56,869
Restricted cash		—			9,378
Deferred tax assets		51,888			35,488
Deferred contract costs, net of current portion		11,490			8,853
Other non-current assets		7,828			8,499
Total assets	$	1,040,321		$	927,102
Liabilities, redeemable noncontrolling interest and stockholders’ equity
Current liabilities
Accounts payable	$	39,260		$	32,529
Accrued expenses, accrued income taxes and other current liabilities		36,367			39,193
Deferred revenue		21,267			12,249
Operating lease liabilities		13,870			14,762
Total current liabilities		110,764			98,733
Operating lease liabilities		193,184			51,656
Deferred tax liabilities		43			54
Other non–current liabilities		5,611			5,301
Total liabilities		309,602			155,744
Commitments and contingencies (Note 8)
Redeemable noncontrolling interest		29,865			36,749
Stockholders’ equity:
Preferred stock, $0.001 par value per share; 10,000,000 shares authorized; no shares issued and outstanding		—			—
Class A common stock, $0.001 par value per share; 500,000,000 shares authorized; 97,426,273 and 101,636,649 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively		97			102
Class B common stock, $0.001 par value per share; 100,000,000 shares authorized; 15,999,173 and 15,999,173 shares issued and outstanding at June 30, 2023 and December 31, 2022, respectively		16			16
Additional paid-in capital		346,494			413,092
Retained earnings		355,588			323,043
Accumulated other comprehensive loss		(1,341	)		(1,644	)
Total stockholders’ equity		700,854			734,609
Total liabilities, redeemable noncontrolling interest and stockholders’ equity	$	1,040,321		$	927,102

⁽¹⁾	Includes depreciation and amortization expense for the three months ended September 30, 2017 and 2016 and for the nine months ended September 30, 2017 and 2016 of $370, $113, $761, and $316, respectively.

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

CarGurus, Inc.

Unaudited Condensed Consolidated Income Statements

(in thousands, except share and per share data)


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Revenue
Marketplace	$	170,950		$	163,926		$	338,077		$	327,215
Wholesale		31,952			75,937			57,138			166,931
Product		36,835			271,366			76,485			447,691
Total revenue		239,737			511,229			471,700			941,837
Cost of revenue (1)
Marketplace		15,474			13,257			31,007			25,466
Wholesale		24,428			46,518			46,496			104,700
Product		35,694			263,603			75,076			441,945
Total cost of revenue		75,596			323,378			152,579			572,111
Gross profit		164,141			187,851			319,121			369,726
Operating expenses:
Sales and marketing		77,838			95,605			153,415			183,186
Product, technology, and development		37,391			31,354			73,998			62,007
General and administrative		27,267			33,514			52,186			66,635
Depreciation and amortization		3,907			3,836			7,725			7,697
Total operating expenses		146,403			164,309			287,324			319,525
Income from operations		17,738			23,542			31,797			50,201
Other income (expense), net:
Interest income		4,333			311			8,076			348
Other income (expense), net		347			(467	)		942			(623	)
Total other income (expense), net		4,680			(156	)		9,018			(275	)
Income before income taxes		22,418			23,386			40,815			49,926
Provision for income taxes		8,601			5,325			15,132			13,027
Consolidated net income		13,817			18,061			25,683			36,899
Net loss attributable to redeemable noncontrolling interest		(2,596	)		(1,223	)		(6,862	)		(2,295	)
Net income attributable to CarGurus, Inc.		16,413			19,284			32,545			39,194
Accretion of redeemable noncontrolling interest to redemption value		—			29,620			—			111,620
Net income (loss) attributable to common stockholders	$	16,413		$	(10,336	)	$	32,545		$	(72,426	)
Net income (loss) per share attributable to common stockholders: (Note 10)
Basic	$	0.14		$	(0.09	)	$	0.28		$	(0.61	)
Diluted	$	0.12		$	(0.09	)	$	0.22		$	(0.61	)
Weighted-average number of shares of common stock used in computing net income (loss) per share attributable to common stockholders:
Basic		113,438,057			118,390,641			114,392,961			118,211,975
Diluted		114,490,651			118,390,641			115,197,890			118,211,975

(1)

Includes depreciation and amortization expense for the three months ended June 30, 2023 and 2022 and for the six months ended June 30, 2023 and 2022 of ~~Comprehensive Income~~

~~(in thousands)~~

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

Net income

$
2,379

$
2,138

$
10,932

$
2,659

Other comprehensive income:

Foreign currency translation adjustment

72

1

229

(18
)
Comprehensive income

$
2,451

$
2,139

$
11,161

$
2,641

$7,760, $7,398, $15,518 and $14,722, respectively.

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

CarGurus, Inc.

Unaudited Condensed Consolidated Statements of ~~Cash Flows~~Comprehensive Income

(in thousands)

Nine Months Ended
September 30,

2017

2016

Operating Activities

Net income

$
10,932

$
2,659

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

2,670

1,381

Unrealized currency loss on foreign denominated transactions

96

—

Deferred taxes

(663
)

204

Provision for doubtful accounts

544

334

Stock-based compensation expense

224

236

Changes in operating assets and liabilities:

Accounts receivable

(4,013
)

(568
)
Prepaid expenses, prepaid income taxes, and other current assets

1,143

(2,838
)
Accounts payable

6,409

11,485

Accrued expenses

(741
)

2,153

Deferred revenue

1,265

1,705

Deferred rent

262

2,049

Accrued income taxes

156

1,190

Other non-current liabilities

258

461

Net cash provided by operating activities

18,542

20,451

Investing Activities

Purchases of property and equipment

(4,247
)

(4,009
)
Capitalization of website development costs

(1,487
)

(913
)
Investments in certificates of deposit

(50,000
)

(41,774
)
Maturities of certificates of deposit

34,774

5,000

Net cash used in investing activities

(20,960
)

(41,696
)
Financing Activities

Proceeds from issuance of preferred stock

—

60,000

Proceeds from exercise of unit options and stock options

288

92

Payment of deferred initial public offering costs

(2,128
)

—

Cash paid for repurchase of preferred stock, common stock, and vested options

—

(1,262
)
Net cash (used in) provided by financing activities

(1,840
)

58,830

Impact of foreign currency on cash, cash equivalents, and restricted cash

157

(26
)
Net (decrease) increase in cash, cash equivalents, and restricted cash

(4,101
)

37,559

Cash, cash equivalents, and restricted cash at beginning of period

31,520

62,863

Cash, cash equivalents, and restricted cash at end of period

$
27,419

$
100,422

Supplemental disclosure of cash flow information:

Cash paid for income taxes

$
4,220

$
6

Cash paid for interest

$
17

$
20

Supplemental disclosure of non-cash investing and financing activities:

Unpaid purchases of property and equipment

$
739

$
1,774

Unpaid deferred initial public offering costs

$
2,014

$
—

Unpaid preferred stock issuance costs

$
—

$
268


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Consolidated net income	$	13,817		$	18,061		$	25,683		$	36,899
Other comprehensive income:
Foreign currency translation adjustment		(112	)		(1,586	)		303			(2,075	)
Consolidated comprehensive income		13,705			16,475			25,986			34,824
Comprehensive loss attributable to redeemable noncontrolling interests		(2,596	)		(1,223	)		(6,862	)		(2,295	)
Comprehensive income attributable to CarGurus, Inc.	$	16,301		$	17,698		$	32,848		$	37,119

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

CarGurus, Inc.

Unaudited Condensed Consolidated Statements of Redeemable Noncontrolling Interest and Stockholders’ Equity

(in thousands, except share data)


	Redeemable Noncontrolling			Class A Common Stock						Class B Common Stock				Additional Paid–in			Retained			Accumulated Other Comprehensive			Total Stockholders’
	Interest			Shares			Amount			Shares		Amount		Capital			Earnings			Loss			Equity
Balance as of December 31, 2022	$	36,749			101,636,649		$	102			15,999,173	$	16	$	413,092		$	323,043		$	(1,644	)		734,609
Net (loss) income		(4,266	)		—			—			—		—		—			16,132			—			16,132
Stock–based compensation expense		—			—			—			—		—		16,049			—			—			16,049
Issuance of common stock upon exercise of stock options		—			7,700			—			—		—		19			—			—			19
Issuance of common stock upon vesting of restricted stock units		—			959,935			—			—		—		—			—			—			—
Payment of withholding taxes on net share settlements of restricted stock units		—			(335,448	)		—			—		—		(5,652	)		—			—			(5,652	)
Repurchase of common stock		—			(3,989,861	)		(4	)		—		—		(65,760	)		—			—			(65,764	)
Tax distributions to redeemable noncontrolling interest holders		(8	)		—			—			—		—		—			—			—			—
Foreign currency translation adjustment		—			—			—			—		—		—			—			415			415
Balance as of March 31, 2023	$	32,475			98,278,975		$	98			15,999,173	$	16	$	357,748		$	339,175		$	(1,229	)	$	695,808
Net (loss) income		(2,596	)		—			—			—		—		—			16,413			—			16,413
Stock–based compensation expense		—			—			—			—		—		15,895			—			—			15,895
Issuance of common stock upon exercise of stock options		—			1,480			—			—		—		10			—			—			10
Issuance of common stock upon vesting of restricted stock units		—			697,879			—			—		—		—			—			—			—
Payment of withholding taxes on net share settlements of restricted stock units		—			(240,674	)		—			—		—		(5,196	)		—			—			(5,196	)
Repurchase of common stock		—			(1,311,387	)		(1	)		—		—		(21,963	)		—			—			(21,964	)
Tax distributions to redeemable noncontrolling interest holders		(14	)		—			—			—		—		—			—			—			—
Foreign currency translation adjustment		—			—			—			—		—		—			—			(112	)		(112	)
Balance at June 30, 2023	$	29,865			97,426,273		$	97			15,999,173	$	16	$	346,494		$	355,588		$	(1,341	)	$	700,854


Balance as of December 31, 2021	$	162,808			101,773,034		$	102			15,999,173	$	16	$	387,868		$	129,258		$	(403	)		516,841
Net (loss) income		(1,072	)		—			—			—		—		—			19,910			—			19,910
Stock–based compensation expense		—			—			—			—		—		15,353			—			—			15,353
Issuance of common stock upon exercise of stock options		—			74,163			—			—		—		680			—			—			680
Issuance of common stock upon vesting of restricted stock units		—			451,084			—			—		—		—			—			—			—
Payment of withholding taxes on net share settlements of restricted stock units		—			(155,736	)		—			—		—		(5,430	)		—			—			(5,430	)
Accretion of redeemable noncontrolling interest to redemption value		82,000			—			—			—		—		—			(82,000	)		—			(82,000	)
Tax distributions to redeemable noncontrolling interest holders		(3,986	)		—			—			—		—		—			—			—			—
Foreign currency translation adjustment		—			—			—			—		—		—			—			(489	)		(489	)
Balance as of March 31, 2022	$	239,750			102,142,545		$	102			15,999,173	$	16	$	398,471		$	67,168		$	(892	)	$	464,865
Net (loss) income		(1,223	)		—			—			—		—		—			19,284			—			19,284
Stock–based compensation expense		—			—			—			—		—		14,697			—			—			14,697
Issuance of common stock upon exercise of stock options		—			23,240			—			—		—		25			—			—			25
Issuance of common stock upon vesting of restricted stock units		—			447,555			—			—		—		—			—			—			—
Payment of withholding taxes on net share settlements of restricted stock units		—			(147,533	)		—			—		—		(5,830	)		—			—			(5,830	)
Accretion of redeemable noncontrolling interest to redemption value		29,620			—			—			—		—		—			(29,620	)		—			(29,620	)
Tax distributions to redeemable noncontrolling interest holders		(3,642	)		—			—			—		—		—			—			—			—
Foreign currency translation adjustment		—			—			—			—		—		—			—			(1,586	)		(1,586	)
Balance at June 30, 2022	$	264,505			102,465,807		$	102			15,999,173	$	16	$	407,363		$	56,832		$	(2,478	)	$	461,835

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

CarGurus, Inc.

Unaudited Condensed Consolidated Statements of Cash Flows

(in thousands)


	Six Months Ended June 30,
	2023			2022
Operating Activities
Consolidated net income	$	25,683		$	36,899
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Depreciation and amortization		23,243			22,419
Gain on sale of property and equipment		(460	)		—
Unrealized currency (gain) loss on foreign denominated transactions		(136	)		354
Unrealized loss on short-term investments		21			—
Realized gain on short-term investments		(5	)		—
Deferred taxes		(16,411	)		(23,464	)
(Recoveries) provision for doubtful accounts		(171	)		699
Stock-based compensation expense		29,507			27,579
Amortization of deferred financing costs		258			—
Amortization of deferred contract costs		5,603			5,564
Impairment of long-lived assets		184			—
Changes in operating assets and liabilities:
Accounts receivable		13,241			(12,022	)
Inventory		4,740			(2,028	)
Prepaid expenses, prepaid income taxes, and other assets		3,454			(10,434	)
Deferred contract costs		(9,738	)		(5,746	)
Accounts payable		4,140			8,168
Accrued expenses, accrued income taxes, and other liabilities		(4,091	)		38,174
Deferred revenue		9,016			2,302
Lease obligations		7,603			(869	)
Net cash provided by operating activities		95,681			87,595
Investing Activities
Purchases of property and equipment		(4,255	)		(2,661	)
Proceeds from sale of property and equipment		460			—
Capitalization of website development costs		(7,432	)		(5,502	)
Purchases of short-term investments		(95,506	)		—
Maturities of short-term investments		—			60,000
Sales of short-term investments		5,000			—
Advance payments to customer, net of collections		(2,601	)		—
Net cash (used in) provided by investing activities		(104,334	)		51,837
Financing Activities
Proceeds from issuance of common stock upon exercise of stock options		29			705
Payment of withholding taxes on net share settlements of restricted stock units		(6,894	)		(11,260	)
Repurchase of common stock		(91,458	)		—
Payment of finance lease obligations		(34	)		(35	)
Payment of tax distributions to redeemable noncontrolling interest holders		(38	)		(12,691	)
Change in gross advance payments received from third-party transaction processor		(2,674	)		(2,363	)
Net cash used in financing activities		(101,069	)		(25,644	)
Impact of foreign currency on cash, cash equivalents, and restricted cash		211			(912	)
Net (decrease) increase in cash, cash equivalents, and restricted cash		(109,511	)		112,876
Cash, cash equivalents, and restricted cash at beginning of period		484,132			248,280
Cash, cash equivalents, and restricted cash at end of period	$	374,621		$	361,156
Supplemental disclosure of cash flow information:
Cash paid for income taxes		36,303			41,160
Cash paid for operating lease liabilities		9,831			9,220
Cash paid for interest		279			—
Supplemental noncash disclosure of cash flow information:
Unpaid purchases of property and equipment, capitalized website development, capitalized internal-use software and capitalized hosting arrangements		4,509			362
Unpaid withholding taxes on net share settlement of restricted stock units		3,958			—
Unpaid repurchases of common stock		559			—
Capitalized stock-based compensation expense in website development and internal-use software costs and hosting arrangements		2,437			2,471
Obtaining a right-of-use asset in exchange for an operating lease liability		144,556			5,307
Accretion of redeemable noncontrolling interest to redemption value		—			111,620
Accrued tax distributions to redeemable noncontrolling interest holders		—			3,638

The accompanying notes are an integral part of these Unaudited Condensed Consolidated Financial Statements.

CarGurus, Inc.

Notes to Unaudited Condensed Consolidated Financial Statements

(dollars in thousands, except share and per share data, unless otherwise noted)

1. Organization and Business Description

CarGurus, Inc. (the ~~“Company”~~"Company"), is a ~~global,~~multinational, online automotive platform for buying and selling vehicles that is building upon its industry-leading listings marketplace ~~connecting buyers~~with both digital retail solutions and ~~sellers of new~~the CarOffer, LLC ("CarOffer") digital wholesale platform. The CarGurus platform gives consumers the confidence to buy and/or sell a vehicle either online or in-person, and ~~used cars. Using~~it gives dealerships the power to accurately price, instantly acquire, effectively market, and quickly sell vehicles, all with a nationwide reach. The Company uses proprietary technology, search algorithms, and ~~innovative~~ data analytics to bring trust, transparency, and competitive pricing to the ~~Company provides information and analysis that create a differentiated~~ automotive search experience for consumers. The Company’s marketplace empowers users worldwide with unbiased third-party validation on pricing, dealer reputation, and other useful information that aids them in finding “Great Deals from Top-Rated Dealers.”shopping experience.

The Company is headquartered in Cambridge, Massachusetts and was incorporated in the ~~state~~State of Delaware on June 26, ~~2015.~~ 2015.

The Company operates principally in the United States. In the United States, it also operates as independent brands the Autolist online marketplace, which it wholly owns, and ~~has also launched~~the CarOffer digital wholesale platform, in which it holds a 51% equity interest. In addition to the United States, the Company operates online marketplaces under the CarGurus brand in Canada and the United Kingdom. In the United Kingdom, ~~and Germany.~~ it also operates as an independent brand the PistonHeads online marketplace, which it wholly owns.

The Company has ~~wholly owned~~ subsidiaries in the United States, Canada, Ireland, and the United Kingdom. Effective as of the fourth quarter of 2022 the Company revised its segment reporting from one reportable segment to two reportable segments – U.S. Marketplace and Digital Wholesale. See Note 12 of these Unaudited Condensed Consolidated Financial Statements (as defined below) for further segment reporting and geographic information.

The Company is subject to a number of risks and uncertainties common to companies in its and similar industries and stages of development including, but not limited to, rapid technological changes, competition from substitute products and services from larger companies, management of international activities, protection of proprietary rights, patent litigation, and dependence on key individuals.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim condensed consolidated financial statements are unaudited (the “Unaudited Condensed Consolidated Financial Statements”) ~~are unaudited.~~ ~~These~~. The Unaudited Condensed Consolidated Financial Statements ~~should be read~~and related disclosures have been prepared in ~~conjunction~~conformity with ~~the Company’s audited consolidated financial statements and the notes thereto for the year ended December 31, 2016 included~~accounting principles generally accepted in the ~~Company’s final prospectus related~~United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the ~~initial public offering~~Accounting Standards Codification (“~~IPO”~~ASC”)~~, filed with~~ and Accounting Standards Update of the ~~Securities and Exchange Commission~~Financial Accounting Standards Board (“~~SEC”)~~ ~~pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, on October 12, 2017 (the “Prospectus”~~FASB”).

The Unaudited Condensed Consolidated Financial Statements have also been prepared pursuant to the rules and regulations of the ~~SEC.~~U.S. Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with ~~generally accepted accounting principles in the United States (“GAAP”)~~GAAP have been condensed or omitted pursuant to such rules and regulations. The Unaudited Condensed Consolidated Financial Statements reflect all adjustments, consisting of only normal recurring adjustments, necessary for the fair presentation of the Company’s financial position as of ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016,~~2022, results of operations, comprehensive income, and changes in stockholders’ equity for the three months ended June 30, 2023 and ~~nine~~2022 and for the six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022, and cash flows for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016.~~ 2022. These interim ~~periods~~period results are not necessarily indicative of the results to be expected for any other interim period or the full year.

The ~~accompanying~~ Unaudited Condensed Consolidated Financial Statements ~~reflect~~should be read in conjunction with the ~~application of certain significant accounting policies as described below~~Company’s audited consolidated financial statements and ~~elsewhere~~the notes thereto included in ~~these notes to~~ the Company’s Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on March 1, 2023 (the “Annual Report”).

While the Company disclosed interest income within other income (expense), net in the Unaudited Condensed Consolidated ~~Financial~~Income Statements~~. As of September 30, 2017,~~ ~~there have been no material changes~~ in the Company's ~~significant accounting policies~~Quarterly Report on Form 10-Q for the quarter ended June 30, 2022, filed with the SEC on August 8, 2022, the accompanying Unaudited Condensed Consolidated Income Statements for the quarter ended June 30, 2022 present interest income separately from ~~those that were disclosed in the Prospectus~~ ~~except as discussed below.~~

~~In March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09,~~ ~~Compensation — Stock Compensation (Topic 718): Improvements~~other income (expense), net to ~~Employee Share-Based Payment Accounting~~ (“ASU 2016-09”). The guidance identifies areas for simplification involving several aspects of accounting for share-based payments, including income tax consequences, classification of awards as either equity or liabilities, an option to make a policy election to recognize gross stock-based compensation expense with actual forfeitures recognized as they occur, as well as certain classification changes on the statement of cash flows. The Company adopted ASU 2016-09 on January 1, 2017 and elected to account for forfeitures when they occur, on a modified retrospective basis. The cumulative effect adjustment relatedconform to the ~~Company's accounting policy change~~current year presentation, as interest income met the threshold for forfeitures was not material. In accordance with the adoption of this guidance, the tax effect of differences between tax deductions related to stock compensation and the corresponding financial statement expense compensation will no longer be recorded to additional paid-in capital in the balance sheet. Instead, such amounts will be recorded to tax expense. During the three and nine months ended September 30, 2017, the Company recorded tax benefits of $267 and $640, respectively, related to differences between tax deductions related to stock compensation and the corresponding financial statement expense compensation. The Company also elected to prospectively apply the change in presentation of excess tax benefits, wherein excess tax benefits recognized on stock-basedseparate disclosure.

compensation expense is now classified as an operating activity in the consolidated statements of cash flows. The Company did not adjust the classifications of excess tax benefits in its condensed consolidated statements of cash flows for the nine months ended September 30, 2016. The adoption did not have any other material impact on the Company's condensed consolidated financial statements.

Principles of Consolidation

The ~~accompanying~~ Unaudited Condensed Consolidated Financial Statements include the accounts of ~~CarGurus, Inc.~~the Company and its ~~wholly-owned~~ subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. ~~The Company prepares its Unaudited Condensed Consolidated Financial Statements and related disclosures in conformity with GAAP.~~

Subsequent Event Considerations

The Company considers events or transactions that occur after the balance sheet date but prior to the issuance of the financial statements to provide additional evidence for certain estimates or to identify matters that require additional disclosure. ~~Subsequent events have been evaluated as required.~~ The Company has evaluated all subsequent events and determined that there are no material recognized or unrecognized subsequent events requiring ~~disclosure, other than those disclosed in this Quarterly Report on Form 10-Q.~~disclosure.

Use of Estimates

~~In preparing its~~The preparation of the Unaudited Condensed Consolidated Financial Statements in ~~accordance~~conformity with GAAP ~~the Company is required~~requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, ~~revenue, costs,~~ and ~~expenses, and~~the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period.

Although the Company regularly assesses these estimates, actual results could differ materially from these estimates. The Company bases its estimates on historical experience and various other assumptions that it believes 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 ~~are reported~~they become known.

Critical estimates relied upon in preparing the Unaudited Condensed Consolidated Financial Statements include the determination of sales allowance and ~~accompanying disclosures. The accounting estimates that require~~variable consideration in the ~~most difficult and subjective judgments include~~Company’s revenue recognition, ~~and revenue reserves, contingent liabilities, allowances~~allowance for doubtful accounts, ~~expected future cash flows used to evaluate~~ the ~~recoverability~~impairment of long-lived assets, the ~~expensing and~~ capitalization of product, technology, and development costs for website development, ~~and~~ internal-use software and hosting arrangements, the ~~determination~~valuation of acquired assets and liabilities, the ~~fair value~~valuation and recoverability of ~~stock awards issued, stock-based compensation expense,~~intangible assets and goodwill, the valuation of redeemable noncontrolling interest, the recoverability of the ~~Company's~~Company’s net deferred tax assets and related valuation ~~allowance. The~~allowance, the valuation of inventory, and the valuation of equity and liability-classified compensation awards. Accordingly, the Company ~~evaluates~~considers these to be its critical accounting estimates, and assumptions on an ongoing basis using historical experience and other factors and adjusts those estimates and assumptions when facts and circumstances dictate. Actual results could materially differ frombelieves that of the Company’s ~~estimates~~significant accounting policies, these involve the greatest degree of judgment and ~~assumptions.~~complexity.

~~Emerging Growth Company Status~~

The Company is an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act, or JOBS Act, and may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. The Company may take advantage of these exemptions until the Company is no longer an emerging growth company. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. The Company has elected to use the extended transition period for complying with new or revised accounting standards and as a result of this election, its financial statements may not be comparable to companies that comply with public company effective dates. The Company may take advantage of these exemptions up until December 31, 2022 or such earlier time that it is no longer an emerging growth company. The Company would cease to be an emerging growth company if it has more than $1.07 billion in annual revenue, it has more than $700.0 million in market value of its stock held by non-affiliates (and it has been a public company for at least 12 months, and has filed one annual report on Form 10-K), or it issues more than $1.0 billion of non-convertible debt securities over a three-year period.

Concentration of Credit Risk

TheThe Company has no significant off-balance sheet risk, such as foreign exchange contracts, option contracts, or other foreign hedging arrangements. Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash, cash equivalents, short-term investments, ~~and~~ trade accounts ~~receivable.~~ receivable, and other receivables.

The Company maintains its cash, cash equivalents, and short-term investments principally with accredited financial institutions of high credit standing. Although the Company deposits its cash, cash equivalents, and short-term investments with multiple financial institutions, its deposits ~~at times, may~~with each such financial institution exceed ~~federally~~governmental insured limits.

~~Credit risk with respect to accounts receivable is dispersed due to the large number of customers.~~ 7

The Company routinely assesses the creditworthiness of its ~~customers.~~customers and does not require collateral. The Company generally has not experienced any material losses related to receivables from individual customers or groups of customers. The majority of the Company's accounts receivable results from wholesale and product revenue transactions. The Company has had no material losses related to wholesale and product receivables as the third-party transaction processor does not ~~require collateral.~~release the title to the vehicle until successfully collecting funds from the buying dealer. Titling is handled by the Company's third-party transaction processor and titles are held in escrow until it collects funds from the buying dealer (i.e., title is legally transferred from the selling party to the buying party upon signing of bill of sale, but title is held in escrow by the third-party transaction processor until payment is received). Due to these factors, no additional credit risk beyond amounts provided for collection losses is believed by management to be probable in the ~~Company's~~Company’s accounts receivable and other receivables.

As of June 30, 2023, one customer accounted for 11% of net accounts receivable and other receivables. As of December 31, 2022, one customer accounted for 13% of net accounts receivable. The remainder of the accounts receivable was dispersed among more than 1,000 customers. The customers who accounted for greater than 10% of net accounts receivable are related to wholesale and product receivables. The collection risk associated with these customers is mitigated because, as discussed above, the third-party transaction processor does not release the title on vehicles until funds are successfully collected. Furthermore, there is no significant credit risk with respect to accounts receivable because, other than the receivables associated with these customers, credit risk with respect to accounts receivable is dispersed due to the large number of customers.

For the ~~nine~~three and six months ended ~~September~~June 30, ~~2017 and the year ended December 31, 2016,~~ 2023, no individual customer accounted for more than 10% of total revenue.

~~As of September~~ For the three months ended June 30, ~~2017, three~~2022, two customers each accounted for ~~17%, 15%, and 10%~~11% of ~~net accounts receivable, respectively. As~~total revenue due to the continued growth of ~~December 31, 2016, two customers accounted for 24% and 15% of net accounts receivable, respectively. No other~~the CarOffer business. For the six months ended June 30, 2022, no individual customer accounted for more than 10% of total revenue.

The Company is exposed to credit losses primarily through its trade accounts receivable, which includes receivables in transit, net of payables due, from a third-party transaction processor. The third-party transaction processor collects customer payments on the Company's behalf and remits them to the Company. Customer payments received by the third-party transaction processor, but not remitted to the Company as of period end are deemed to be receivables in transit, net of payables due. Additionally, the third-party transaction processor provides payments in advance for certain selling dealers. If the third-party transaction processor does not receive buying dealer payments associated with the transaction paid in advance, the Company would guarantee losses incurred by the third-party transaction processor and the balance would be deducted from future remittances to the Company. To date, losses associated with these guarantees have not been material.

The Company offsets trade accounts receivables in transit, net of payables due, from the third-party transaction processor with payments received in advance from the third-party transaction processor as it has the right of offset. At any point in time, the Company could have amounts due from the third-party transaction processor for funds the third-party transaction processor has collected from buying dealers and has not yet remitted to the Company (i.e., receivables in transit, net of payables due), as well as amounts paid by the third-party transaction processor to the Company in advance of collecting payments from buying dealers (i.e., payments received in advance). Therefore, as the Company has the right to offset, the Company can either have a net receivable balance due from the third-party transaction processor which is recognized within accounts receivable, net in the Unaudited Condensed Consolidated Balance Sheets, or the Company can have a net liability which is recognized within accrued expenses, accrued income taxes, and other current liabilities in the Unaudited Condensed Consolidated Balance Sheets if the advance payments exceed the receivable position from the third-party transaction processor as of the balance sheet date. Payments received in advance from the third-party transaction processor are presented as cash flows from financing activities in the Unaudited Condensed Consolidated Statements of Cash Flows.

As of June 30, 2023, trade accounts receivable from receivables in transit, net of payables due, from the third-party transaction processor was $2,427, offset by payments received in advance of $3,816, which resulted in a net payable of $1,389 recognized within accrued expenses, accrued income taxes, and other current liabilities in the Unaudited Condensed Consolidated Balance Sheets. As of December 31, 2022, trade accounts receivable from receivables in transit, net of payables due, from the third-party transaction processor was $7,122, offset by payments received in advance of $6,490, which resulted in a net receivable of $632 recognized within accounts receivable, net in the Unaudited Condensed Consolidated Balance Sheets.

As of June 30, 2023 and December 31, 2022, $7,655 and $7,150, respectively, was included in net accounts receivable, ~~at September~~representing unbilled accounts receivable relating primarily to advertising customers invoiced in the period subsequent to services rendered.

Significant Accounting Policies

The Unaudited Condensed Consolidated Financial Statements reflect the application of certain significant accounting policies as described below and elsewhere in these notes to the Unaudited Condensed Consolidated Financial Statements. As of June 30, ~~2017 or~~2023, there have been no material changes in the Company’s significant accounting policies, which are detailed in the Annual Report, other than those described below.

Cash, Cash Equivalents, and Investments

As of June 30, 2023 and December 31, ~~2016.~~2022, cash and cash equivalents primarily consist of cash on deposit with banks, amounts held in interest-bearing money market accounts, and investments with original maturities of 90 days or less.

Cash equivalents are carried at cost, which approximates their fair market value.

The Company’s investment policy, which was approved by the Audit Committee of the Company’s Board of Directors (the “Board”), permits investments in fixed income securities, including U.S. government and agency securities, non‑U.S. government securities, money market instruments, commercial paper, certificates of deposit, corporate bonds, and asset‑backed securities.

The Company considers all highly liquid investments with an original maturity of 90 days or less at the date of purchase to be cash equivalents. Investments not classified as cash equivalents with maturities less than one year from the balance sheet date are classified as short‑term investments, while investments with maturities in excess of one year from the balance sheet date are classified as long‑term investments. Management determines the appropriate classification of investments at the time of purchase, and re‑evaluates such determination at each balance sheet date.

Investments in equity securities with readily determinable fair values are recognized at fair value based on quoted market prices within investments in the Unaudited Condensed Consolidated Balance Sheets. Investments in held-to-maturity debt securities are recognized at amortized cost within investments in the Unaudited Condensed Consolidated Balance Sheets. The Company adjusts the cost of investments in held-to-maturity debt securities for amortization of premiums and accretion of discounts to maturity, if any. Investments in trading and available-for-sale debt securities are recognized at fair value within investments in the Unaudited Condensed Consolidated Balance Sheets.

Purchases of equity securities and debt securities are recognized within investing activities in the Unaudited Condensed Consolidated Statements of Cash Flows.

Dividend income from equity securities is recognized within interest income in the Unaudited Condensed Consolidated Income Statements. Reinvested proceeds from dividend income are recognized within purchases of investments in investing activities in the Unaudited Condensed Consolidated Statements of Cash Flows.

The revaluation of equity securities and debt securities results in an unrealized gain or loss. Unrealized gains or losses on equity securities and trading debt securities are recognized within other income (expense), net in the Unaudited Condensed Consolidated Income Statements and backed out of operating activities in the Unaudited Condensed Consolidated Statements of Cash Flows. Unrealized gains or losses on available-for-sale debt securities are recognized within other comprehensive income in the Unaudited Condensed Consolidated Statements of Comprehensive Income. Interest on held-to-maturity debt securities is recognized within interest income in the Unaudited Condensed Consolidated Income Statements.

Proceeds from sale of equity securities and debt securities are recognized within investing activities in the Unaudited Condensed Consolidated Statements of Cash Flows. Realized gains and losses on sale of equity securities and debt securities are recognized within other (expense) income, net in the Unaudited Condensed Consolidated Income Statements, backed out of operating activities in the Unaudited Condensed Consolidated Cash Flows, and recognized within proceeds from sale of equity securities and debt securities in investing activities in the Unaudited Condensed Consolidated Statements of Cash Flows.

Debt securities are reviewed for other‑than‑temporary impairment whenever the fair value of an investment is less than the amortized cost and evidence indicates that an investment’s carrying amount is not recoverable within a reasonable period of time. Other‑than‑temporary impairments of debt securities are recognized within other income (expense), net in the Unaudited Condensed Consolidated Income Statements if the Company has experienced a credit loss or if it is more likely than not that the Company will be required to sell the investment before recovery of the amortized cost basis. Evidence considered in this assessment includes reasons for the impairment, compliance with the Company’s investment policy, the severity and duration of the impairment, and changes in value subsequent to the end of the period.

As of June 30, 2023, the Company held short-term investments in equity securities.

As of December 31, 2022, the Company held no investments.

Recent Accounting Pronouncements Not Yet Adopted

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies and adopted by the Company on or prior to the specified effective date. Unless otherwise discussed, the Company believes that the impact of recently issued standards that are not yet effective will not have a material impact on its financial position or results of operations upon adoption. As of June 30, 2023, there are no new material accounting pronouncements that the Company is considering adopting.

3. Revenue Recognition

~~In May 2014,~~

The following table summarizes revenue from contracts with customers by services and products for the ~~FASB issued ASU No. 2014-09,~~ three months ended June 30, 2023 and 2022 and for the six months ended June 30, 2023 and 2022:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Marketplace	$	170,950	$	163,926	$	338,077	$	327,215
Dealer-to-Dealer		32,950		97,064		61,655		202,555
Instant Max Cash Offer		35,837		250,239		71,968		412,067
Total	$	239,737	$	511,229	$	471,700	$	941,837

The Company provides disaggregation of revenue by services and products, by income statement presentation, by segment, and by geographic region.

Revenue by services and products is disaggregated by (i) marketplace services, (ii) Dealer-to-Dealer services and products, and (iii) Instant Max Cash Offer ("IMCO") services and products as disclosed above.

Revenue by income statement presentation is disaggregated by (i) marketplace, (ii) wholesale, and (iii) product revenue sources as disclosed in the Unaudited Condensed Consolidated Income Statements. Marketplace services are included within marketplace revenue in the Unaudited Condensed Consolidated Income Statements. Dealer-to-Dealer and IMCO services and products are included within both wholesale revenue and product revenue in the Unaudited Condensed Consolidated Income Statements.

Revenue by segment is disaggregated by (i) U.S. Marketplace and (ii) Digital Wholesale segments as disclosed in Note 12 of these Unaudited Condensed Consolidated Financial Statements. Marketplace services are included in the U.S. Marketplace segment and in the Other category of segment reporting. Dealer-to-Dealer and IMCO services and products are included in the Digital Wholesale segment.

Revenue by geographic region is disaggregated by (i) United States and (ii) International regions as disclosed in Note 12 of these Unaudited Condensed Consolidated Financial Statements. Marketplace services are provided in the United States and International regions. Dealer-to-Dealer and IMCO services and products are provided in the United States region.

The Company believes these categories best depict how the nature, amount, timing, and uncertainty of revenue and cash flows are affected by economic factors.

ASC Topic 606, Revenue from Contracts with ~~Customers (Topic 606)~~Customers (“~~ASU 2014-09”~~ASC 606”), requires that the Company disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of the relevant quarter end.

For contracts with an original expected duration greater than one year, the aggregate amount of the transaction price allocated to the performance obligations that were unsatisfied as of June 30, 2023 was approximately $18.5 million, which ~~modifies how all entities~~the Company expects to recognize ~~revenue,~~over the next twelve months.

For contracts with an original expected duration of one year or less, the Company has applied the practical expedient available under ASC 606 to not disclose the amount of transaction price allocated to unsatisfied performance obligations as of June 30, 2023. For performance obligations not satisfied as of June 30, 2023, and ~~consolidates into one Accounting Standards Codification (“ASC”) Topic (ASC Topic 606,~~ ~~Revenue from Contracts with Customers~~) the current guidance found in ASC Topic 605, and various other revenue accounting standards for specialized transactions and industries. ASU 2014-09 outlines a comprehensive five-step revenue recognition model based on the principle that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which this expedient applies, the ~~entity expects to be entitled in exchange for those goods or services. ASU 2014-09 may be applied using either a full retrospective approach, under which all years~~nature of the performance obligations, the variable consideration, and any consideration from contracts with customers not included in the ~~financial statements will be presented under~~transaction price is consistent with performance obligations satisfied as of June 30, 2023.

For the revised guidance, or a modified retrospective approach, under which financial statements will be prepared under the revised guidance for the year of adoption, but not for prior years. Under the latter method, entities will recognize a cumulative catch-up adjustment to the opening balance of retained earningsthree months ended June 30, 2023 and 2022, revenue recognized from amounts included in deferred revenue at the ~~effective date for contracts that still require performance by~~beginning of the ~~entity~~period was $20,808 and $12,776, respectively. For the six months ended June 30, 2023 and 2022, revenue recognized from amounts included in deferred revenue at the ~~date of adoption.~~

~~In August 2015, the FASB issued ASU No. 2015-14,~~ ~~Revenue from Contracts with Customers (Topic 606): Deferral of Effective Date~~ ~~(“ASU 2015-14”), which defers the effective date of ASU 2014-09 by one year. ASU 2014-09 is now effective for public entities for annual reporting periods~~ beginning after December 15, 2017, including interim periods within those annual reporting periods. The Company has developed an implementation plan to adopt this new guidance. As part of this plan, the Company is currently assessing the impact of the new guidance on its results of operations. Based on the Company’s procedures performed to date, nothing has come to its attention that would indicate that the adoption of ASU 2014-09 will have a material impact on its revenue recognition; however, further analysis is requiredperiod was $12,249 and the Company will continue to evaluate this assessment throughout 2017 and 2018. While the Company is still evaluating the impact that this guidance will have on its financial statements and related disclosures, the Company’s preliminary assessment is that there will be an impact relating to the accounting for costs to acquire a contract. Under ASU 2015-14, the Company will be required to capitalize certain costs, primarily commission expense to sales representatives, on its consolidated balance sheet and amortize such costs over the period of performance for the underlying customer contracts. The Company is still evaluating the impact of capitalizing costs to execute a contract.

~~In February 2016, the FASB issued ASU No. 2016-02~~$12,784, ~~Leases (Topic 842)~~ (“ASU 2016-02”). ASU 2016-02 requires a lessee to recognize most leases on the balance sheet but recognize expenses on the income statement in a manner similar to current practice. The update states that a lessee will recognize a lease liability for the obligation to make lease payments and a right-to-use asset for the right to use the underlying assets for the lease term. Leases will continue to be classified as either financing or operating, with classification affecting the recognition, measurement, and presentation of expenses and cash flows arising from a lease. For public entities, the new standard is effective for interim and annual periods beginning on or after January 1, 2019, with early adoption permitted. For non-public entities, the new standard is effective for annual periods beginning after December 15, 2019, with early adoption permitted. The Company is evaluating the impact this guidance may have on its consolidated financial statements.respectively.

~~In August 2016, the FASB issued ASU No. 2016-15,~~ ~~Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments~~ (“ASU 2016-15”). ASU 2016-15 is intended to add or clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows and to eliminate the diversity in practice related to such classifications. For public entities, the guidance in ASU 2016-15 is required for annual reporting periods beginning after December 15, 2017, with early adoption permitted. For non-public entities, the guidance is effective for annual reporting periods beginning after December 15, 2018, with early adoption permitted. The Company is currently in the process of evaluating the impact and timing of adoption of ASU 2016-15 on its consolidated financial statements.

3.4. Fair Value of Financial Instruments ~~Including Cash, Cash Equivalents~~

As of June 30, 2023 and ~~Investments~~

~~ASC 820,~~ ~~Fair Value Measurements and Disclosures~~, establishes a three-level valuation hierarchy for instruments measured at fair value that distinguishes between assumptions based on market data (observable inputs) and the Company’s own assumptions (unobservable inputs). Observable inputs are inputs that market participants would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions about the inputs that market participants would use in pricing the asset or liability, and are developed based on the best information available in the circumstances.

ASC 820 identifies fair value as the exchange price, or exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based on the highest and best use of the asset or liability. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. The Company uses valuation techniques to measure fair value that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized as follows:

~~Level 1 — Quoted unadjusted prices for identical instruments in active markets.~~

Level 2 — Quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which all observable inputs and significant value drivers are observable in active markets.

~~Level 3 — Model-derived valuations in which one or more significant inputs or significant value drivers are unobservable, including assumptions developed by the Company.~~

~~The valuation techniques that may be used to measure fair value are as follows:~~

~~Market Approach~~ ~~— Uses prices and other relevant information generated by market transactions involving identical or comparable~~December 31, 2022, assets ~~or liabilities.~~

~~Income Approach~~ — Uses valuation techniques to convert future amounts to a single present amount based on current market expectations about those future amounts, including present value techniques, option pricing models, and excess earnings method.

~~Cost Approach~~ ~~— Based on the amount that currently would be required to replace the service capacity of an asset (replacement cost).~~

~~The following tables present, for each of the fair value levels, the Company’s assets that are~~ measured at fair value on a recurring basis ~~at September~~consist of the following:


	As of June 30, 2023
	Quoted Prices in Active Markets for Identical Assets (Level 1 Inputs)		Significant Other Observable Inputs (Level 2 Inputs)		Significant Unobservable Inputs (Level 3 Inputs)		Total
Cash equivalents:
Mutual funds	$	204,560	$	—	$	—	$	204,560
Short-term investments:
Mutual funds		90,490		—		—		90,490
Total	$	295,050	$	—	$	—	$	295,050


	As of December 31, 2022
	Quoted Prices in Active Markets for Identical Assets (Level 1 Inputs)		Significant Other Observable Inputs (Level 2 Inputs)		Significant Unobservable Inputs (Level 3 Inputs)		Total
Cash equivalents:
Mutual funds	$	175,486	$	—	$	—	$	175,486
Total	$	175,486	$	—	$	—	$	175,486

For the three and six months ended June 30, ~~2017 and at~~2023, unrealized gain on investments in equity securities were immaterial.

As of December 31, ~~2016:~~

At September 30, 2017

Quoted Prices
in Active Markets
for Identical Assets
(Level 1 Inputs)

Significant Other
Observable Inputs
(Level 2 Inputs)

Significant
Unobservable Inputs
(Level 3 Inputs)

Total

Assets:

Cash equivalents:

Money market funds

$
10,627

$
—

$
—

$
10,627

Investments:

Certificates of deposit

—

60,000

—

60,000

Total

$
10,627

$
60,000

$
—

$
70,627

At December 31, 2016

Quoted Prices
in Active Markets
for Identical Assets
(Level 1 Inputs)

Significant Other
Observable Inputs
(Level 2 Inputs)

Significant
Unobservable Inputs
(Level 3 Inputs)

Total

Assets:

Investments:

Certificates of deposit

$
—

$
44,774

$
—

$
44,774

Total

$
—

$
44,774

$
—

$
44,774

The Company measures eligible assets and liabilities at fair value with changes in value recognized in earnings. Fair value treatment may be elected either upon initial recognition of an eligible asset or liability or, for an existing asset or liability, if an event triggers a new basis of accounting. The2022, the Company did ~~not elect to remeasure~~not have any of its existing financial assets or liabilities, and did not elect the fair value option for any financial assets and liabilities transacted in the nine months ended September 30, 2017 or the year ended December 31, 2016.investments.

The Company considers all highly liquid investments with an original maturity of three months or less at the date of purchase to be cash equivalents. Investments not classified as cash equivalents with maturities less than one year from the balance sheet date are classified as short-term investments, while investments with maturities in excess of one year from the balance sheet date are classified as long-term investments. Management determines the appropriate classification of investments at the time of purchase, and re-evaluates such determination at each balance sheet date.11

Cash and cash equivalents primarily consist of cash on deposit with banks, and amounts held in interest-bearing money market accounts. Cash equivalents are carried at cost, which approximates their fair market value.

~~The following is a summary of cash, cash equivalents, and investments as of September 30, 2017 and December 30, 2016.~~

Amortized Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value

September 30, 2017

Cash and cash equivalents due in 90 days or less

$
25,636

$
—

$
—

$
25,636

Investments:

Certificates of deposit due in one year or less

60,000

$
60,000

Total cash, cash equivalents, and investments

$
85,636

$
—

$
—

$
85,636

Amortized Cost

Gross
Unrealized
Gains

Gross
Unrealized
Losses

Estimated
Fair Value

December 31, 2016

Cash and cash equivalents due in 90 days or less

$
29,476

$
—

$
—

$
29,476

Investments:

Certificates of deposit due in one year or less

44,774

$
44,774

Total cash, cash equivalents, and investments

$
74,250

$
—

$
—

$
74,250

~~Certificates of deposit at September 30, 2017 had maturity dates ranging from nine to twelve months. Certificates of deposit at December 31, 2016 had maturity dates ranging from six to twelve months.~~

4.5. Property and Equipment, Net

~~Property~~As of June 30, 2023 and ~~equipment consists of the following:~~

At
September 30,
2017

At
December 31,
2016

Computer equipment

3,009

2,001

Capitalized software

174

114

Website development costs

4,167

2,680

Furniture and fixtures

4,461

3,386

Leasehold improvements

10,646

8,202

Construction in progress

35

119

22,492

16,502

Less accumulated depreciation

(6,392
)

(3,722
)
Property and equipment, net

$
16,100

$
12,780

~~Depreciation and amortization expense on~~December 31, 2022, property and equipment, ~~for~~net consist of the following:


	As of June 30, 2023			As of December 31, 2022
Capitalized equipment	$	1,297		$	7,877
Capitalized internal-use software		9,547			7,429
Capitalized website development		45,643			36,369
Furniture and fixtures		8,904			8,615
Leasehold improvements		24,322			24,225
Construction in progress		8,641			4,161
Finance lease right-of-use assets		354			420
		98,708			89,096
Less accumulated depreciation and amortization		(50,465	)		(48,968	)
Total	$	48,243		$	40,128

For the three months ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~2022 and for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 and ~~2016~~2022, depreciation and amortization expense, excluding amortization of intangible assets, amortization of capitalized hosting arrangements, and write-offs, was ~~$1,083, $545, $2,670,~~$4,160, $3,562, $8,202, and ~~$1,381~~$7,042, respectively.

~~5. Other Long-Term Assets~~For the three months ended June 30, 2023, the Company wrote off $9 of U.S. Marketplace segment capitalized website development costs within marketplace cost of revenue in the Unaudited Condensed Consolidated Income Statements, related to certain developed technology in which the Company has decided to cease investment. For the six months ended June 30, 2023, the Company wrote off $184 of Digital Wholesale and U.S. Marketplace capitalized website development costs within wholesale and marketplace cost of revenue, respectively, in the Unaudited Condensed Consolidated Income Statements related to certain developed technology in which the Company has decided to cease investment. For the three and six months ended June 30, 2022, the Company did not have any write-offs.

~~Other long-term assets consists~~During the six months ended June 30, 2023, capitalized equipment decreased $6,580 due primarily to the disposal of the ~~following:~~

At
September 30,
2017

At
December 31,
2016

Deferred IPO issuance costs

$
4,142

$
—

Other long-term assets

16

—

$
4,158

$
—

Deferred IPO issuance costs, which primarily consist of direct incremental legal and accounting fees relating to the IPO, are capitalized. The deferred issuance costs will be offset against IPO proceeds upon the completiondata center assets as a result of the Company's ~~IPO, which occurred~~migration onto a cloud-based hosting platform.

During the six months ended June 30, 2023, capitalized website development costs increased $9,274 due to continued net investment in ~~October 2017.~~ the Company's product offerings.

During the six months ended June 30, 2023, construction in progress costs increased $4,480 due to the buildout of the Company's future headquarters at 1001 Boylston Street, as discussed in Note 8 to these Unaudited Condensed Consolidated Financial Statements.

6. Accrued Expenses, Accrued Income Taxes, and Other Current Liabilities

As of June 30, 2023 and December 31, 2022, accrued expenses, accrued income taxes, and other current liabilities consist of the following:


	As of June 30, 2023		As of December 31, 2022
Accrued bonus	$	11,874	$	11,007
Other accrued expenses, accrued income taxes, and other current liabilities		24,493		28,186
Total	$	36,367	$	39,193

7. Debt

As of June 30, 2023 and December 31, 2022, the Company had no long-term debt outstanding.

Revolving Credit Facility

On September ~~30, 2017, $4,142 of deferred IPO issuance costs were recorded in other long-term assets~~26, 2022, the Company entered into a Credit Agreement (the “Credit Agreement”) by and among the Company, PNC Bank, National Association, as administrative agent and collateral agent and an L/C Issuer (as defined in the ~~accompanying unaudited condensed~~Credit Agreement), and the other lenders, L/C Issuers, and parties thereto from time to time. The Credit Agreement consists of a revolving credit facility (the “2022 Revolver”), which allows the Company to borrow up to $400.0 million, $50.0 million of which may be comprised of a letter of credit sub-facility (the "2022 Revolver 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. For example, 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.

The applicable interest rate is, at the Company's option, based on a number of different benchmark rates and applicable spreads, based on the ratio of the outstanding principal amount of the Company’s secured indebtedness to the trailing four quarters of consolidated ~~balance sheet.~~EBITDA (as determined under the Credit Agreement, the “Consolidated Secured Net Leverage Ratio”). The Credit Agreement also requires the Company to pay a commitment fee to the lenders with respect of the unutilized revolving commitments at a rate ranging from 0.125% to 0.175% per annum based on the Consolidated Secured Net Leverage Ratio, as determined on a quarterly basis.

The 2022 Revolver is secured by a first priority lien on substantially all tangible and intangible property of the Company and its subsidiary, AutoList, Inc., as well as any future guarantors, and pledges of the equity of CarOffer and certain wholly-owned subsidiaries, in each case subject to certain exceptions, limitations, and exclusions from the collateral. The Credit Agreement includes customary events of default and requires the Company to comply with customary affirmative and negative covenants, including a financial covenant requiring that the Company not exceed certain Consolidated Secured Net Leverage Ratio ranges at the end of each fiscal quarter. The Company was in compliance with all covenants as of June 30, 2023.

As of June 30, 2023, there were no borrowings and $742 in letters of credit outstanding, which reduces the borrowing capacity under the 2022 Revolver to $399,258. As of December 31, ~~2016,~~2022, there were no borrowings and no letters of credit outstanding under the 2022 Revolver.

As of June 30, 2023, deferred ~~IPO issuance~~financing costs ~~recorded.~~

~~6. Accrued Expenses~~

~~Accrued expenses consists of the following:~~

At
September 30,
2017

At
December 31,
2016

Accrued bonuses

$
5,086

$
4,662

Accrued commissions

1,520

1,305

Other accrued expenses

3,347

2,417

$
9,953

$
8,384

~~7. Commitments and Contingencies~~

~~Operating Leases~~

The Company’s lease obligations consist of various leases for office space in Massachusetts and Dublin with various lease terms through January 2024. The terms of the Company’s Massachusetts lease agreements provide for rental payments that increase on an annual basis. The Company recognizes rent expense on a straight-line basis over the lease period. The Company does not have any debt or material capital lease obligations aswere $2,184. As of December 31, ~~2016~~2022, deferred financing costs were $2,442. For the three and six months ended June 30, 2023, amortization expense associated with deferred financing costs were $129 and $258, respectively. For the three and six months ended June 30, 2022, the Company did not recognize any amortization expense associated with deferred financing costs.

As of June 30, 2023 and December 31, 2022, commitment fees under the 2022 Revolver were immaterial.

8. Commitments and Contingencies

Contractual Obligations and Commitments

As of June 30, 2023, all of the Company’s property, equipment, and externally sourced internal-use software have been purchased with ~~cash.~~cash with the exception of amounts related to unpaid property and equipment, capitalized website development, capitalized internal-use software and capitalized hosting arrangements, and amountsrelated to obligations under finance leases as disclosed in the Unaudited Condensed Consolidated Statements of Cash Flows. In connection with the 1001 Boylston Street lease, the Company expects to spend approximately $69,815, net of tenant reimbursements. As of June 30, 2023, the Company has incurred $8,835 in expenses, of which $8,641 was capitalized. The Company has also signed $2,526 in contract commitments, which have not yet been incurred. The Company has no other material long-term purchase obligations outstanding with any vendors or ~~third parties.~~third-parties.

Leases

The Company’s lease obligations consist substantially of various leases for office space in: Boston, Massachusetts; Cambridge, Massachusetts; San Francisco, California; Addison, Texas; and Dublin, Ireland.

As of ~~September~~June 30, ~~2017,~~2023, there were no material changes in the Company’s ~~contractual obligations and commitments~~leases from those disclosed in the ~~Prospectus filed~~Annual Report, other than those described below.

New Material Leases

The Company’s operating lease agreement in Boston, Massachusetts for 225,428 square feet at 1001 Boylston Street (the "1001 Boylston Street Lease") commenced on February 3, 2023 ("Delivery Date") as the Company has been granted access to begin its build out. The “Commencement Date” of the lease term is the earlier to occur of (i) the date that is 12 months following the Delivery Date and (ii) the date that the Company first occupies the premises for the normal conduct of business for the Permitted Use (as defined in the 1001 Boylston Street Lease). The initial term will commence on the Commencement Date and expire on the date that is 180 full calendar months after the Commencement Date (plus the partial month, if any, immediately following the Commencement Date). The 1001 Boylston Street Lease provides for the option to terminate early under certain circumstances and contains options to extend the lease term for two additional periods of five years. The 1001 Boylston Street Lease provides for annual rent increases through the term of the lease, leasehold improvement incentives, and variable payments related to operating expenses, management fees, taxes, utilities, insurance, and maintenance expenses. The 1001 Boylston Street Lease also contains both lease and non-lease components. Non-lease components relate to operating expenses, parking, utilities, and maintenance expenses. The Company expects to move into the office space in 2024.

Lease Commitments

As of June 30, 2023, future minimum lease payments for all leases are as follows:


Year Ending December 31,	Operating Lease Commitments
Remainder of 2023	$	5,974
2024		15,922
2025		18,592
2026		22,334
2027		22,742
Thereafter		231,155
Total lease payments	$	316,719
Less imputed interest		(109,665	)
Total	$	207,054

The table above does not include leases signed but not yet commenced as of June 30, 2023. As of June 30, 2023, total estimated future minimum lease payments for leases signed but not yet commenced are estimated to be $1,093. The lease is expected to commence in the current fiscal year with lease terms of approximately two years.

For the three months ended June 30, 2023 and 2022 and for the six months ended June 30, 2023 and 2022, the Company recognized $9,103, $4,176, $16,547, and $8,228 of lease costs, respectively.

As of June 30, 2023, the weighted average remaining lease term was 13.2 years, and the weighted average discount rate was 5.7%. As the Company's leases do not provide an implicit rate, the Company uses an estimated incremental borrowing rate based on the information available at lease commencement in determining the present value of lease payments. The Company estimated the incremental borrowing rate based on the rate of interest the Company would have to pay to borrow a similar amount on a collateralized basis over a similar term. The Company has no historical debt transactions and a collateralized rate is estimated based on a group of peer companies. The Company used the incremental borrowing rate on January 1, 2019 for leases that commenced prior to that date.

Sublease Income

As of June 30, 2023, future minimum sublease income payments are as follows:


Year Ending December 31,	Sublease Income Payments
Remainder of 2023	$	1,120
2024		1,951
2025		1,023
2026		—
2027		—
Thereafter		—
Total	$	4,094

Restricted Cash

The 1001 Boylston Street Lease and the Company’s leases in Cambridge, Massachusetts and San Francisco, California have associated letters of credit. As of December 31, 2022, all letters of credit were collateralized by cash, which was recognized as restricted cash in the Unaudited Condensed Consolidated Balance Sheets. As of June 30, 2023, $742 of letters of credit were included under the 2022 Revolver Sub-facility, as the Company canceled two letters of credit associated with the ~~SEC, other than~~San Francisco and the Cambridge (55 Cambridge Parkway) leases and reissued these letters of credit under the 2022 Revolver Sub-facility. As of June 30, 2023, $8,885 of letters of credit associated with the 1001 Boylston Street Lease remained collateralized by cash, which was recognized as ~~discussed below.~~restricted cash in the Unaudited Condensed Consolidated Balance Sheets. The Company expects to cancel the letter of credit associated with the 1001 Boylston Street Lease and reissue a new letter of credit under the 2022 Revolver Sub-facility in the next 12 months.

~~On September 26, 2017, the Company entered into a lease for approximately 13,326 square feet~~As of rentable office space located at Upper Hatch Street, Dublin, Ireland. The lease ends on August 11, 2023. Excluding operating costs, rent payments for the first year is $0.5 million. In August 2018, the rent amount is subject to a national rent review, which will establish the rent payments for the remainder of the lease.

~~At September~~June 30, ~~2017~~2023 and December 31, ~~2016,~~2022, restricted cash was ~~$1,783~~$11,561 and ~~$2,044, respectively. Restricted~~$14,615, respectively, and primarily related to cash ~~for both periods was~~ held at a financial institution in an ~~interest-bearing~~interest‑bearing cash account as collateral for ~~two~~the letters of credit related to the contractual provisions for the Company’s building lease and pass-through payments from customers related to the Company’s wholesale business.

As of December 31, 2022, portions of restricted cash were classified as a short-term asset and long‑term asset, as disclosed in the Unaudited Condensed Consolidated Balance Sheets. During the six months ended June 30, 2023, the Company reclassified $9,378 of letters of credit from a long-term asset to a short-term asset as the Company expects to cancel and reissue the remaining letters of credit, outstanding as of December 31, 2022, under the 2022 Revolver Sub-facility in the next 12 months. Of the letters of credit outstanding as of December 31, 2022, the Company canceled a letter of credit associated with the Cambridge (2 Canal Park) lease, however, the cash was recognized as restricted cash as of March 31, 2023, until it was released from the bank. During the three months ended June 30, 2023, the Company released the cash associated with the Cambridge (2 Canal Park) lease. As of June 30, 2023, all restricted cash was classified as a short-term asset, as disclosed in the Unaudited Condensed Consolidated Balance Sheets.

Acquisitions

On January 14, 2021, the Company completed the acquisition of a 51% interest in CarOffer, an automated instant vehicle trade platform based in Addison, Texas, with the option to acquire portions of the ~~Company's building leases that require security deposits.~~remaining equity in the future. During the year ended December 31, 2022, the Company determined not to exercise its call right to acquire up to an additional 25% of the fully diluted capitalization of CarOffer. In the second half of 2024, the Company will have a call right to acquire all, and not less than all, of the remaining equity interests in CarOffer and the representative of the holders of the remaining equity will have a put right to sell to the Company all, and not less than all, of the remaining equity interests in CarOffer. Details of this acquisition are more fully described in Note 2 to the consolidated financial statements contained within the Annual Report.

Legal Matters

~~The Company, from~~From time to time ~~is party~~the Company may become involved in legal proceedings or be subject to ~~litigation~~claims arising in the ordinary course of its business. ~~Management does~~The Company recognizes a liability when it believes that it is both probable that a liability has been incurred and the amount of loss can be reasonably estimated. Judgment is required to determine both the probability of having incurred a liability and the estimated amount of the liability. The Company is not ~~believe~~presently subject to any pending or threatened litigation that it believes, if determined adversely to the Company, individually, or taken together, would reasonably be expected to have a material adverse effect on its business or financial results. However, litigation is inherently unpredictable and the future outcome of ~~these claims will~~legal proceedings and other contingencies may be unexpected or differ from the Company’s estimated liabilities, which could have a material adverse effect on the ~~consolidated~~Company’s future financial ~~position, results of operations or cash flows of the Company based on the status of proceedings at this time.~~results.

Guarantees and Indemnification Obligations

In the ordinary course of business, the Company enters into agreements with its customers, partners, and service providers that ~~are consistent with industry practice~~include commercial provisions with respect to licensing, infringement, guarantees, indemnification, and other ~~standard~~common provisions.

The Company ~~does~~ provides certain guarantees to dealers through products such as its 45-Day Guarantee and OfferGuard service offerings on the CarOffer platform, which are accounted for under ASC Topic 460, Guarantees.

45-Day Guarantee is an arrangement through which a selling dealer lists a car on the CarOffer platform, and the Company provides an offer to purchase the vehicle listed at a specified price at any time over a 45-day period. This provides the seller with a put option, where they have the right, but not the obligation, to require the Company to purchase the vehicle during this window. OfferGuard is an arrangement through which a buying dealer purchases a car on the CarOffer platform, and the Company provides an offer to purchase the vehicle at a specified price between days 1 and 3, and days 42 and 45 if the dealer is not able to sell the vehicle after 42 days.

A guarantee liability is initially measured using the amount of consideration received from the dealer for the purchase of the guarantee. The initial liability is released, and guarantee income is recognized, upon the earliest of the following: the vehicle sells during the guarantee period, the seller exercises its put option during the guarantee period, or the option expires unexercised at the end of the guarantee period. Guarantee income is recognized within wholesale revenue in the ~~ordinary course, agree~~Unaudited Condensed Consolidated Income Statements. Gains and losses resulting from dealers' exercise of guarantees are recognized within wholesale cost of revenue in the Unaudited Condensed Consolidated Income Statements. When it is probable and reasonably estimable that the Company will incur a loss on a vehicle that it is required to ~~indemnification obligations~~purchase, a liability and a corresponding charge to wholesale cost of revenue is recognized for the amount of the loss in the Unaudited Condensed Consolidated Balance Sheets and Unaudited Condensed Consolidated Income Statements.

For the three months ended June 30, 2023 and 2022 and for the six months ended June 30, 2023 and 2022, income for guarantees purchased by dealers was $546, $2,292, $1,160, and $5,595, respectively. For the three months ended June 30, 2023 and 2022 and for the six months ended June 30, 2023 and 2022, the loss, net of gains, recognized within cost of revenue in the Unaudited Condensed Consolidated Income Statements resulting from dealers' exercise of guarantees was $164, $259, $89, and $2,083 respectively.

As of June 30, 2023, the maximum potential amount of future payments that the Company could be required to make under ~~its contracts with customers. Based on historical experience and information known at September~~these guarantees was $19,367. Of the maximum potential amount of future payments, the losses that were probable were immaterial. As such, as of June 30, ~~2017 and~~2023, the Company had immaterial contingent loss liabilities.

As of December 31, ~~2016,~~2022, the maximum potential amount of future payments that the Company ~~has not incurred any costs for~~could be required to make under these guarantees ~~or indemnities.~~

~~8. Convertible Preferred Stock and Stockholders’ Equity~~

~~On June 21, 2017,~~was $31,056. Of the maximum potential amount of future payments, the losses that were probable were immaterial. As such, as of December 31, 2022, the Company ~~amended~~had immaterial contingent loss liabilities.

9. Stock-based Compensation and ~~restated its Certificate~~Common Stock Share Repurchases

Stock-based Compensation Expense

For the three months ended June 30, 2023 and 2022 and for the six months ended June 30, 2023 and 2022, stock-based compensation expense by award type and where the stock-based compensation expense was recognized in the Unaudited Condensed Consolidated Income Statements is as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Options	$	590	$	646	$	1,204	$	1,290
Restricted Stock Units		14,012		12,786		28,375		26,289
CO Incentive Units and Subject Units		1,225		13,025		1,225		26,720
Total	$	15,827	$	26,457	$	30,804	$	54,299

The decrease of ~~Incorporation pursuant~~$11,800 for the three months ended June 30, 2023 and the decrease of $25,495 for the six months ended June 30, 2023 compared to the ~~Third Amended~~three months ended June 30, 2022 and ~~Restated Certificate~~six months ended June 30, 2022, respectively, in CO Incentive Units and Subject Units (as each term is defined in Note 2 to the consolidated financial statements contained within the Annual Report) stock-based compensation expense was due to a decrease in the valuation of ~~Incorporation. Under~~ the ~~Third Amended~~awards following the mark to market valuation adjustments.


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Cost of revenue	$	185	$	69	$	328	$	205
Sales and marketing expense		2,872		4,086		5,956		8,069
Product, technology, and development expense		6,034		6,151		12,323		12,519
General and administrative expense		6,736		16,151		12,197		33,506
Total	$	15,827	$	26,457	$	30,804	$	54,299

For the three months ended June 30, 2023 and ~~Restated Certificate~~2022 and for the six months ended June 30, 2023 and 2022, stock-based compensation expense excluded $1,292, $1,265, $2,437, and $2,471, respectively, of ~~Incorporation,~~capitalized website development costs, capitalized internal-use software costs, and capitalized hosting arrangements.

During the ~~total number of shares of all classes of stock which~~three months ended June 30, 2023 and 2022 and the six months ended June 30, 2023 and 2022, the Company ~~shall have authority to issue is (i) 120,020,700~~withheld 240,674, 147,533, 576,122, and 303,269 shares of Class A common stock, ~~par value $0.001 per~~respectively, to satisfy employee tax withholding requirements for net share ~~(ii) 80,013,800 shares~~settlements of Class B common stock, par value $0.001 per share, and (iii) 11,091,782 shares of Preferred Stock, par value $0.001 per share, of which 3,333,000 shares are designated Series A Preferred Stock, 3,329,497 shares are designated Series B Preferred Stock, 1,648,978 shares are designated Series C Preferred Stock, 1,673,105 shares are designated Series D convertible preferred stock, or Series D Preferred Stock, and 1,107,202 shares are designated Series E convertible preferred stock, or Series E Preferred Stock. The Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock are referred to collectively as the Preferred Stock.

Upon the effectiveness of the Third Amended and Restated Certificate of Incorporation, (i) each share of Class A common stock issued and outstanding was recapitalized, reclassified, and reconstituted into two (2) fully paid and non-assessable shares of outstanding Class A common stock and four (4) fully paid and non-assessable shares of outstanding Class B common stock, and (ii) each share of Class B common stock of the Corporation issued and outstanding was recapitalized, reclassified, and reconstituted into two (2) fully paid and non-assessable shares of outstanding Class A common stock and four (4) fully paid and non-assessable shares of outstanding Class B common stock.

Further, upon the effectiveness of the Third Amended and Restated Certificate of Incorporation, the number of shares of common stock as to which each outstanding option to purchase common stock is exercisable for and each outstanding restricted stock ~~unit (“RSU”~~units ("RSUs") ~~is convertible into was adjusted such that upon exercise of outstanding stock options or vesting of outstanding RSUs, each holder will receive two (2) fully paid and non-assessable~~. The shares of Class A common stock and four (4) fully paid and non-assessable shares of Class B common stock in respect of each share of common stock previously underlying such option or RSU. The exercise price per share of common stock underlying each outstanding option was adjusted upon the effectiveness of the Third Amended and Restated Certificate of Incorporation to be one-sixth of the exercise price per share in effect immediately prior to such adjustment and the fair market value per share of common stock issuable upon settlement of such RSU was adjusted to be one-sixth of the fair market value per share in effect immediately priorwithheld return to the ~~recapitalization.~~

~~All share~~authorized, but unissued pool under the Company's Omnibus Incentive Compensation Plan and ~~per share data shown in the accompanying Unaudited Condensed Consolidated Financial Statements and related notes have been retroactively revised to reflect the share recapitalization.~~

On October 16, 2017, in connection with the closing of the Company’s IPO, each share of Preferred Stock was converted into approximately six shares of Class A common stock pursuant to the terms of the Third Amended and Restated Certificate of Incorporation. Immediately following the closing of the Company’s IPO and the conversion of the Preferred Stock, the Company’s Fourth Amended and Restated Certificate of Incorporation became effective. Under the Fourth Amended and Restated Certificate of Incorporation, the capital structure of the Company was adjusted. See Note 12 to these Unaudited Condensed Consolidated Financial Statements for additional information regarding the conversion of the Preferred Stock and the impact of the effectiveness of the Company’s Fourth Amended and Restated Certificate of Incorporation.

~~Common Stock~~

Each share of Class A common stock entitles the holder to one (1) vote for each share on all matters submitted to a vote of the Company’s stockholders at all meetings of stockholders and written actions in lieu of meetings. Each share of Class B common stock entitles the holder to ten votes for each share on all matters submitted to a vote of the Company’s stockholders at all meetings of stockholders and written actions in lieu of meetings.

~~Holders of common stock are entitled to receive dividends, when and if declared~~can be reissued by the ~~Board.~~Company.

At September 30, 2017, each share of Class B common stock was convertible into one share of Class A common stock at the option of the holder at any time. Automatic conversion was to occur upon the occurrence of a Transfer, as was defined in the Third

Amended and Restated Certificate of Incorporation, of such share of Class B common stock. Upon either the death or voluntary termination of the Company’s Chief Executive Officer, all shares of Class B common stock will automatically be converted into one share of Class A common stock.

Upon the effectiveness of the Company’s Fourth Amended and Restated Certificate of Incorporation, additional terms of conversion and transfer were implemented. See Note 12 to these Unaudited Condensed Consolidated Financial Statements for additional information regarding the current conversion and transfer terms of the Company’s common stock.

~~Preferred Stock~~

On August 23, 2016, the Company completed a Series E Preferred Stock financing in the amount of $59,732, net of issuance costs of approximately $268. In connection with this issuance, the Company used the proceeds received to repurchase and retire certain outstanding shares of Series A, Series B, and Series C Preferred Stock and common stock, as well as certain vested stock options and RSUs, from existing stockholders in the fourth quarter of 2016. The difference between the amount implicitly paid to repurchase the various classes of Preferred Stock and the corresponding carrying value of the underlying shares ($32,087) was treated as a deemed dividend and was recorded against retained earnings. As the shares of common stock were repurchased for constructive retirement in the fourth quarter of 2016, the excess purchase price over the corresponding par value was charged directly to retained earnings.

~~The Company’s Preferred Stock at both September 30, 2017 and December 31, 2016 was as follows:~~

Original
Issue Price
Per Share

Shares
Authorized

Issued and Outstanding

Liquidation
Amount

Carrying
Value

Series A Preferred Stock

$
0.525053

3,333,000

2,824,703

$
1,483

$
1,483

Series B Preferred Stock

$
0.780899

3,329,497

2,938,486

2,295

2,295

Series C Preferred Stock

$
0.849012

1,648,978

1,550,612

1,316

1,316

Series D Preferred Stock

$
40.642989

1,673,105

1,673,105

68,000

67,872

Series E Preferred Stock

$
54.190650

1,107,202

1,107,202

60,000

59,732

11,091,782

10,094,108

$
133,094

$
132,698

At both September 30, 2017 and December 31, 2016, 20,188,226 shares of Class A common stock and 40,376,452 shares of Class B common stock were reserved for conversion of the outstanding Preferred Stock.

~~9. Stock-based Compensation~~

For the three months ended ~~September~~June 30, ~~2017~~2023, total payments to satisfy employee tax withholding requirements for net share settlements of RSUs were $5,196 of which $4,828 was paid and ~~2016 total stock-based compensation expense~~$368 was ~~$74 and $88, respectively.~~unpaid. For the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023, total payments to satisfy employee tax withholding requirements for net share settlements of RSUs were $10,852, of which $6,894 was paid and ~~2016~~reflected as a financing activity in the Unaudited Condensed Consolidated Statements of Cash Flows and $3,958 was unpaid and reflected as a supplemental noncash disclosure in the Unaudited Condensed Consolidated Statements of Cash Flows. For the three and six months ended June 30, 2022, total ~~stock-based compensation expense was $224~~payments to satisfy employee tax withholding requirements for net share settlements of RSUs were $5,830 and ~~$236, respectively. All stock-based compensation expense for these periods related to stock options.~~$11,260, respectively, all of which were paid and reflected as a financing activity in the Unaudited Condensed Consolidated Statements of Cash Flows.

Common Stock Share Repurchases

On ~~January 1, 2017,~~December 8, 2022, the Company ~~adopted ASU 2016-09~~announced that the Board authorized a new share repurchase program (the “Share Repurchase Program”), pursuant to which the Company may, from time to time, purchase shares of its Class A common stock for an aggregate purchase price not to exceed $250.0 million. Share repurchases under the Share Repurchase Program may be made through a variety of methods, including but not limited to open market purchases, privately negotiated transactions, and ~~elected~~transactions that may be effected pursuant to ~~account~~one or more plans under Rule 10b5-1 and/or Rule 10b-18 of the Securities Exchange Act of 1934, as amended. The Share Repurchase Program does not obligate the Company to repurchase any minimum dollar amount or number of shares. The Share Repurchase Program has an expiration date of December 31, 2023, and prior to its expiration may be modified, suspended, or discontinued by the Board at any time without prior notice. All repurchased shares under the Share Repurchase Program will be retired. The Company expects to fund any share repurchases through cash on hand and cash generated from operations.

During the three months ended June 30, 2023, the Company repurchased and retired 1,311,387 shares for ~~forfeitures when they occur, on a modified retrospective basis. The cumulative effect adjustment related~~$21,968, exclusive of commissions and excise tax, at an average cost of $16.75 per share, under the Share Repurchase Program. During the six months ended June 30, 2023, the Company repurchased and retired 5,301,248 shares for $87,119, exclusive of commissions and excise tax, at an average cost of $16.43 per share, under the Share Repurchase Program. As of June 30, 2023, the Company had remaining authorization to purchase up to $144,190 of the Company's ~~accounting policy change for forfeitures was not material~~.

~~Total stock-based compensation expense was allocated as follows:~~

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

Cost of revenue

$
6

$
6

$
16

$
14

Sales and marketing expense

35

43

108

119

Product, technology, and development expense

24

28

72

76

General and administrative expense

9

11

28

27

Total

$
74

$
88

$
224

$
236

~~As of September 30, 2017, there was approximately $0.5 million of unrecognized stock-based compensation expense related to~~Class A common stock ~~options which is expected to be recognized over 2.1 years.~~

~~In addition to stock options,~~under the Company has historically granted RSUs which are subject to both a service-based vesting and a performance-based vesting condition achieved upon a liquidity event, defined as either a change of control or an IPO. As of September 30, 2017, t~~otal unrecognized stock-based compensation expense related to these RSUs was approximately $10.1 million and is expected to be recognized over 3.1 years.As of September 30, 2017, the Company had not recognized compensation cost related to stock-based awards with these performance conditions as the liquidity event had not occurred.~~The Securities and Exchange Commission’s declaration of effectiveness of the Company’s registration statement on Form S-1 on October 11, 2017 satisfied the liquidity event performance condition. The cumulative unrecognized stock-based compensation expense related to these awards was $2.5 million through October 11, 2017. Share Repurchase Program.

10. Earnings Per Share

Net income per share information is determined using the two-class method, which includes the weighted-average number of shares of common stock outstanding during the period and other securities that participate in dividends (a participating security). The Company ~~considers the convertible Preferred Stock to be participating securities because they include rights to participate in dividends with the common stock.~~

Under the two-class method, basic net income per share attributable to common stockholders is computed by dividing the net income attributable to common stockholders by the weighted-average number of shares of common stock outstanding during the period. Diluted net income (loss) per share attributable to common stockholders is computed using the more dilutive of (1) the two-class method or (2) the if-converted method. The Company allocates net income first to preferred stockholders based on dividend rights under the Company’s certificate of incorporation and then to preferred and common stockholders based on ownership interests. Net losses are not allocated to preferred stockholders as they do not have an obligation to share in the Company’s net losses.

~~For all periods presented and as of the date of this Current Report on Form 10-Q, the Company had and~~ has two classes of common stock ~~outstanding:~~authorized: Class A common stock and Class B common stock. ~~As more fully described in Note 8, the~~The rights of the holders of Class A and Class B common stock ~~were and~~ are identical, except with respect to voting and conversion. Each share of Class A common stock ~~was and~~ is entitled to one ~~(1)~~ vote per share and each share of Class B common stock ~~was and~~ is entitled toten ~~(10)~~ votes per ~~share.~~ share. Each share of Class B common stock ~~was and~~ is convertible into one share of Class A common stock at the option of the holder at any ~~time. In addition, each share of Class B common stock was and is~~time or automatically ~~convertible into one share of Class A common stock~~ upon ~~any transfer of such share, which is defined to include entering into a voting agreement, whether or not for value, except for~~ certain ~~transfers~~events described in ~~both~~ the Company’s ~~Third Amended~~amended and ~~Restated Certificate~~restated certificate of ~~Incorporation and Fourth Amended and Restated Certificate of Incorporation,~~incorporation, including ~~without limitation, transfers to certain family members of the transferor stockholder. Upon~~upon either the death or voluntary termination of the Company’s ~~Chief~~ Executive ~~Officer, all~~Chairman. The Company allocates undistributed earnings attributable to common stock between the common stock classes on a one‑to‑one basis when computing net income per share. As a result, basic and diluted net income per share of Class A common stock and per share of Class B common stock are equivalent.

During the three months ended June 30, 2023 and 2022 and the six months ended June 30, 2023 and 2022, no shares of Class B common stock were converted into Class A common stock.

Basic net income (loss) per share (“Basic EPS”) is computed by dividing consolidated net income adjusted for net loss attributable to redeemable noncontrolling interest and ~~are automatically convertible into one share~~changes in the redemption value of redeemable noncontrolling interest, if applicable, by the weighted-average number of common shares outstanding during the reporting period. The Company computes the weighted-average number of common shares outstanding during the reporting period using the total number of shares of Class A common ~~stock. Upon the effectiveness~~stock and Class B common stock outstanding as of the Company’s Fourth Amended and Restated Certificate of Incorporation, additional terms of conversion and transfer were implemented. See Note 12 to these Unaudited Condensed Consolidated Financial Statements for additional information regarding the current conversion and transfer termslast day of the ~~Company’s common stock.~~previous year plus the weighted-average of any additional shares issued and outstanding during the reporting period, less the weighted-average of any shares repurchased during the period.

Diluted net income (loss) per share (“Diluted EPS”) gives effect to all potentially dilutive securities. ~~Potential~~Diluted EPS is computed by dividing consolidated net income adjusted for net loss attributable to redeemable noncontrolling interest and changes in the redemption value of redeemable noncontrolling interest, if applicable and dilutive, ~~securities consist~~by the weighted-average number of common shares outstanding during the reporting period using (i) the number of shares of common stock ~~issuable~~used in the Basic EPS calculation as indicated above, (ii) if dilutive, the incremental weighted-average common stock that the Company would issue upon the exercise of stock options ~~shares of common stock issuable upon~~and the vesting of RSUs, and (iii) if dilutive, market-based performance awards based on the number of shares ~~of common stock~~that would be issuable ~~upon the conversion~~as of the ~~outstanding convertible preferred stock.~~end of the reporting period assuming the end of the reporting period was also the end of the contingency period. The dilutive effect of these common stock equivalents is reflected in diluted earnings per share by application of the treasury stock ~~method; however, outstanding RSUs, which are contingently~~method. The if-converted method is used to calculate the number of shares issuable upon exercise of the ~~achievement~~2024 Put Right (as defined in Note 2 to the consolidated financial statements contained within the Annual Report), inclusive of ~~a liquidity event have been excluded from the dilutive share calculation as it was not probable the vesting criteria for these awards~~CarOffer noncontrolling interest and incentive and subject units, that would be ~~met in any~~issuable as of the ~~periods presented.~~end of the reporting period assuming the end of the reporting period was also the end of the contingency period.

For the three ~~and nine~~ months ended ~~September~~June 30, ~~2017~~2023 and ~~2016,~~2022 and for the ~~two-class method was used in the computation of diluted net income per share, as the result was more dilutive.~~

~~The following table presents~~six months ended June 30, 2023 and 2022, a reconciliation of the numerator and denominator used in the calculation of basic and diluted net income ~~(loss)~~ per ~~share:~~share is as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Numerator:
Consolidated net income	$	13,817		$	18,061		$	25,683		$	36,899
Net loss attributable to redeemable noncontrolling interest		(2,596	)		(1,223	)		(6,862	)		(2,295	)
Accretion of redeemable noncontrolling interest to redemption value		—			29,620			—			111,620
Net income (loss) attributable to common stockholders — basic	$	16,413		$	(10,336	)	$	32,545		$	(72,426	)
Net loss attributable to redeemable noncontrolling interest		(2,596	)		—			(6,862	)		—
Net income (loss) attributable to common stockholders — diluted	$	13,817		$	(10,336	)	$	25,683		$	(72,426	)
Denominator:
Weighted-average number of shares of common stock used in computing net income per share attributable to common stockholders — basic		113,438,057			118,390,641			114,392,961			118,211,975
Dilutive effect of share equivalents resulting from stock options		226,406			—			228,043			—
Dilutive effect of share equivalents resulting from unvested restricted stock units		826,188			—			576,886			—
Weighted-average number of shares of common stock used in computing net income per share attributable to common stockholders — diluted		114,490,651			118,390,641			115,197,890			118,211,975
Net income (loss) per share attributable to common stockholders:
Basic	$	0.14		$	(0.09	)	$	0.28		$	(0.61	)
Diluted	$	0.12		$	(0.09	)	$	0.22		$	(0.61	)

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

Numerator:

Net income

$
2,379

$
2,138

$
10,932

$
2,659

Net income attributable to participating securities

(1,401
)

(1,260
)

(6,446
)

(1,554
)
Net income attributable to common
   stockholders — basic

$
978

$
878

$
4,486

$
1,105

Net income

$
2,379

$
2,138

$
10,932

$
2,659

Net income attributable to participating securities

(1,345
)

(1,222
)

(6,198
)

(1,507
)
Net income attributable to common
   stockholders — diluted

$
1,034

$
916

$
4,734

$
1,152

Denominator:

Weighted-average number of shares of common stock used
   in computing net income per share attributable to
   common stockholders — basic

42,262,035

44,692,419

42,168,904

44,665,063

Dilutive effect of share equivalents resulting from stock
   options

4,305,138

3,376,954

4,141,726

3,375,691

Weighted-average number of shares of common stock
   used in computing net income per
   share — diluted

46,567,173

48,069,373

46,310,630

48,040,754

Net income per share attributable to common
   stockholders:

Basic

$
0.02

$
0.02

$
0.11

$
0.02

Diluted

$
0.02

$
0.02

$
0.10

$
0.02

~~The following~~For the three months ended June 30, 2023 and 2022 and for the six months ended June 30, 2023 and 2022, potentially dilutive common stock equivalents that have been excluded from the calculation of diluted weighted-average shares outstanding ~~for the three and nine months ended September 30, 2017 and 2016,~~ as their effect would have been anti-dilutive are as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Stock options outstanding		558,080		885,547		559,054		914,870
Restricted stock units outstanding		2,291,538		4,296,625		2,749,365		4,186,653
CO Incentive Units, Subject Units and noncontrolling interest		—		15,205,940		—		11,498,025

For the three and six months ended June 30, 2023, the number of issuable shares estimated upon exercise of the 2024 Put Right was zero.For the three and six months ended June 30, 2022, there was no effect of potentially dilutive shares as the numerator was negative. Additionally, during the three months ended March 31, 2022, the Company modified its market-based performance awards to contain only service-based vesting conditions in line with the Company's other RSU awards. As a result, there are no market-based RSUs outstanding as of June 30, 2023 or 2022.

11. Income Taxes

During the three months ended June 30, 2023 and 2022 and the six months ended June 30, 2023 and 2022, the Company recorded an income tax provision of $8,601, $5,325, $15,132, and $13,027, representing an effective tax rate of 34.4%, 21.6%, 31.7%, and 25.0%, respectively. The effective tax rates for the ~~periods presented:~~three months ended June 30, 2023 and 2022 and the six months ended June 30, 2023 and 2022, were greater than the statutory tax rate of 21%, principally due to state and local income taxes, shortfalls on the taxable compensation of stock-based awards, and the Section 162(m) excess officer compensation limitation, partially offset by federal and state research and development tax credits.

The Company and its subsidiaries are subject to various U.S. federal, state, and foreign income tax examinations. The Company is currently not subject to income tax examination for the tax years of 2018 and prior as a result of applicable statute of limitations of the Internal Revenue Service and a majority of applicable state jurisdictions. The Company is currently not subject to examination in its foreign jurisdictions for tax years 2017 and prior.

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

Stock options outstanding

—

1,332,666

816,318

1,226,182

Restricted stock units outstanding

2,353,152

1,124,694

2,353,152

1,124,694

Convertible preferred stock

—

—

—

—

~~11.~~12. Segment and Geographic Information

~~The~~Effective as of the fourth quarter of 2022, the Company ~~has~~ revised its segment reporting from one reportable segment to two reportable segments, ~~United States~~U.S. Marketplace and ~~International. Segment information is presented~~Digital Wholesale. The change in segment reporting was a triggering event for an evaluation of goodwill impairment. As such, the ~~same manner as~~Company evaluated for goodwill impairment on December 31, 2022, and did not identify any impairment to its goodwill. The change in segment reporting was made to align with financial reporting results regularly provided to the ~~Company’s~~Company's chief operating decision maker ~~(“CODM”~~("CODM")~~, reviews~~ to assess the ~~Company’s operating results in assessing performance and allocating resources.~~business. The CODM reviews segment revenue and ~~operating~~segment income (loss) ~~for each reportable segment~~from operations as a proxy for the ~~operating~~ performance of the Company’s ~~United States and International~~ operations.

The ~~Company’s Chief Executive Officer is the CODM on behalf of both reportable segments.~~

~~The United States~~U.S. Marketplace segment derives ~~revenues~~revenue from marketplace ~~subscriptions, advertising~~ services ~~and other revenues~~ from customers within the United States. The ~~International~~Digital Wholesale segment derives ~~revenues~~revenue from Dealer-to-Dealer and IMCO services and products which are sold on the CarOffer platform. The Company also has two operating segments which are individually immaterial and therefore aggregated into the Other category to reconcile reportable segments to the Unaudited Condensed Consolidated Income Statements. The Other category derives revenue from marketplace ~~subscriptions, advertising~~ services ~~and other revenues~~ from customers outside of the United States. A majority of the Company’s operational overhead expenses, including technology and personnel costs, and other general and administrative costs associated with running the Company’s business, are incurred in the United States and not allocated to the international segment. Assets

Revenue and costs discretely incurred by reportable segments, including depreciation and amortization, are included in the calculation of reportable segment income (loss) ~~income~~ from operations. ~~Segment operating~~For the year ended December 31, 2022, Digital Wholesale segment income (loss) ~~does~~from operations did not reflect certain Dealer-to-Dealer and IMCO related capitalized website development amortization incurred by the ~~transfer pricing adjustments~~U.S. Marketplace segment. During the three months ended March 31, 2023, the Company updated Digital Wholesale segment income (loss) from operations to reflect certain Dealer-to-Dealer and IMCO related capitalized website development amortization incurred by the U.S. Marketplace segment and accordingly updated Digital Wholesale segment income (loss) from operations for the three and six months ended June 30, 2022 for comparative purposes. Digital Wholesale segment income (loss) from operations also reflects certain IMCO marketing and lead generation fees allocated from the U.S. Marketplace segment. Asset information by reportable segment is not provided to the ~~Company’s foreign subsidiaries, which are recorded for statutory reporting purposes. Asset~~CODM as asset information is assessed and reviewed on a ~~global~~consolidated basis.

~~Information regarding~~For the ~~Company’s~~three months ended June 30, 2023 and 2022 and for the six months ended June 30, 2023 and 2022, segment revenue, segment income (loss) from operations, byand segment depreciation and ~~geographical area is presented~~amortization are as follows:

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

Segment revenue:

United States

$
80,394

$
52,435

$
219,954

$
136,195

International

2,595

701

6,310

1,182

Total revenue

$
82,989

$
53,136

$
226,264

$
137,377


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Segment Revenue
U.S. Marketplace	$	158,443	$	152,753	$	314,064	$	304,642
Digital Wholesale		68,787		347,303		133,623		614,622
Other		12,507		11,173		24,013		22,573
Total	$	239,737	$	511,229	$	471,700	$	941,837

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

Segment (loss) income from operations:

United States

$
9,337

$
8,351

$
33,617

$
16,818

International

(6,474
)

(5,094
)

(18,375
)

(12,853
)
Total income from operations

$
2,863

$
3,257

$
15,242

$
3,965


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Segment Income (Loss) from Operations:
U.S. Marketplace	$	24,619		$	28,346		$	51,158		$	58,182
Digital Wholesale		(6,307	)		(2,638	)		(17,532	)		(4,749	)
Other		(574	)		(2,166	)		(1,829	)		(3,232	)
Total	$	17,738		$	23,542		$	31,797		$	50,201


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Segment Depreciation and Amortization:
U.S. Marketplace	$	2,823	$	2,879	$	5,563	$	5,819
Digital Wholesale		8,701		8,257		17,394		16,379
Other		143		98		286		221
Total	$	11,667	$	11,234	$	23,243	$	22,419

For the three months ended June 30, 2023 and 2022 and for the six months ended June 30, 2023 and 2022, a reconciliation between total segment income from operations to consolidated income before income taxes is as follows:


	Three Months Ended June 30,					Six Months Ended June 30,
	2023		2022			2023		2022
Total segment income from operations	$	17,738	$	23,542		$	31,797	$	50,201
Other income (expense), net		4,680		(156	)		9,018		(275	)
Consolidated income before income taxes	$	22,418	$	23,386		$	40,815	$	49,926

As of ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016, property~~2022, segment assets are as follows:


	As of June 30, 2023		As of December 31, 2022 (1)
Segment Assets:
U.S. Marketplace	$	656,728	$	525,103
Digital Wholesale		334,712		358,289
Other		48,881		43,710
Total	$	1,040,321	$	927,102

(1)

As of December 31, 2022, Digital Wholesale assets did not reflect certain Dealer-to-Dealer and ~~equipment held outside~~IMCO related capitalized website development assets from the ~~United States was not material.~~

~~12. Subsequent Events~~

~~On October 16, 2017,~~U.S. Marketplace segment. During the three months ended March 31, 2023, the Company ~~completed~~updated Digital Wholesale assets to reflect certain Dealer-to-Dealer and IMCO related capitalized website development amortization assets from the ~~IPO, in which~~U.S. Marketplace segment and accordingly updated Digital Wholesale assets as of December 31, 2022 for comparative purposes.

For the ~~Company issued~~three months ended June 30, 2023 and sold 3,205,000 shares of its Class A common stock, including the full exercise by the underwriters of their option to purchase 705,000 shares of Class A common stock, at a public offering price of $16.00 per share for aggregate gross proceeds of $51.3 million. The Company received approximately $43.0 million in net proceeds after deducting $3.6 million of underwriting discounts2022 and commissions and approximately $4.7 million in offering costs. In addition to shares of Class A common stock issued and sold by the Company, certain selling shareholders sold an aggregate of 7,605,000 shares of Class A common stock, including the full exercise by the underwriters of their option to purchase 705,000 shares of Class A common stock, as part of the IPO. Upon the closing of the IPO, all of the outstanding shares of convertible Preferred Stock automatically converted into 20,188,226 shares of Class A common stock and 40,376,452 shares of Class B common stock. The 40,376,452 shares of Class B common stock subsequently converted into 40,376,452 shares of Class A common stock resulting in a total conversion of all outstanding shares of Preferred Stock into 60,564,678 shares of Class A common stock. Subsequent to the closing of the IPO, there were no shares of Preferred Stock outstanding.

Allen & Company LLC acted as an underwriter in the IPO. Immediately prior to the IPO, Allen & Company LLC and its associated persons, including Ian Smith, a member of the Company’s board of directors, beneficially owned shares of the Company’s outstanding preferred stock representing 13.5% of the Company’s outstanding preferred stock. In connection with Allen & Company LLC’s role as an underwriter in the IPO, pursuant to the underwriting agreement, Allen & Company LLC purchased 2,190,200 shares of our Class A common stock in the IPO at $14.88 per share for a total purchase price of $32,590,176, after deducting underwriting discounts and commissions paid to Allen & Company LLC of $2,453,024. Receipt of such proceeds may be deemed to be a related person transaction pursuant to the Company’s related person transaction policy.

~~In connection with the IPO, in October 2017, the Company’s board of directors adopted, and the Company’s stockholders approved, the Omnibus Equity Compensation Plan (the “2017 Plan”)~~ for the ~~purpose of granting incentive stock options, non-qualified stock options, restricted stock, restricted stock units,~~six months ended June 30, 2023 and ~~other share-based awards to employees, non-employee directors, and consultants. The 2017 Plan~~2022, revenue by geographic region is the successor to the Amended and Restated 2015 Equity Incentive Plan (the “2015 Plan”). In conjunction with the adoption of the 2017 Plan, options and RSUs from the 2015 Plan will remain outstanding but no additional grants will be made from the 2015 Plan.as follows:

Also, in connection with the closing of the IPO, each share of Series A Preferred Stock automatically converted into 6.0000023 shares of common stock, each share of Series B Preferred Stock converted into 6.0000015 shares of common stock, each share of Series C Preferred Stock converted into 6 shares of common stock, each share of Series D Preferred Stock converted into 6.0000159 shares of common stock and each share of Series E Preferred Stock converted into 6 shares of common stock, one-third of which number of shares of common stock was Class A common stock and two thirds of which number of shares of common stock was Class B common stock. Each such share of Class B common stock issued upon conversion of the Preferred Stock was then immediately converted into one share of Class A common stock.


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Revenue by Geographic Region:
United States	$	227,230	$	500,056	$	447,687	$	919,264
International		12,507		11,173		24,013		22,573
Total	$	239,737	$	511,229	$	471,700	$	941,837

Immediately following such conversion, the Company’s Fourth Amended and Restated Certificate of Incorporation became effective. Pursuant to the Fourth Amended and Restated Certificate of Incorporation, the Company is authorized to issue 500,000,00021

shares of Class A common stock, 100,000,000 shares of Class B common stock, and 10,000,000 shares of preferred stock, all with a par value of $0.001 per share. The preferred stock is currently undesignated and no preferred stock is outstanding.

In addition, pursuant to the Fourth Amended and Restated Certificate of Incorporation, all shares of Class B common stock will automatically convert into shares of Class A common stock, on a share for share basis, upon the date falling after the first to occur of the death of Langley Steinert, the Company’s Chief Executive Officer, President and Chairman, his voluntary termination of all employment with the Company and service on the Company’s board of directors or the sum of the number of shares of capital stock held by Langley Steinert, by any Family Member of Langley Steinert, and by any Permitted Entity of Langley Steinert (as such terms are defined in the Fourth Amended and Restated Certificate of Incorporation), assuming the exercise and settlement in full of all outstanding options and convertible securities and calculated on an as-converted to Class A common stock basis, being less than 9,091,484. Shares of Class B common stock will not automatically convert into shares of Class A common stock upon the termination of Mr. Steinert's status as an officer and director, unless such termination is either made voluntarily by Mr. Steinert or due to Mr. Steinert's death. Once converted into Class A common stock, the converted shares of Class B common stock will not be reissued. In addition, if all shares of Class B common stock are converted into Class A common stock, then any outstanding options or convertible securities with the right to purchase or acquire shares of Class B common stock shall become a right to purchase or acquire shares of Class A common stock.

~~On October 25, 2017, the Company granted a total of 762,704 RSUs with a grant date fair value of $29.01 per share. The total aggregate value of these RSUs is approximately $22.1 million.~~

Item 2. Management’s ~~Discussio~~nDiscussion 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 Unaudited Condensed Consolidated Financial Statements, and the related notes thereto, appearing elsewhere in this ~~report,~~Quarterly Report, and our consolidated financial statements and the related notes and other financial information included in our ~~final prospectus~~Annual Report on Form 10-K for the year ended December 31, 2022, filed with the U.S. Securities and Exchange Commission, ~~pursuant to Rule 424(b) under the Securities Act of 1933, as amended,~~or SEC, on ~~October 12, 2017.~~March 1, 2023, or our Annual Report. Some of the information contained in this discussion and analysis or elsewhere in this ~~report,~~Quarterly Report, including information with respect to our plans and strategy for our business and our performance and future success, includes forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements.” You should review the “Risk Factors” section of this ~~report~~Quarterly 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.

In this discussion, we use financial measures that are considered non-GAAP financial measures under ~~Securities and Exchange Commission~~SEC rules. These rules regarding non-GAAP financial measures require supplemental explanation and reconciliation, which isare included elsewhere in this ~~report.~~Quarterly Report. Investors should not consider non-GAAP financial measures in isolation from or in substitution for, financial information presented in compliance with ~~U.S.~~United States generally accepted accounting principles, or GAAP.

This section of this Quarterly Report discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022. The period‑to‑period comparison of financial results is not necessarily indicative of future results.

Company Overview

CarGurus, Inc. is a ~~global,~~multinational, online automotive platform for buying and selling vehicles that is building upon its industry-leading listings marketplace ~~connecting buyers~~with both digital retail solutions and ~~sellers of new~~the CarOffer digital wholesale platform. The CarGurus platform gives consumers the confidence to buy and/or sell a vehicle either online or in-person, and ~~used cars. Using~~it gives dealerships the power to accurately price, instantly acquire, effectively market, and quickly sell vehicles, all with a nationwide reach. We use proprietary technology, search algorithms, and ~~innovative~~ data analytics to bring trust, transparency, and competitive pricing to the automotive shopping experience.

We are headquartered in Cambridge, Massachusetts and were incorporated in the State of Delaware on June 26, 2015.

We operate principally in the United States. In the United States, we ~~provide information~~also operate as independent brands – the Autolist online marketplace, which we wholly own, and ~~analysis that create~~the CarOffer digital wholesale platform, in which we hold a differentiated automotive search experience for consumers. Our trusted marketplace empowers users with unbiased third-party validation on pricing and dealer reputation as well as other information that aids them in finding “Great Deals from Top-Rated Dealers.”51% equity interest. In addition to the United States, we operate online marketplaces under the CarGurus brand in Canada and the United Kingdom. In the United Kingdom, ~~and Germany.~~

~~On October 16, 2017,~~ we ~~completed our initial public offering, or~~also operate as an independent brand the ~~IPO, in~~PistonHeads online marketplace, which we ~~issued~~wholly own.

We have subsidiaries in the United States, Canada, Ireland, and sold 3,205,000 shares of our Class A common stock at a public offering price of $16.00 per share for aggregate gross proceeds of $51.3 million. We received approximately $43.0 million in net proceeds after deducting $3.6 million of underwriting discounts and commissions and approximately $4.7 million in offering costs. ~~Upon~~ the ~~closing~~United Kingdom. Effective as of the ~~IPO, all~~fourth quarter of 2022, we revised our segment reporting from one reportable segment to two reportable segments – U.S. Marketplace and Digital Wholesale. See Note 12 of the ~~outstanding shares~~Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report for further segment reporting and geographic information.

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 ~~our Preferred Stock automatically converted into 20,188,226 shares of Class A common stock~~segment reporting. Wholesale revenue and ~~40,376,452 shares of Class B common stock. The 40,376,452 shares of Class B common stock subsequently converted into 40,376,452 shares of Class A common stock resulting~~product revenue are included in ~~a total conversion of all outstanding shares of Preferred Stock into 60,564,678 shares of Class A common stock at~~ the ~~conversion rates then in effect. Subsequent to the closing of the IPO, there were no shares of Preferred Stock outstanding.~~

Digital Wholesale segment. We generate marketplace ~~subscription~~ revenue primarily from ~~dealers through Listing~~(i) dealer subscriptions to our Listings packages and ~~Dealer Display subscriptions,~~Real-time Performance Marketing, or RPM, digital advertising suite, and Digital Retail, (ii) advertising revenue from ~~automobile~~auto manufacturers and other auto-related brand ~~advertisers. Our~~advertisers, and (iii) revenue ~~for~~from partnerships with financing services companies. We generate wholesale revenue primarily from (x) transaction fees earned from facilitating the ~~nine months ended September 30, 2017 was $226.3 million, a 65% increase~~purchase and sale of vehicles between dealers, or Dealer-to-Dealer transactions, (y) transaction fees earned from ~~$137.4 million~~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 IMCO transactions (as defined below). We generate product revenue inprimarily from (A) aggregate proceeds received from the ~~nine months ended September 30, 2016.~~sale of vehicles to dealers that were acquired directly from customers, or CarGurus Instant Max Cash Offer, or IMCO, transactions, and (B) proceeds received from the sale of vehicles that were acquired through arbitration.

For the three months ended ~~September~~June 30, ~~2017,~~2023, we generated revenue of $239.7 million, a 53% decrease from $511.2 million of revenue for the three months ended June 30, 2022. For the three months ended June 30, 2023, we generated consolidated net income of ~~$2.4~~$13.8 million and ~~our~~Consolidated Adjusted EBITDA ~~was $4.0~~of $45.2 million, compared to consolidated net income of ~~$2.1~~$18.1 million and Consolidated Adjusted EBITDA of ~~$3.9~~$61.2 million for the three months ended ~~September~~June 30, ~~2016.~~ 2022.

For the ~~nine~~six months ended ~~September~~June 30, ~~2017,~~2023, we generated revenue of $471.7 million, a 50% decrease from $941.8 million of revenue for the six months ended June 30, 2022. For the six months ended June 30, 2023, we generated consolidated net income of ~~$10.9~~$25.7 million and ~~our~~Consolidated Adjusted EBITDA ~~was $18.1~~of $86.0 million, compared to consolidated net income of ~~$2.7~~$36.9 million and Consolidated Adjusted EBITDA of $126.9 million for the six months ended June 30, 2022.

See “Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA ~~of $5.6 million for the nine months ended September 30, 2016. See “Adjusted EBITDA”~~attributable to redeemable noncontrolling interest” below for more information regarding our use of Adjusted EBITDA, a non-GAAP financial measure, and a reconciliation of Adjusted EBITDA to our consolidated net income.

~~We have two reportable segments, United States and International. See Note 11 of our Unaudited Condensed Consolidated Financial Statements included elsewhere in this report for more information.~~

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 for the United States and International ~~segments.~~geographic regions. The International ~~is defined as all non-U.S. markets in which we operate.~~region derives revenue from marketplace revenue from customers outside of the United States. International markets ~~will likely~~ perform differently from the ~~U.S.~~United States market due to a variety of factors, including our operating history in ~~the~~each market, our rate of investment, market size, market maturity, competition, and other dynamics unique to each country.

Monthly Unique Users

WeFor each of our websites (excluding the CarOffer website), we define a monthly unique user as an individual who has visited ~~our~~any such website within a calendar month, based on data as measured by Google Analytics. We calculate average monthly unique users as the sum of the monthly unique users of each of our websites in a given period, divided by the number of months in that period. We count a unique user the first time a computer or mobile device with a unique device identifier accesses any of our ~~website~~websites during a calendar month. If an individual accesses ~~our~~a website using a different device within a given month, the first access 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 site within a calendar month, each such visit is counted as a separate unique user. 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 ~~subscription~~ 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 consumers and dealers on our marketplace through phone calls, email, managed text and chat, and clicks to access the dealer’s website ~~and~~or map directions to the dealership.


	Three Months Ended September 30,				Three Months Ended June 30,				Six Months Ended June 30,
Average Monthly Unique Users	2017		2016		2023		2022		2023		2022
					(in thousands)				(in thousands)
United States		25,951		20,903		31,907		29,526		31,947		30,289
International		2,607		1,681		7,379		6,591		7,285		6,735
Total						39,286		36,117		39,232		37,024

Monthly Sessions

We define monthly sessions as the number of distinct visits to our ~~website~~websites (excluding the CarOffer website) that take place each month within a given time frame, as measured and defined by Google Analytics. We calculate average monthly sessions as the sum of the monthly sessions in a given period, divided by the number of months in that period. A session is defined as beginning with the first page view from a computer or mobile device and ending at the earliest of when a user closes their browser window, after 30 minutes of inactivity, or each night at midnight (i) Eastern Time ~~each night.~~for our United States and Canada websites, other than the Autolist website, (ii) Pacific Time for the Autolist website, and (iii) Greenwich Mean Time for our United Kingdom websites. A session can be made up of multiple page views and visitor actions, such as performing a search, visiting vehicle detail pages, and connecting with a dealer. 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.~~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.


	Three Months Ended September 30,				Three Months Ended June 30				Six Months Ended June 30
Average Monthly Sessions	2017		2016		2023		2022		2023		2022
					(in thousands)				(in thousands)
United States		67,359		48,903		84,355		80,142		84,314		82,496
International		5,548		3,213		17,137		14,903		16,904		15,360
Total						101,492		95,045		101,218		97,856

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 applicable period. Transactions consists of each unique vehicle (based on vehicle identification number) that reaches "sold and invoiced" status on the CarOffer website within the applicable 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. Digital Wholesale includes Dealer-to-Dealer transactions and IMCO 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. We believe growth in Transactions demonstrates consumer and dealer utilization and our market share penetration in the Digital Wholesale segment.


	Three Months Ended June 30,				Six Months Ended June 30,
Transactions	2023		2022		2023		2022
Transactions		20,793		63,998		38,298		132,752

Number of Paying Dealers

~~Paying dealers are the number of dealers subscribing to one of our Enhanced or Featured Listing products~~We define a paying dealer as a dealer account with an active, paid marketplace subscription at the end of a defined period. ~~We believe that the~~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 ~~Listing~~marketplace products, ~~and~~as well as our sales and marketing success and opportunity, including our ability to retain paying dealers and develop new dealer relationships.


	At September 30,				As of June 30,
Number of Paying Dealers	2017		2016		2023		2022
United States		24,313		18,777		24,220		24,488
International		2,240		626		6,877		6,655
Total						31,097		31,143

Quarterly Average ~~Annual~~ Revenue per Subscribing Dealer ~~(AARSD)~~(QARSD)

~~We measure the average annual revenue we receive from each paying dealer.~~ We define ~~AARSD, as~~QARSD, which is measured at the end of a ~~defined period,~~fiscal quarter, as the ~~total~~ marketplace ~~subscription~~ revenue primarily from subscriptions to our Listings packages and RPM digital advertising suite during ~~the~~that trailing ~~12 months~~quarter divided by the average number of paying dealers in that marketplace during the ~~same trailing 12-month period. Our~~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 ~~the AARSD~~QARSD is an indicator of the value proposition of our products and the return on investment, or ROI, that our paying dealers realize from our products. ~~Increases~~In addition, increases in ~~AARSD~~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, ~~effectively illustrate the value of brand exposure~~which result in increased opportunity to ~~our engaged audience in relation to subscription cost,~~ upsell package levels and cross-sell additional products to our paying dealers.

	At September 30,
Average Annual Revenue per Subscribing Dealer (AARSD)	2017		2016
					As of June 30,
Quarterly Average Revenue per Subscribing Dealer (QARSD)					2023		2022
United States	$	11,526	$	9,939	$	6,110	$	5,771
International	$	4,711	n/a*		$	1,610	$	1,533
Consolidated					$	5,116	$	4,862

*	~~International revenues were not generated before October 2015 and, therefore, annual data for the trailing 12-month calculation is not available.~~

Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest

To provide investors with additional information regarding our financial results, we ~~monitor and~~ have presented within this Quarterly Report, ~~on Form 10-Q~~Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest, each of which is a ~~non-GAAP~~non‑GAAP financial measure. ~~This non-GAAP~~These non‑GAAP financial ~~measure is~~measures are not based on any standardized methodology prescribed by ~~U.S.~~ GAAP, and isare not necessarily comparable to ~~similarly-titled~~any similarly titled measures presented by other companies.

We define Consolidated Adjusted EBITDA as consolidated net income, adjusted to exclude: depreciation and amortization, ~~stock-based~~impairment of long-lived assets, stock‑based compensation expense, other (income) expense, 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, impairment of long-lived assets, stock‑based compensation expense, other expense, ~~(income),~~ net, ~~the~~and provision for income ~~taxes,~~taxes. These exclusions are adjusted for redeemable noncontrolling interest of 38% by taking the noncontrolling interest's full financial results and ~~other one-time, non-recurring items, when applicable.~~multiplying each line item in the reconciliation by 38%. We ~~monitor~~note that we use 38%, versus 49%, to allocate the share of income (loss) because it represents the portion attributable to the redeemable noncontrolling interest. The 38% is exclusive of CO Incentive Units, Subject Units, and 2021 Incentive Units (as each term is defined in Note 2 to our consolidated financial statements contained within our Annual Report) liability classified awards which do not participate in the share of income (loss).

We have presented Consolidated Adjusted EBITDA ~~as a non-GAAP financial measure to supplement the financial information we present on a GAAP basis to provide investors with additional information regarding our financial results.~~

and Adjusted EBITDA within this Quarterly Report 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. In particular, we believe that the exclusion of certain items in calculating Consolidated Adjusted EBITDA and Adjusted EBITDA can produce a useful measure for period‑to‑period comparisons of our business. We have presented 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. Adjusted EBITDA attributable to redeemable noncontrolling interest is not intended to be reviewed on its own.

We use Consolidated Adjusted EBITDA and Adjusted EBITDA to evaluate our operating performance and trends and make planning decisions. 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 to reconcile Consolidated Adjusted EBITDA to Adjusted EBITDA. It enables an investor to gain a clearer understanding of the portion of Consolidated Adjusted EBITDA that is attributable to our redeemable noncontrolling interest.

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 ~~(loss),~~and net loss attributable to redeemable noncontrolling interest, respectively, which isare the most directly comparable GAAP ~~equivalent.~~equivalents. Some of these limitations are:

•

Consolidated Adjusted EBITDA, ~~excludes stock-based~~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 impairment of long-lived assets and, although these are non-cash adjustments, the assets being impaired 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 other (income) expense, net, which consists primarily of interest income earned on our cash and cash equivalents, foreign exchange gains and losses and interest expense;

•

Consolidated Adjusted EBITDA, Adjusted EBITDA, and Adjusted EBITDA attributable to redeemable noncontrolling interest exclude the provision for income taxes;

•

Adjusted EBITDA excludes ~~depreciation and amortization expense and, although these are non-cash expenses, the assets being depreciated may have to be replaced in the future;~~

Adjusted EBITDA ~~does not reflect interest expense, or the cash requirements necessary~~attributable to ~~service~~redeemable noncontrolling interest, which ~~reduces cash available~~is calculated as the net loss attributable to ~~us;~~

redeemable noncontrolling interest, adjusted for all exclusions used to calculate Consolidated Adjusted EBITDA ~~does not reflect income tax payments that reduce cash available to us;~~as described above; and

•

~~Other~~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 ~~its~~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. ~~The~~

For the three months ended June 30, 2023 and 2022 and for the six months ended June 30, 2023 and 2022, 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:~~presented.


	Three Months Ended June 30,					Six Months Ended June 30,
	2023			2022		2023			2022
	(in thousands)					(in thousands)
Reconciliation of Consolidated Adjusted EBITDA and Adjusted EBITDA:
Consolidated net income	$	13,817		$	18,061	$	25,683		$	36,899
Depreciation and amortization		11,667			11,234		23,243			22,419
Impairment of long-lived assets		9			—		184			—
Stock-based compensation expense		15,827			26,457		30,804			54,299
Other (income) expense, net		(4,680	)		156		(9,018	)		275
Provision for income taxes		8,601			5,325		15,132			13,027
Consolidated Adjusted EBITDA		45,241			61,233		86,028			126,919
Adjusted EBITDA attributable to redeemable noncontrolling interest		1,590			7,265		913			15,001
Adjusted EBITDA	$	43,651		$	53,968	$	85,115		$	111,918

For the three months ended June 30, 2023 and 2022 and for the six months ended June 30, 2023 and 2022, 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.


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
	(in thousands)						(in thousands)
Reconciliation of Adjusted EBITDA attributable to redeemable noncontrolling interest:
Net loss attributable to redeemable noncontrolling interest	$	(2,596	)	$	(1,223	)	$	(6,862	)	$	(2,295	)
Depreciation and amortization (1)		2,951			2,917			5,899			5,827
Impairment of long-lived assets (1)		—			—			67			—
Stock-based compensation expense (1)		675			5,127			896			10,498
Other expense, net (1)		540			444			888			880
Provision for income taxes (1)		20			—			25			91
Adjusted EBITDA attributable to redeemable noncontrolling interest	$	1,590		$	7,265		$	913		$	15,001

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

(dollars in thousands)

Net income

$
2,379

$
2,138

$
10,932

$
2,659

Depreciation and amortization

1,083

545

2,670

1,381

Stock-based compensation expense

74

88

224

236

Other (income), net

(106
)

(107
)

(323
)

(260
)
Provision for income taxes

590

1,226

4,633

1,566

$
4,020

$
3,890

$
18,136

$
5,582

(1)

These exclusions are adjusted to reflect the noncontrolling interest of 38%.

Components of Unaudited Condensed Consolidated Income Statements ~~of Operations~~

Revenue

~~Our~~We derive our revenue from marketplace revenue, wholesale revenue, and product revenue. Marketplace revenue is ~~derived~~included in the U.S. Marketplace segment and Other category of segment reporting. Wholesale revenue and product revenue are included in the Digital Wholesale segment. We generate marketplace revenue primarily from ~~two primary sources: marketplace subscription revenue, which consists of listing~~(i) dealer subscriptions to our Listings packages, RPM digital advertising suite, and ~~display advertising subscriptions from dealers, and advertising and other revenue, which consists primarily of display~~Digital Retail, (ii) advertising revenue from auto manufacturers and other ~~auto-related~~auto‑related brand ~~advertisers.~~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 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 IMCO transactions. We generate product revenue primarily from (A) aggregate proceeds received from the sale of vehicles that were acquired through IMCO transactions, and (B) proceeds received from the sale of vehicles that were acquired through arbitration.

Marketplace ~~Subscription~~ Revenue

We offer ~~three~~multiple types of marketplace ~~Listing products~~Listings packages to our ~~dealers: Basic Listing,~~dealers for our CarGurus U.S. platform (availability varies on our other marketplaces): Restricted Listings, which is free; and ~~Enhanced or Featured Listing,~~various levels of Listings packages, which each require a paid subscription under a monthly, quarterly, semiannual, or annual subscription basis. As

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 ~~September 30, 2017,~~the applicable renewal term. Subscription pricing is determined based on a dealer’s inventory size, region, and our assessment of the connections and ~~return on investment (“ROI”) our~~ROI the platform will provide ~~them.~~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,~~platform. Only dealers subscribing to a paid Listings package have access to the Pricing Tool, ~~and Market Analysis tool. The Pricing Tool and~~ Market Analysis tool, ~~are available only~~and IMV Scan tool. For details on the Dealer Dashboard and these merchandising tools, refer to ~~paying dealers.~~“Our Products and Services – U.S. Marketplace and Other – Dealer Offerings – Dealer Dashboard and Merchandising Tools” in Part I, Item 1 within our Annual Report.

We also offer paid Listings packages for the Autolist and PistonHeads websites.

In addition to ~~listing their~~displaying inventory in our marketplace and ~~gaining~~providing access to ~~our~~the Dealer Dashboard, we offer ~~Enhanced and Featured Listing~~ dealers subscribing to certain of our Listings packages other subscription advertising and customer acquisition products ~~including display~~and enhancements marketed under our RPM digital advertising suite. Through RPM, dealers can buy advertising that appears in our marketplace, ~~and~~ on other sites on the ~~Internet, which~~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) Area Boost/Geo Expansion, which expands the visibility of a dealer’s inventory in the search ~~engine marketing,~~results beyond its local market, and (iii) Hard Pull Financing, which ~~helps dealers more effectively acquire customers through paid search, social media, and retargeted advertising.~~provides loan information.

Marketplace ~~subscription~~ revenue ~~is recognized on a monthly basis as the service is delivered to the dealer.~~

~~Advertising and Other Revenue~~

~~Advertising and other revenue~~also consists ~~primarily~~ of non-dealer ~~display~~ advertising revenue from auto manufacturers and other auto-related brand advertisers sold on a ~~cost per thousand~~cost-per-thousand impressions, 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, 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 Buying Matrix on the CarOffer platform 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 IMCO 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 Buying Matrix on the CarOffer platform 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 IMCO 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. 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 ~~primarily consists of costs~~includes expenses related to supporting and hosting ~~our product~~marketplace service offerings. These ~~costs~~expenses include personnel and related expenses for our customer support team, including salaries, benefits, incentive compensation, and stock-based ~~compensation expense related to the customer support team and~~compensation; third-party service provider ~~costs~~expenses such as advertising, data, ~~center~~ and ~~networking expenses, allocated overhead, depreciation and~~hosting expenses; amortization ~~expense associated with our property and equipment, and~~of developed technology; amortization of capitalized website ~~development costs.~~development; amortization of capitalized hosting arrangements; and allocated overhead expenses. We allocate overhead ~~costs,~~expenses, such as rent and facility ~~costs,~~expenses, information technology ~~costs,~~expense, and employee benefit ~~costs,~~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 wholesale service offerings, including Dealer-to-Dealer transactions and vehicles sold to dealers acquired at other marketplaces, on the Buying Matrix on the CarOffer platform. These expenses include vehicle transportation and inspection expenses; net losses on vehicles related to guarantees offered to dealers through Dealer-to-Dealer transactions; personnel and related expenses for employees directly involved in the fulfillment and support of transactions, including salaries, benefits, incentive compensation and stock-based compensation; third-party service provider expenses; amortization of developed technology; amortization of capitalized website development; and allocated overhead expenses. We ~~expect these~~allocate overhead expenses, such as rent and facility expenses, information technology expense, and employee benefit expense, to ~~increase as we continue~~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 ~~scale our business~~vehicles sold to dealers through IMCO transactions and ~~introduce new products.~~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 expenses consist primarily of personnel and related expenses for our sales and marketing ~~staff,~~team, including salaries, benefits, incentive compensation, commissions, and stock-based ~~compensation, and travel costs; costs~~compensation; expenses associated with consumer marketing, such as traffic acquisition, brand building, and public relations activities; ~~costs~~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.~~overhead expenses. A portion of our commissions that are related to obtaining a new contract are capitalized and amortized over the estimated benefit period of customer relationships. All other sales and marketing expenses are expensed as incurred. We expect sales and marketing expenses to ~~increase as we grow our audience and attempt to strengthen our brand awareness and, as informed by trends in our business and the competitive landscape of our market,~~ fluctuate from quarter to quarter as we respond to changes in the macroeconomic and competitive landscapes affecting our existing dealers, consumer audience, and brand awareness, which will impact our ~~quarterly~~ results of operations.

Product, Technology, and Development

Product, technology, and development expenses ~~which include research and development costs,~~ consist primarily of personnel ~~costs of~~and related expenses for our research and development team, including ~~payroll,~~salaries, benefits, incentive compensation, and stock-based ~~compensation expense~~compensation; software subscription expenses; consulting services; and allocated overhead ~~costs.~~expenses. Other than website development, ~~costs that qualify for capitalization,~~internal-use software, and hosting arrangement expenses, research and development ~~costs~~expenses are expensed as incurred. We expect product, technology, and development expenses 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 expenses consist primarily of personnel ~~costs~~ and related expenses for our executive, finance, legal, ~~human resources,~~people & talent, and administrative ~~personnel,~~teams, including salaries, benefits, incentive compensation, and stock-based ~~compensation~~compensation; expenses ~~in addition to the costs~~ associated with professional fees for audit, tax, external legal, ~~accounting~~ and ~~other~~ consulting ~~services, insurance premiums,~~services; payment processing and billing ~~costs,~~expenses; insurance expenses; software subscription expenses; and allocated overhead ~~costs.~~expenses. General and administrative expenses are expensed as incurred. We expect general and administrative expenses to increase as we ~~incur the costs of compliance associated with being a publicly traded company, including legal, audit, and consulting fees.~~continue to scale our business.

Depreciation and Amortization

Depreciation and amortization expenses consist of depreciation on property and equipment and ~~leasehold improvements.~~amortization of intangible assets and internal-use software.

Other Income (Expense) ~~Income~~, Net

Other income (expense) ~~income~~, net consists primarily of interest income earned on our cash and cash equivalents, ~~and investments, interest expense on lease obligations, and net~~ foreign exchange gains and ~~losses.~~losses, and interest expense for undrawn fees related to our credit facility and amortization of deferred financing costs.

Provision for Income Taxes

We are subject to federal and state income taxes in the United States and taxes in foreign jurisdictions in which we operate. ~~We have recorded~~For the three months ended June 30, 2023 and 2022 and for the six months ended June 30, 2023 and 2022, a provision for income taxes ~~for the three and nine months ended September 30, 2017 and 2016~~was recognized as a result of ~~our~~the consolidated taxable income position.

We recognize deferred tax assets and liabilities based on temporary differences between the financial reporting and income tax bases of assets and liabilities using ~~statutory rates.~~ enacted tax rates in effect for the year in which the temporary differences are expected to be recovered or settled.

We regularly assess the need to ~~record~~recognize a valuation allowance against net deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. ~~We have not provided a valuation allowance against our net deferred tax assets at September~~As of June 30, ~~2017 or~~2023 and December 31, ~~2016.~~2022, valuation allowances were immaterial.

We assess our income tax positions and recognize an income tax benefit or expense based upon our evaluation of the facts, circumstances, and information available at the reporting date. For the three and six months ended June 30, 2023, there was no income tax expense related to uncertain tax provisions. As of June 30, 2023, the income tax liability related to uncertain tax positions, exclusive of immaterial interest or penalties related to uncertain tax provisions, was $0.6 million, which would favorably affect our effective tax rate, if recognized. For the three and six months ended June 30, 2022, no income tax expense and liability related to uncertain tax positions was recognized.

Results of Operations

~~The following table sets forth~~For the three months ended June 30, 2023 and 2022 and for the six months ended June 30, 2023 and 2022, our ~~selected consolidated statements of~~Unaudited Condensed Consolidated Income Statements are as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
	(dollars in thousands)						(dollars in thousands)
Revenue:
Marketplace	$	170,950		$	163,926		$	338,077		$	327,215
Wholesale		31,952			75,937			57,138			166,931
Product		36,835			271,366			76,485			447,691
Total revenue		239,737			511,229			471,700			941,837
Cost of revenue:
Marketplace		15,474			13,257			31,007			25,466
Wholesale		24,428			46,518			46,496			104,700
Product		35,694			263,603			75,076			441,945
Total cost of revenue		75,596			323,378			152,579			572,111
Gross profit		164,141			187,851			319,121			369,726
Operating expenses:
Sales and marketing		77,838			95,605			153,415			183,186
Product, technology, and development		37,391			31,354			73,998			62,007
General and administrative		27,267			33,514			52,186			66,635
Depreciation and amortization		3,907			3,836			7,725			7,697
Total operating expenses		146,403			164,309			287,324			319,525
Income from operations		17,738			23,542			31,797			50,201
Other income (expense), net:
Interest income		4,333			311			8,076			348
Other income (expense), net		347			(467	)		942			(623	)
Total other income (expense), net		4,680			(156	)		9,018			(275	)
Income before income taxes		22,418			23,386			40,815			49,926
Provision for income taxes		8,601			5,325			15,132			13,027
Consolidated net income		13,817			18,061			25,683			36,899
Net loss attributable to redeemable noncontrolling interest		(2,596	)		(1,223	)		(6,862	)		(2,295	)
Net income attributable to CarGurus, Inc.	$	16,413		$	19,284		$	32,545		$	39,194

For the three months ended June 30, 2023 and 2022 and for the six months ended June 30, 2023 and 2022, our segment revenue and our segment income (loss) from operations ~~data~~are as follows:


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
	(dollars in thousands)						(dollars in thousands)
Segment Revenue:
U.S. Marketplace	$	158,443		$	152,753		$	314,064		$	304,642
Digital Wholesale		68,787			347,303			133,623			614,622
Other		12,507			11,173			24,013			22,573
Total	$	239,737		$	511,229		$	471,700		$	941,837
Segment Income (Loss) from Operations:
U.S. Marketplace	$	24,619		$	28,346		$	51,158		$	58,182
Digital Wholesale		(6,307	)		(2,638	)		(17,532	)		(4,749	)
Other		(574	)		(2,166	)		(1,829	)		(3,232	)
Total	$	17,738		$	23,542		$	31,797		$	50,201

For the three months ended June 30, 2023 and 2022 and for ~~each of~~ the ~~periods indicated. The period-to-period comparison of financial results is not necessarily indicative of future results.~~

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

(dollars in thousands)

Revenue:

Marketplace subscription

$
73,937

$
46,477

$
201,889

$
118,115

Advertising and other

9,052

6,659

24,375

19,262

Total revenue

82,989

53,136

226,264

137,377

Cost of revenue

4,720

2,852

12,367

6,671

Gross profit

78,269

50,284

213,897

130,706

Operating expenses:

Sales and marketing

63,891

40,510

168,495

108,823

Product, technology, and development

5,796

2,984

14,153

8,134

General and administrative

5,006

3,101

14,098

8,719

Depreciation and amortization

713

432

1,909

1,065

Total operating expenses

75,406

47,027

198,655

126,741

Income from operations

2,863

3,257

15,242

3,965

Other income, net

106

107

323

260

Income before income taxes

2,969

3,364

15,565

4,225

Provision for income taxes

590

1,226

4,633

1,566

Net income

$
2,379

$
2,138

$
10,932

$
2,659

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

(dollars in thousands)

Additional Financial Data:

Revenue

United States

$
80,394

$
52,435

$
219,954

$
136,195

International

2,595

701

6,310

1,182

Total

$
82,989

$
53,136

$
226,264

$
137,377

Income from Operations

United States

$
9,337

$
8,351

$
33,617

$
16,818

International

(6,474
)

(5,094
)

(18,375
)

(12,853
)
Total

$
2,863

$
3,257

$
15,242

$
3,965

~~The following table sets forth~~six months ended June 30, 2023 and 2022, our ~~selected consolidated statements of operations data~~Unaudited Condensed Consolidated Income Statements as a percentage of total revenue ~~for each of~~are as follows (amounts in the ~~periods indicated.~~table below may not sum due to rounding):


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended June 30,						Six Months Ended June 30,
	2017			2016			2017			2016			2023			2022			2023			2022
Revenue:
Marketplace subscription		89	%		87	%		89	%		86	%
Advertising and other		11			13			11			14
Marketplace														71	%		32	%		72	%		35	%
Wholesale														13			15			12			18
Product														15			53			16			48
Total revenue		100	%		100	%		100	%		100	%		100			100			100			100
Cost of revenue		5			5			5			5
Cost of revenue:
Marketplace														6			3			7			3
Wholesale														10			9			10			11
Product														15			52			16			47
Total cost of revenue														32			63			32			61
Gross profit		95			95			95			95			68			37			68			39
Operating expenses:
Sales and marketing		77			76			75			79			32			19			33			19
Product, technology, and development		7			6			6			6			16			6			16			7
General and administrative		6			6			6			6			11			7			11			7
Depreciation and amortization		1			1			1			1			2			1			2			1
Total operating expenses		91			89			88			92			61			32			61			34
Income from operations		4			6			7			3			7			5			7			5
Other income, net		0			0			0			0
Other income (expense), net:
Interest income														2			0			2			0
Other income (expense), net														0			(0	)		0			(0	)
Total other income (expense), net														2			(0	)		2			(0	)
Income before income taxes		4			6			7			3			9			5			9			5
Provision for income taxes		1			2			2			1			4			1			3			1
Net income		3	%		4	%		5	%		2	%
Consolidated net income														6			4			5			4
Net loss attributable to redeemable noncontrolling interest														(1	)		(0	)		(1	)		(0	)
Net income attributable to CarGurus, Inc.														7	%		4	%		7	%		4	%

Three Months Ended
September 30,

Nine Months Ended
September 30,

2017

2016

2017

2016

Additional Financial Data:

Revenue

United States

97
%

99
%

97
%

99
%
International

3

1

3

1

Total

100
%

100
%

100
%

100
%
Income from Operations

United States

11
%

16
%

15
%

12
%
International

(8
)

(10
)

(8
)

(9
)
Total

3
%

6
%

7
%

3
%

~~For the Three Months Ended September 30, 2017 and 2016~~32

~~Revenue~~

~~Revenue by Source~~

Three Months
Ended September 30,

Change

2017

2016

Amount

%

(dollars in thousands)

Revenue

Marketplace subscription

$
73,937

$
46,477

$
27,460

59
%
Advertising and other

9,052

6,659

2,393

36

Total

$
82,989

$
53,136

$
29,853

56
%
Percentage of total revenue:

Marketplace subscription

89
%

87
%

Advertising and other

11

13

Total

100
%

100
%

~~Overall revenue increased by $29.9 million, or 56%, in~~For the three months ended ~~September~~June 30, ~~2017 compared~~2023 and 2022 and for the six months ended June 30, 2023 and 2022, our segment revenue as a percentage of total revenue and our segment income (loss) from operations as a percentage of segment revenue are as follows (amounts in the table below may not sum due to rounding):


	Three Months Ended June 30,						Six Months Ended June 30,
	2023			2022			2023			2022
Segment Revenue:
U.S. Marketplace		66	%		30	%		67	%		32	%
Digital Wholesale		29			68			28			65
Other		5			2			5			2
Total		100	%		100	%		100	%		100	%
Segment Income (Loss) from Operations:
U.S. Marketplace		16	%		19	%		16	%		19	%
Digital Wholesale		(9	)		(1	)		(13	)		(1	)
Other		(5	)		(19	)		(8	)		(14	)
Total		7	%		5	%		7	%		5	%

For the three months ended ~~September~~June 30, ~~2016. Marketplace subscription revenue increased by 59%, while advertising~~2023 and ~~other revenue increased by 36%.~~2022

Marketplace subscription revenue increased by $27.5 million in the three months ended September 30, 2017 compared to the three months ended September 30, 2016, and represented 89% of total revenue in the three months ended September 30, 2017, as compared to 87% of total revenue in the three months ended September 30, 2016. This increase in marketplace subscription revenue was attributable primarily to a 37% growth in the number of paying dealers, from 19,403 at September 30, 2016 to 26,553 at September 30, 2017, and to a 16% growth in our U.S. AARSD from $9,939 as of September 30, 2016 to $11,526 as of September 30, 2017. We believe that this increase in paying dealers was driven by the overall growth in the number of unique users to our website and the continued efforts from our sales and marketing teams to convert Basic Listing dealers to Enhanced and Featured Listing paying dealers.Revenue

Advertising and other revenue increased $2.4 million in the three months ended September 30, 2017 compared to the three months ended September 30, 2016, and represented 11% of total revenue in the three months ended September 30, 2017, compared to 13% of total revenue in the three months ended September 30, 2016. The increase in advertising and other revenue is due primarily to a 10% increase in the number of impressions delivered and a 41% increase in the average price per thousand impressions in the three months ended September 30, 2017 compared to the three months ended September 30, 2016.

Revenue by ~~Segment~~Source

Three Months
Ended September 30,

Change

2017

2016

Amount

%

(dollars in thousands)

Revenue

United States

$
80,394

$
52,435

$
27,959

53
%
International

2,595

701

1,894

270

Total

$
82,989

$
53,136

$
29,853

56
%
Percentage of total revenue:

United States

97
%

99
%

International

3

1

Total

100
%

100
%


	Three Months Ended June 30,						Change
	2023			2022			Amount			%
	(dollars in thousands)
Revenue:
Marketplace	$	170,950		$	163,926		$	7,024			4	%
Wholesale		31,952			75,937			(43,985	)		(58	)
Product		36,835			271,366			(234,531	)		(86	)
Total	$	239,737		$	511,229		$	(271,492	)		(53	)%
Percentage of total revenue:
Marketplace		71	%		32	%
Wholesale		13			15
Product		15			53
Total		100	%		100	%

~~U.S.~~Overall revenue ~~increased $28.0~~decreased $271.5 million, or 53%, in the three months ended ~~September~~June 30, ~~2017~~2023 compared to the three months ended ~~September~~June 30, ~~2016, due primarily to a 29% increase in the number of U.S. paying dealers.~~2022.

~~International~~Marketplace revenue increased ~~$1.9~~$7.0 million, or 4%, in the three months ended ~~September~~June 30, ~~2017~~2023 compared to the three months ended ~~September~~June 30, ~~2016,~~2022 and represented 71% of total revenue for the three months ended June 30, 2023 compared to 32% of total revenue for the three months ended June 30, 2022. The increase was due primarily to a ~~258%~~$7.5 million increase in Listings revenue, as a result of the ~~number of international~~5% growth in our QARSD for paying ~~dealers.~~

~~Cost of Revenue~~

Three Months Ended
September 30,

Change

2017

2016

Amount

%

(dollars in thousands)

Cost of revenue

$
4,720

$
2,852

$
1,868

65
%
Percentage of total revenue

5
%

5
%

~~Cost of revenue increased $1.9 million, or 65%,~~dealers to $5,116 at June 30, 2023 from $4,862 at June 30, 2022. The increase in ~~the three months ended September 30, 2017 compared to the three months ended September 30, 2016,~~QARSD was due primarily to ~~costs associated~~signing on new dealers with ~~servicing our~~higher average monthly recurring revenue ~~growth. Key drivers of the increase included employee-related costs of our customer support team to support the growth in customers~~ and ~~an increase in fees related to servicing our growing advertising revenue.~~

~~Operating Expenses~~revenue expansion through product upgrades for existing dealers.

~~Sales and Marketing Expenses~~33

Three Months Ended
September 30,

Change

2017

2016

Amount

%

(dollars in thousands)

Sales and marketing

$
63,891

$
40,510

$
23,381

58
%
Percentage of total revenue

77
%

76
%

~~Sales and marketing expenses increased $23.4~~Wholesale revenue decreased $44.0 million, or 58%, in the three months ended ~~September~~June 30, ~~2017~~2023 compared to the three months ended ~~September~~June 30, ~~2016,~~2022 and represented 13% of total revenue for the three months ended June 30, 2023 compared to 15% of total revenue for the three months ended June 30, 2022. The decrease was due primarily to ~~an increase~~a 68% decrease in ~~advertising costs~~Transactions, which includes Dealer-to-Dealer transactions and IMCO transactions, to 20,793 for the three months ended June 30, 2023 from 63,998 for the three months ended June 30, 2022, as a result of ~~$19.4 million,~~ a ~~$2.9 million increase~~softening wholesale market and operational challenges in ~~salaries, commissions,~~the prior year which resulted in our focus in the current year on optimization of internal policies and ~~related expenses due to our increased~~procedures over volume of Transactions. The decrease in Transactions resulted in a decrease in transaction fee revenue as well as a decrease in transportation revenue, inspection revenue, and ~~a 33% increase in headcount, a $0.5 million increase in expenses related to marketing events, and a $0.2 million increase in consulting fees.~~guarantee revenue.

Product ~~Technology, and Development Expenses~~

Three Months Ended
September 30,

Change

2017

2016

Amount

%

(dollars in thousands)

Product, technology, and development

$
5,796

$
2,984

$
2,812

94
%
Percentage of total revenue

7
%

6
%

~~Product, technology, and development expenses increased $2.8~~revenue decreased by $234.5 million, or ~~94%~~86%, in the three months ended ~~September~~June 30, ~~2017~~2023 compared to the three months ended ~~September~~June 30, ~~2016,~~2022 and represented 15% of total revenue for the three months ended June 30, 2023 compared to 53% of total revenue for the three months ended June 30, 2022. The decrease was due primarily to ~~an increase~~a $203.3 million decrease in ~~salaries~~proceeds received from the sale of vehicles through IMCO transactions, including vehicle sale price and ~~related employment expenses related~~transaction fees, as a result of decreased Transactions resulting from the purposeful slowdown in volume as we emphasize operational rigor. The decrease in product revenue was also due in part to a ~~59% increase~~$31.2 million decrease in ~~headcount~~proceeds received from the sale of vehicles acquired through arbitration, including vehicle sale price, as a result of decreased arbitration claims primarily due to ~~support our growth and product innovations.~~process improvements focused on higher quality inspections.

~~General and Administrative Expenses~~Segment Revenue

Three Months Ended
September 30,

Change

2017

2016

Amount

%

(dollars in thousands)

General and administrative

$
5,006

$
3,101

$
1,905

61
%
Percentage of total revenue

6
%

6
%


	Three Months Ended June 30,						Change
	2023			2022			Amount			%
	(dollars in thousands)
Revenue:
U.S. Marketplace	$	158,443		$	152,753		$	5,690			4	%
Digital Wholesale		68,787			347,303			(278,516	)		(80	)
Other		12,507			11,173			1,334			12
Total	$	239,737		$	511,229		$	(271,492	)		(53	)%
Percentage of total revenue:
U.S. Marketplace		66	%		30	%
Digital Wholesale		29			68
Other		5			2
Total		100	%		100	%

~~General and administrative expenses~~U.S. Marketplace segment revenue increased ~~$1.9~~$5.7 million, or ~~61%~~4%, in the three months ended ~~September~~June 30, ~~2017~~2023 compared to the three months ended ~~September~~June 30, ~~2016,~~2022 and represented 66% of total revenue for the three months ended June 30, 2023 compared to 30% of total revenue for the three months ended June 30, 2022. The increase was due primarily to ~~an increase of $1.4~~a $7.0 million ~~in salaries and other employee-related costs driven by an~~ increase in ~~headcount needed to grow our business~~marketplace revenue, as described above.

Digital Wholesale segment revenue, which is comprised of wholesale revenue and ~~provide personnel to support our expanded operations. Payment processing and billing costs also increased $0.4 million due to increased customer transactions.~~

~~Depreciation and Amortization Expenses~~

Three Months Ended
September 30,

Change

2017

2016

Amount

%

(dollars in thousands)

Depreciation and amortization
$
713

$
432

$
281

65
%
Percentage of total revenue

1
%

1
%

~~Depreciation and amortization expenses increased $0.3~~product revenue, decreased $278.5 million, or ~~65%~~80%, in the three months ended ~~September~~June 30, ~~2017~~2023 compared to the three months ended ~~September~~June 30, ~~2016,~~2022 and represented 29% of total revenue for the three months ended June 30, 2023 compared to 68% of total revenue for the three months ended June 30, 2022. The decrease in Digital Wholesale segment revenue was due to a decrease in wholesale revenue and product revenue, as described above.

Cost of Revenue


	Three Months Ended June 30,						Change
	2023			2022			Amount			%
	(dollars in thousands)
Cost of Revenue:
Marketplace	$	15,474		$	13,257		$	2,217			17	%
Wholesale		24,428			46,518			(22,090	)		(47	)
Product		35,694			263,603			(227,909	)		(86	)
Total	$	75,596		$	323,378		$	(247,782	)		(77	)%
Percentage of total revenue:
Marketplace		6	%		3	%
Wholesale		10			9
Product		15			52
Total		32	%		63	%

Overall cost of revenue decreased $247.8 million, or 77%, in the three months ended June 30, 2023 compared to the three months ended June 30, 2022.

Marketplace cost of revenue increased $2.2 million, or 17%, in the three months ended June 30, 2023 compared to the three months ended June 30, 2022 and represented 6% of total revenue for the three months ended June 30, 2023 compared to 3% of total revenue for the three months ended June 30, 2022. The increase was due primarily to a $1.2 million increase in data and hosting costs as a result of our migration onto a cloud-based hosting platform and a $0.6 million increase in fees related to provisioning advertising campaigns on our websites from changing to more effective, higher cost service providers.

Wholesale cost of revenue decreased $22.1 million, or 47%, in the three months ended June 30, 2023 compared to the three months ended June 30, 2022 and represented 10% of total revenue for the three months ended June 30, 2023 compared to 9% of total revenue for the three months ended June 30, 2022. The decrease was due primarily to process improvements implemented, resulting in a purposeful decrease in the volume of Dealer-to-Dealer transactions. This decrease in volume resulted in a decrease in transportation expense, third-party service provider expense, and inspection expense.

Product cost of revenue decreased $227.9 million, or 86%, in the three months ended June 30, 2023 compared to the three months ended June 30, 2022 and represented 15% of the total revenue for the three months ended June 30, 2023 compared to 52% of total revenue for the three months ended June 30, 2022. The decrease was due primarily to a $194.1 million decrease in expenses related to vehicles sold to dealers through IMCO transactions as a result of decreased Transactions resulting from the purposeful slowdown in volume as we emphasize operational rigor. The decrease in product cost of revenue was also due in part to a $33.8 million decrease in expenses related to vehicles sold to dealers acquired through arbitration as a result of decreased arbitration claims primarily due to process improvements focused on higher quality inspections.

Operating Expenses

Sales and Marketing Expense


	Three Months Ended June 30,						Change
	2023			2022			Amount			%
	(dollars in thousands)
Sales and marketing	$	77,838		$	95,605		$	(17,767	)		(19	)%
Percentage of total revenue		32	%		19	%

Sales and marketing expense decreased $17.8 million, or 19%, in the three months ended June 30, 2023 compared to the three months ended June 30, 2022. The decrease was due primarily to a $8.3 million decrease in brand awareness advertising expenses due to decreased spend as a result of a change in advertising strategy implemented in the fourth quarter of 2022. The decrease was also due in part to a $7.5 million decrease in marketing expenses due primarily to a decrease in IMCO marketing and a $3.0 million decrease in commissions expense due primarily to decreased Transactions and higher capitalization on commissions as a result of signing on new dealers with higher average monthly recurring revenue. The decrease in sales and marketing expense was offset in part by a $1.8 million increase in rent expense due to the commencement of the 1001 Boylston Street lease.

Product, Technology, and Development Expense


	Three Months Ended June 30,						Change
	2023			2022			Amount		%
	(dollars in thousands)
Product, technology, and development	$	37,391		$	31,354		$	6,037		19	%
Percentage of total revenue		16	%		6	%

Product, technology, and development expense increased $6.0 million, or 19%, in the three months ended June 30, 2023 compared to the three months ended June 30, 2022. The increase was due primarily to a $3.9 million increase in salaries and employee-related expenses due primarily to a 10% increase in headcount as well as merit increases and a $1.6 million increase in rent expense due to the commencement of the 1001 Boylston Street lease.

General and Administrative Expense


	Three Months Ended June 30,						Change
	2023			2022			Amount			%
	(dollars in thousands)
General and administrative	$	27,267		$	33,514		$	(6,247	)		(19	)%
Percentage of total revenue		11	%		7	%

General and administrative expense decreased $6.2 million, or 19%, in the three months ended June 30, 2023 compared to the three months ended June 30, 2022. The decrease was due primarily to a $9.4 million decrease in stock-based compensation due to the revaluation of liability-based stock awards. The decrease in general and administrative expense was offset in part by a $1.8 million increase in salaries and employee-related expenses, exclusive of stock-based compensation, due primarily to an 8% increase in headcount as well as merit increases and a $0.7 million increase in rent expense due to the commencement of the 1001 Boylston Street lease.

Depreciation and Amortization Expense


	Three Months Ended June 30,						Change
	2023			2022			Amount		%
	(dollars in thousands)
Depreciation and amortization	$	3,907		$	3,836		$	71		2	%
Percentage of total revenue		2	%		1	%

Depreciation and amortization ~~of additional leasehold improvements.~~

~~Other Income, Net~~

Three Months Ended
September 30,

Change

2017

2016

Amount

%

(dollars in thousands)

Other income, net

$
106

$
107

$
(1
)

(1
)%
Percentage of total revenue

—

—

~~Other income, net was~~expense remained relatively consistent in the three months ended ~~September~~June 30, ~~2017~~2023 compared to the three months ended ~~September~~June 30, ~~2016.~~2022.

~~Provision for~~36

Other Income ~~Taxes~~(Expense), Net

Three Months Ended
September 30,

Change

2017

2016

Amount

%

(dollars in thousands)

Provision for income taxes

$
590

$
1,226

$
(636
)

(52
)%
Percentage of total revenue

1
%

2
%


	Three Months Ended June 30,						Change
	2023			2022			Amount		%
	(dollars in thousands)
Other income (expense), net:
Interest income	$	4,333		$	311		$	4,022		1,293	%
Other income (expense), net		347			(467	)		814		174
Total other income (expense), net		4,680			(156	)	$	4,836		3,100	%
Percentage of total revenue:
Interest income		2	%		0	%
Other income (expense), net		0			(0	)
Total other income (expense), net		2	%		(0	)%

~~The provision for~~Total other income ~~taxes decreased $0.6~~(expense), net increased $4.8 million, or 3,100%, in the three months ended ~~September~~June 30, ~~2017~~2023 compared to the three months ended ~~September~~June 30, ~~2016,~~2022. The $4.0 million increase in interest income was due primarily to ~~higher excess tax deductions relating to stock-based compensation awards and R&D tax credits during the three months ended September~~interest rate increases since June 30, ~~2017.~~

~~Income (Loss) from Operations by Segment~~

Three Months Ended
September 30,

Change

2017

2016

Amount

%

(dollars in thousands)

United States

$
9,337

$
8,351

$
986

12
%
International

(6,474
)

$
(5,094
)

$
(1,380
)

(27
)
Total

$
2,863

$
3,257

$
(394
)

(12
)
Percentage of segment revenue:

United States

12
%

16
%

International

NM

NM

~~NM — Not Meaningful~~

~~U.S.~~2022. The $0.8 million increase in other income ~~from operations increased $1.0 million, or 12%~~(expense), ~~in the three months ended September 30, 2017 compared to the three months ended September 30, 2016. This increase~~net was due primarily to ana $1.4 million increase in ~~revenue~~unrealized gain associated with the fluctuation of ~~$28.0 million,~~certain foreign currencies, offset in part by an increase in ~~cost of revenue of $1.5 million and operating expenses of $25.5 million.~~interest expense.

~~International loss from operations~~Provision for Income Taxes


	Three Months Ended June 30,						Change
	2023			2022			Amount		%
	(dollars in thousands)
Provision for income taxes	$	8,601		$	5,325		$	3,276		62	%
Percentage of total revenue		4	%		1	%

Provision for income taxes increased ~~$1.4~~$3.3 million, or ~~27%~~62%, in the three months ended ~~September~~June 30, ~~2017~~2023 compared to the three months ended ~~September~~June 30, ~~2016.~~2022, primarily due to aggregated $2.6 million shortfalls on the taxable compensation of stock-based awards and the Section 162(m) excess officer compensation limitation recorded during the three months ended June 30, 2023 compared to an immaterial amount of tax expense related to shortfalls on the taxable compensation of stock-based awards and the Section 162(m) excess officer compensation limitation recorded during the three months ended June 30, 2022.

Segment Income (Loss) from Operations


	Three Months Ended June 30,						Change
	2023			2022			Amount			%
	(dollars in thousands)
Segment Income (loss) from Operations:
U.S. Marketplace	$	24,619		$	28,346		$	(3,727	)		(13	)%
Digital Wholesale		(6,307	)		(2,638	)		(3,669	)		(139	)
Other		(574	)		(2,166	)		1,592			73
Total	$	17,738		$	23,542		$	(5,804	)		(25	)%
Percentage of segment revenue:
U.S. Marketplace		16	%		19	%
Digital Wholesale		(9	)		(1	)
Other		(5	)		(19	)
Total		100	%		100	%

U.S. Marketplace segment income from operations decreased $3.7 million, or 13%, in the three months ended June 30, 2023 compared to the three months ended June 30, 2022 and represented 16% of U.S. Marketplace segment revenue for the three months ended June 30, 2023 and 19% of U.S. Marketplace segment revenue for the three months ended June 30, 2022. The decrease was due to increases in revenue of $5.7 million, offset by increases in cost of revenue of $1.9 million and increases in operating expenses of $7.5 million.

Digital Wholesale segment loss from operations increased $3.7 million, or 139%, in the three months ended June 30, 2023 compared to the three months ended June 30, 2022 and represented (9)% of Digital Wholesale segment revenue for the three months ended June 30, 2023 and (1)% of Digital Wholesale segment revenue for the three months ended June 30, 2022. The increase in ~~international~~the loss ~~from operations reflects our continued investment~~was due to decreases in ~~international markets~~revenue of $278.5 million, offset by decreases in cost of revenue of $250.0 million and ~~expansion into new countries.~~decreases in operating expenses of $24.8 million.

~~Nine Months Ended September~~For the six months ended June 30, ~~2017 Compared to Nine Months Ended September 30, 2016~~2023 and 2022

Revenue

Revenue by Source

Nine Months
Ended September 30,

Change

2017

2016

Amount

%

(dollars in thousands)

Revenue

Marketplace subscription

$
201,889

$
118,115

83,774

71
%
Advertising and other

24,375

19,262

5,113

27

Total

$
226,264

$
137,377

$
88,887

65
%
Percentage of total revenue:

Marketplace subscription

89
%

86
%

Advertising and other

11

14

Total

100
%

100
%


	Six Months Ended June 30,						Change
	2023			2022			Amount			%
	(dollars in thousands)
Revenue:
Marketplace	$	338,077		$	327,215		$	10,862			3	%
Wholesale		57,138			166,931			(109,793	)		(66	)
Product		76,485			447,691			(371,206	)		(83	)
Total	$	471,700		$	941,837		$	(470,137	)		(50	)%
Percentage of total revenue:
Marketplace		72	%		35	%
Wholesale		12			18
Product		16			48
Total		100	%		100	%

Overall revenue ~~increased by $88.9~~decreased $470.1 million, or ~~65%~~50%, in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~ 2022.

Marketplace ~~subscription~~ revenue increased ~~by 71%~~$10.9 million, or 3%, ~~while advertising and other revenue increased by 27%.~~

~~Marketplace subscription revenue increased by $83.8 million~~ in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2022 and represented ~~89%~~72% of total revenue infor the ~~nine~~six months ended ~~September~~June 30, ~~2017, as~~2023 compared to ~~86%~~35% of total revenue infor the ~~nine~~six months ended ~~September~~June 30, 2016. This increase in marketplace subscription revenue was attributable primarily to a 37% growth in the number of paying dealers, from 19,403 as of September 30, 2016 to 26,553 as of September 30, 2017, and to a 16% growth in our U.S. AARSD from $9,939 as of September 30, 2016 to $11,526 as of September 30, 2017. We believe that this increase in paying dealers was driven by the overall growth in the number of unique users to our website and the continued efforts from our sales and marketing teams to convert Basic Listing dealers to Enhanced and Featured Listing paying dealers.

Advertising and other revenue increased $5.1 million in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, and represented 11% of total revenue in the nine months ended September 30, 2017, compared to 14% of total revenue in the nine months ended September 30, 2016.2022. The increase ~~in advertising and other revenue is~~was due primarily to a ~~24%~~$15.4 million increase in Listings revenue, as a result of the ~~number~~4% growth in our QARSD for paying dealers to $4,986 at March 31, 2023 from $4,806 at March 31, 2022 and as a result of ~~impressions delivered and a 22%~~the 5% growth in our QARSD for paying dealers to $5,116 at June 30, 2023 from $4,862 at June 30, 2022. The increase in ~~the~~QARSD was due primarily to signing on new dealers with higher average ~~price per thousand impressions~~monthly recurring revenue and revenue expansion through product upgrades for existing dealers. The increase in marketplace revenue was offset in part by a $4.3 million decrease in advertising revenue as a result of lower spend by our advertisers and economic conditions.

Wholesale revenue decreased $109.8 million, or 66%, in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016. These increases were partially offset by a reduction in other advertising revenue.~~

~~Revenue by Segment~~

Nine Months
Ended September 30,

Change

2017

2016

Amount

%

(dollars in thousands)

Revenue

United States

$
219,954

$
136,195

$
83,759

61
%
International

6,310

1,182

5,128

434
%
Total

$
226,264

$
137,377

$
88,887

65
%
Percentage of total revenue:

United States

97
%

99
%

International

3

1

Total

100
%

100
%

~~U.S.~~2022 and represented 12% of total revenue ~~increased $83.8 million, or 61%, in~~for the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 compared to 18% of total revenue for the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2022. The decrease was due primarily to a ~~29% increase~~71% decrease in Transactions, which includes Dealer-to-Dealer transactions and IMCO transactions, to 38,298 for the six months ended June 30, 2023 from 132,752 for the six months ended June 30, 2022, as a result of operational challenges in the ~~number of U.S. paying dealers.~~

~~International revenue increased $5.1 million~~prior year which resulted in our focus in the ~~nine~~current year on optimization of internal policies and procedures over volume of Transactions. The decrease in Transactions resulted in a decrease in transaction fee revenue as well as a decrease in transportation revenue, inspection revenue, and guarantee revenue.

Product revenue decreased by $371.2 million, or 83%, in the six months ended ~~September~~June 30, ~~2017~~2023 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2022 and represented 16% of total revenue for the six months ended June 30, 2023 compared to 48% of total revenue for the six months ended June 30, 2022. The decrease was due primarily to a ~~258%~~$334.6 million decrease in proceeds received from the sale of vehicles through IMCO transactions, including vehicle sale price and transaction fees, as a result of decreased Transactions resulting from the purposeful slowdown in volume as we emphasize operational rigor. The decrease in product revenue was also due in part to a $36.6 million decrease in proceeds received from the sale of vehicles acquired through arbitration, including vehicle sale price, as a result of decreased arbitration claims primarily due to process improvements focused on higher quality inspections.

Segment Revenue


	Six Months Ended June 30,						Change
	2023			2022			Amount			%
	(dollars in thousands)
Revenue:
U.S. Marketplace	$	314,064		$	304,642		$	9,422			3	%
Digital Wholesale		133,623			614,622			(480,999	)		(78	)
Other		24,013			22,573			1,440			6
Total	$	471,700		$	941,837		$	(470,137	)		(50	)%
Percentage of total revenue:
U.S. Marketplace		67	%		32	%
Digital Wholesale		28			65
Other		5			2
Total		100	%		100	%

U.S. Marketplace segment revenue increased $9.4 million, or 3%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 and represented 67% of total revenue for the six months ended June 30, 2023 compared to 32% of total revenue for the six months ended June 30, 2022. The increase was due primarily to a $10.9 million increase in marketplace revenue, as described above.

Digital Wholesale segment revenue, which is comprised of wholesale revenue and product revenue, decreased $481.0 million, or 78%, in the ~~number~~six months ended June 30, 2023 compared to the six months ended June 30, 2022 and represented 28% of ~~international paying dealers.~~total revenue for the six months ended June 30, 2023 compared to 65% of total revenue for the six months ended June 30, 2022. The decrease in Digital Wholesale segment revenue was due to a decrease in wholesale revenue and product revenue, as described above.

Cost of Revenue

Nine Months Ended
September 30,

Change

2017

2016

Amount

%

(dollars in thousands)

Cost of revenue

$
12,367

$
6,671

$
5,696

85
%
Percentage of total revenue

5
%

5
%


	Six Months Ended June 30,						Change
	2023			2022			Amount			%
	(dollars in thousands)
Cost of Revenue:
Marketplace	$	31,007		$	25,466		$	5,541			22	%
Wholesale		46,496			104,700			(58,204	)		(56	)
Product		75,076			441,945			(366,869	)		(83	)
Total	$	152,579		$	572,111		$	(419,532	)		(73	)%
Percentage of total revenue:
Marketplace		7	%		3	%
Wholesale		10			11
Product		16			47
Total		32	%		61	%

Overall cost of revenue decreased $419.5 million, or 73%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

~~Cost~~Marketplace cost of revenue increased ~~$5.7~~$5.5 million, or ~~85%~~22%, in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2022 and represented 7% of total revenue for the six months ended June 30, 2023 compared to 3% of total revenue for the six months ended June 30, 2022. The increase was due primarily to a $2.6 million increase in data and hosting costs ~~associated with servicing our revenue growth. Key drivers of the increase included employee-related costs~~as a result of our ~~customer support team to support the growth in customers~~migration onto a cloud-based hosting platform and ana $2.2 million increase in fees related to ~~servicing~~provisioning advertising campaigns on our ~~growing advertising revenue.~~websites from changing to more effective, higher cost service providers.

Wholesale cost of revenue decreased $58.2 million, or 56%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 and represented 10% of total revenue for the six months ended June 30, 2023 compared to 11% of total revenue for the six months ended June 30, 2022. The decrease was due primarily to process improvements implemented, resulting in a purposeful decrease in the volume of Dealer-to-Dealer transactions. This decrease in volume resulted in a decrease in transportation expense, inspection expense, third-party service provider expense, personnel expense, and guarantee expense.

Product cost of revenue decreased $366.9 million, or 83%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 and represented 16% of the total revenue for the six months ended June 30, 2023 compared to 47% of total revenue for the six months ended June 30, 2022. The decrease was due primarily to a $309.6 million decrease in expenses related to vehicles sold to dealers through IMCO transactions as a result of decreased Transactions resulting from the purposeful slowdown in volume as we emphasize operational rigor. The decrease in product cost of revenue was also due in part to a $57.3 million decrease in expenses related to vehicles sold to dealers acquired through arbitration as a result of decreased arbitration claims primarily due to process improvements focused on higher quality inspections.

Operating Expenses

Sales and Marketing ~~Expenses~~Expense


	Nine Months Ended September 30,						Change					Six Months Ended June 30,						Change
	2017			2016			Amount		%			2023			2022			Amount			%
	(dollars in thousands)											(dollars in thousands)
Sales and marketing	$	168,495		$	108,823		$	59,672		55	%	$	153,415		$	183,186		$	(29,771	)		(16	)%
Percentage of total revenue		75	%		79	%							33	%		19	%

Sales and marketing ~~expenses increased $59.7~~expense decreased $29.8 million, or ~~55%~~16%, in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016,~~2022. The decrease was due primarily to a $16.6 million decrease in brand awareness advertising expenses due to decreased spend as a result of a change in advertising strategy implemented in the fourth quarter of 2022. The decrease was also due in part to a $9.0 million decrease in marketing expenses due primarily to a decrease in IMCO marketing and a $7.8 million decrease in commissions expense due primarily to decreased Transactions and higher capitalization on commissions as a result of signing on new dealers with higher average monthly recurring revenue. The decrease in sales and marketing expense was offset in part by a $3.1 million increase in rent expense due to the commencement of the 1001 Boylston Street lease.

Product, Technology, and Development Expense


	Six Months Ended June 30,						Change
	2023			2022			Amount		%
	(dollars in thousands)
Product, technology, and development	$	73,998		$	62,007		$	11,991		19	%
Percentage of total revenue		16	%		7	%

Product, technology, and development expense increased $12.0 million, or 19%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The increase was due primarily to a $7.2 million increase in salaries and employee-related expenses due primarily to a 10% increase in headcount as well as merit increases, a $2.7 million increase in rent expense due to the commencement of the 1001 Boylston Street lease, and a $2.3 million increase in consulting expense.

General and Administrative Expense


	Six Months Ended June 30,						Change
	2023			2022			Amount			%
	(dollars in thousands)
General and administrative	$	52,186		$	66,635		$	(14,449	)		(22	)%
Percentage of total revenue		11	%		7	%

General and administrative expense decreased $14.4 million, or 22%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022. The decrease was due primarily to a $21.3 million decrease in stock-based compensation due to the revaluation of liability-based stock awards. The decrease in general and administrative expense was offset in part by a $3.2 million increase in salaries and employee-related expenses, exclusive of stock-based compensation, due primarily to an ~~increase in advertising costs of $45.6 million, a $9.0 million increase in salaries, commissions, and related expenses due to our increased revenue and a 33%~~8% increase in headcount ~~a $1.6 million increase in expenses related to marketing events, and~~as well as merit increases, a $1.3 million increase in ~~consulting fees.~~

~~Product, Technology, and Development Expenses~~

Nine Months Ended
September 30,

Change

2017

2016

Amount

%

(dollars in thousands)

Product, technology, and development

$
14,153

$
8,134

$
6,019

74
%
Percentage of total revenue

6
%

6
%

~~Product, technology, and development expenses increased $6.0 million, or 74%, in the nine months ended September 30, 2017 compared~~rent expense due to the ~~nine months ended September 30, 2016, due primarily to an~~commencement of the 1001 Boylston Street lease, a $0.6 million increase in ~~salaries~~insurance and ~~related employment expenses related to~~legal expense, a ~~59%~~$0.5 million increase in ~~headcount to support our growth~~consulting expense, and ~~product innovations.~~

~~General and Administrative Expenses~~

Nine Months Ended
September 30,

Change

2017

2016

Amount

%

(dollars in thousands)

General and administrative

$
14,098

$
8,719

$
5,379

62
%
Percentage of total revenue

6
%

6
%

~~General and administrative expenses increased $5.4~~a $0.5 million or 62%, in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, due primarily to an increase of $3.2 million in salaries and other employee-related costs driven by an increase in headcount needed to grow our business and provide personnel to support our expanded operations. Payment processing and billing costs also increased $1.2 million due to increased customer transactions.software subscription expense.

Depreciation and Amortization ~~Expenses~~Expense


	Nine Months Ended September 30,						Change					Six Months Ended June 30,						Change
	2017			2016			Amount		%			2023			2022			Amount		%
	(dollars in thousands)											(dollars in thousands)
Depreciation and amortization	$	1,909		$	1,065		$	844		79	%	$	7,725		$	7,697		$	28		0	%
Percentage of total revenue		1	%		1	%							2	%		1	%

Depreciation and amortization expenses remained relatively consistent in the six months ended June 30, 2023 compared to the six months ended June 30, 2022.

Other Income (Expense), Net


	Six Months Ended June 30,						Change
	2023			2022			Amount		%
	(dollars in thousands)
Other income (expense), net:
Interest income	$	8,076		$	348		$	7,728		2,221	%
Other income (expense), net		942			(623	)		1,565		251
Total other income (expense), net		9,018			(275	)	$	9,293		3,379	%
Percentage of total revenue:
Interest income		2	%		0	%
Other income (expense), net		0			(0	)
Total other income (expense), net		2	%		(0	)%

Total other income (expense), net increased ~~$0.8~~$9.3 million, or ~~79%~~3,379%, in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016, due primarily to increased amortization of additional leasehold improvements.~~

~~Other Income, Net~~

Nine Months Ended
September 30,

Change

2017

2016

Amount

%

(dollars in thousands)

Other income, net

$
323

$
260

$
63

24
%
Percentage of total revenue

—

—

~~Other income, net increased $0.1~~2022. The $7.7 million ~~or 24%, in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016, due primarily to an~~ increase in interest income ~~from the investment of excess cash balances.~~

~~Provision for Income Taxes~~

Nine Months Ended
September 30,

Change

2017

2016

Amount

%

(dollars in thousands)

Provision for income taxes

$
4,633

$
1,566

$
3,067

196
%
Percentage of total revenue

2
%

1
%

~~The provision for income taxes increased $3.1 million in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016,~~was due primarily to ~~the~~interest rate increases since June 30, 2022. The $1.6 million increase in ~~U.S. profitability.~~

~~Income (Loss) from Operations by Segment~~

Nine Months Ended
September 30,

Change

2017

2016

Amount

%

(dollars in thousands)

United States

$
33,617

$
16,818

$
16,799

100
%
International

(18,375
)

(12,853
)

(5,522
)

(43
)
Total

$
15,242

$
3,965

$
11,277

284
%
Percentage of segment revenue:

United States

15
%

12
%

International

NM

NM

~~U.S.~~other income ~~from operations increased $16.8 million, or 100%~~(expense), ~~in the nine months ended September 30, 2017 compared to the nine months ended September 30, 2016. This increase~~net was due primarily to ana $2.2 million increase in ~~revenue~~unrealized gain associated with the fluctuation of ~~$83.8 million,~~certain foreign currencies, offset in part by an increase in interest expense.

Provision for Income Taxes


	Six Months Ended June 30,						Change
	2023			2022			Amount		%
	(dollars in thousands)
Provision for income taxes	$	15,132		$	13,027		$	2,105		16	%
Percentage of total revenue		3	%		1	%

Provision for income taxes increased $2.1 million, or 16%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022, primarily due to aggregated $4.2 million shortfalls on the taxable compensation of stock-based awards and the Section 162(m) excess officer compensation limitation recorded during the six months ended June 30, 2023 offset by lower state and local income taxes, compared to $0.6 million tax expense related to shortfalls on the taxable compensation of stock-based awards and the Section 162(m) excess officer compensation limitation recorded during the six months ended June 30, 2022.

Segment Income (Loss) from Operations


	Six Months Ended June 30,						Change
	2023			2022			Amount			%
	(dollars in thousands)
Segment Income (Loss) from Operations
U.S. Marketplace	$	51,158		$	58,182		$	(7,024	)		(12	)%
Digital Wholesale		(17,532	)		(4,749	)		(12,783	)		(269	)
Other		(1,829	)		(3,232	)		1,403			43
Total	$	31,797		$	50,201		$	(18,404	)		(37	)%
Percentage of segment revenue:
U.S. Marketplace		16	%		19	%
Digital Wholesale		(13	)		(1	)
Other		(8	)		(14	)
Total		7	%		5	%

U.S. Marketplace segment income from operations decreased $7.0 million, or 12%, in the six months ended June 30, 2023 compared to the six months ended June 30, 2022 and represented 16% of U.S. Marketplace segment revenue for the six months ended June 30, 2023 and 19% of U.S. Marketplace segment revenue for the six months ended June 30, 2022. The decrease was due to increases in revenue of $9.4 million, offset by increases in cost of revenue of ~~$4.4~~$4.9 million and increases in operating expenses of ~~$62.6~~$11.5 million.

~~International~~Digital Wholesale segment loss from operations increased ~~$5.5~~$12.8 million, or ~~43%~~269%, in the ~~nine~~six months ended ~~September~~June 30, ~~2017~~2023 compared to the ~~nine~~six months ended ~~September~~June 30, ~~2016.~~2022 and represented (13)% of Digital Wholesale segment revenue for the six months ended June 30, 2023 and (1)% of Digital Wholesale segment revenue for the six months ended June 30, 2022. The increase in ~~International~~the loss ~~from operations reflects our continued investment~~was due to decreases in ~~international markets~~revenue of $481.0 million, offset by decreases in cost of revenue of $425.1 million and ~~expansion into new countries.~~decreases in operating expenses of $43.1 million.

Liquidity and Capital Resources

Cash, Cash Equivalents, Short-term Investments, and Borrowing Capacity

As of June 30, 2023, our principal sources of liquidity were cash and cash equivalents of $363.1 million and short-term investments of $90.5 million. As of December 31, 2022, our principal sources of liquidity were cash and cash equivalents of $469.5 million. As of June 30, 2023, our borrowing capacity under the 2022 Revolver (as defined below) was $399.3 million.

Sources and Uses of Cash

~~Our~~During the six months ended June 30, 2023 and 2022, our cash flows from operating, investing, and financing activities, as reflected in the ~~unaudited condensed consolidated statements~~Unaudited Condensed Consolidated Statements of ~~cash flows,~~Cash Flows, are ~~summarized in the following table:~~as follows:

Nine Months Ended
September 30,

2017

2016

Net cash provided by operating activities

$
18,542

$
20,451

Net cash used in investing activities

(20,960
)

(41,696
)
Net cash (used in) provided by financing activities

(1,840
)

58,830

Impact of foreign currency on cash

157

(26
)
Net (decrease) increase in cash, cash equivalents, and
restricted cash

$
(4,101
)

$
37,559


	Six Months Ended June 30,
	2023			2022
Net cash provided by operating activities	$	95,681		$	87,595
Net cash (used in) provided by investing activities		(104,334	)		51,837
Net cash used in financing activities		(101,069	)		(25,644	)
Impact of foreign currency on cash		211			(912	)
Net (decrease) increase in cash, cash equivalents, and restricted cash	$	(109,511	)	$	112,876

~~At September 30, 2017, our principal sources of liquidity were cash and cash equivalents of $25.6 million and investments of $60.0 million.~~ Our operations ~~were initially financed by a capitalization of approximately $5 million from external capital and subsequently~~ have been financed primarily from operating ~~activities~~activities. During the six months ended June 30, 2023 and ~~sales of preferred stock. We~~2022, we generated cash from operating activities of ~~$18.5~~$95.7 million and ~~$20.5~~$87.6 million, ~~during the nine months ended September 30, 2017 and 2016, respectively, and we expect to generate cash from operations for the foreseeable future.~~respectively.

In addition, on October 16, 2017, we closed our initial public offering, in which we issued and sold 3,205,000 shares of our Class A common stock at a public offering price of $16.00 per share for aggregate gross proceeds of $51.3 million. We received approximately $43.0 million in net proceeds after deducting $3.6 million of underwriting discounts and commissions and approximately $4.7 million in offering costs. We believe that ~~the proceeds from our IPO and~~ 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. However, our~~months from the date of the filing of this Quarterly Report.

Our future capital requirements will depend on many factors, including, but not limited to: our ~~rate of revenue growth, the expansion of~~revenue; expenses associated with our sales and marketing activities and the support of our product, technology, and development ~~efforts,~~efforts; expenses associated with our facilities build-out under our 1001 Boylston Street lease in excess of tenant allowance; payments received in advance from a third-party transaction processor; activity under the Share Repurchase Program (as defined below); and ~~the timing and extent of~~ our ~~investment~~investments in international markets. In connection with the 1001 Boylston Street lease, we expect to spend approximately $69.8 million, net of tenant reimbursements. As of June 30, 2023, we have incurred $8.8 million in expenses, of which $8.6 million was capitalized. We have also signed $2.5 million in contract commitments, which have not yet been incurred.

Our long-term future capital requirements will depend on many factors, including the future cash requirements described above, as well as the potential exercise of a call right to acquire all, and not less than all, of the remaining equity interests in CarOffer and the representative of the holders of the remaining equity will have a put right to sell to us all, and not less than all, of the remaining equity interests of CarOffer. Details of this acquisition are more fully described in Note 2 to our consolidated financial statements contained within our Annual Report. Cash from operations could also be affected by various risks and uncertainties, including, but not limited to, macroeconomic effects and other risks detailed in the “Risk Factors” section of this Quarterly Report.

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. For example, the borrowing capacity may be increased by an amount up to the greater of $250.0 million or 100% of Four Quarter Consolidated EBITDA (as defined in the Credit Agreement) if certain criteria are met and subject to certain restrictions. Any such increase requires lender approval. Proceeds of any borrowings may be used for general corporate purposes. The 2022 Revolver is scheduled to mature on September 26, 2027. As of June 30, 2023, there were no borrowings and $0.7 million in letters of credit outstanding, which reduces the borrowing capacity under the 2022 Revolver to $399.3 million. As of December 31, 2022, there were no borrowings and no letters of credit outstanding under the 2022 Revolver.

On December 8, 2022, we announced that our Board of Directors authorized a new share repurchase program, or the 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 $250.0 million. Share repurchases under the 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 Securities Exchange Act of 1934, as amended, or the Exchange Act. The Share Repurchase Program does not obligate us to repurchase any minimum dollar amount or number of shares. The Share Repurchase Program has an expiration date of December 31, 2023, 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 Share Repurchase Program will be retired. We expect to fund share repurchases through cash on hand and cash generated from operations. During the three months ended June 30, 2023, we repurchased and retired 1,311,387 shares for $22.0 million, exclusive of commissions and excise tax, at an average cost of $16.75 per share under the Share Repurchase Program. During the six months ended June 30, 2023, we repurchased and retired 5,301,248 shares for $87.1 million, exclusive of commissions and excise tax, at an average cost of $16.43 per share under the Share Repurchase Program. As of June 30, 2023, we had remaining authorization to purchase up to $144.2 million of our Class A common stock under the Share Repurchase Program.

To the extent that our operating income, existing cash, cash equivalents, ~~and~~ investments, and ~~cash from operations~~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 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 II, Item 1A within this Quarterly Report.

Operating Activities

~~Cash~~Net cash provided by operating activities of $95.7 million during the ~~first nine~~six months ~~of 2017~~ended June 30, 2023 was ~~$18.5 million,~~ due primarily to consolidated net income of ~~$10.9~~$25.7 million, adjusted for $29.5 million of stock-based compensation expense for equity classified awards, $23.2 million of depreciation and amortization, and $5.6 million of amortization of deferred contract costs, partially offset by $16.4 million of deferred taxes and $0.5 million of gain on sale of property and equipment. Net cash provided by operating activities was also attributable to a ~~$6.4~~$13.2 million decrease in accounts receivable, a $9.0 million increase in deferred revenue, a $7.6 million increase in lease obligations, a $4.7 million decrease in inventory, a $4.1 million increase in accounts payable, and ~~$2.7~~a $3.5 million ~~of depreciation~~decrease in prepaid expenses, prepaid income taxes, and ~~amortization. These drivers~~other assets. The increases in cash flow from operations were partially offset by a ~~$4.0~~$9.7 million increase in deferred contract costs and a $4.1 million decrease in accrued expenses, accrued income taxes, and other liabilities.

Net cash provided by operating activities of $87.6 million during the six months ended June 30, 2022 was due primarily to consolidated net income of $36.9 million, adjusted for $27.6 million of stock-based compensation expense for equity classified awards, $22.4 million of depreciation and amortization, $5.6 million of amortization of deferred contract costs, and $0.7 million of provision for doubtful accounts, partially offset by $23.5 million of deferred taxes. Net cash provided by operating activities was also attributable to a $38.2 million increase in accrued expenses, accrued income taxes, and other liabilities, an $8.2 million increase in accounts ~~receivable.~~

~~Cash provided~~payable, and a $2.3 million increase in deferred revenue. The increases in cash flow from operations were partially offset by ~~operating activities during the first nine months of 2016 was $20.5~~a $12.0 million ~~due primarily to an~~ increase in accounts ~~payable of $11.5~~receivable, a $10.4 million ~~net income of $2.7 million, an~~ increase in ~~accrued expense of $2.2~~prepaid expenses, prepaid income taxes, and other assets, a $5.7 million an increase in deferred ~~rent of~~contract costs, a $2.0 million ~~and an~~ increase in ~~deferred revenue of $1.7 million.~~inventory, and a $0.9 million decrease in lease obligations.

Investing Activities

~~Our~~Net cash used in investing activities ~~consist primarily~~of $104.3 million during the six months ended June 30, 2023 was due to $95.5 million in purchases of short-term investments, $7.4 million of capitalization of website development costs, $4.2 million of purchases of property and equipment, ~~capitalized~~and $2.6 million in advance payments to customer, offset in part by $5.0 million of sales of short-term investments and $0.5 million in proceeds from the sale of property and equipment.

Net cash provided by investing activities of $51.8 million during the six months ended June 30, 2022 was due to $60.0 million in maturities of short-term investments, offset by $5.5 million of capitalization of website development costs and ~~short-term investments.~~

~~Cash used in investing activities of $21.0 million during the first nine months of 2017 was due to $50.0~~$2.7 million of ~~investments in certificates~~purchases of ~~deposit, net of maturities of $34.8 million, approximately $4.3 million of investments in furniture, computer equipment,~~property and ~~leasehold improvements, and $1.5 million related to the capitalization of website development costs.~~equipment.

Cash used in investing activities of $41.7 million during the first nine months of 2016 resulted from $41.8 million of investments in certificates of deposit, net of maturities of $5.0 million, $4.0 million of investments in furniture, computer equipment, and leasehold improvements, and $0.9 million related to the capitalization of website development costs.

Financing Activities

~~Cash~~Net cash used in financing activities of ~~$1.8~~$101.1 million during the ~~first nine~~six months ~~of 2017 reflects $2.1~~ended June 30, 2023 was due primarily to $91.5 million of ~~initial public offering costs, partially~~payment for the repurchase of our Class A common stock under the Share Repurchase Program, $6.9 million of payment of withholding taxes on net share settlements of restricted stock units, and $2.7 million of change in gross advance payments received from third-party transaction processor.

Net cash used in financing activities of $25.6 million during the six months ended June 30, 2022 was due primarily to $12.7 million of payment of tax distributions to redeemable noncontrolling interest holders, $11.3 million of payment of withholding taxes on net share settlements of restricted stock units, and $2.4 million of change in gross advance payments received from third-party transaction processor, offset in part by ~~$0.3~~$0.7 million ~~related to the~~of proceeds from the issuance of common stock related to the exercise of vested stock options.

Cash provided by financing activities of $58.8 million during the first nine months of 2016 primarily reflects $60.0 million of proceeds from the issuance of Series E preferred stock, which was partially offset by the $1.3 million used for the repurchase of previously issued preferred stock, common stock, vested options, and restricted stock units.

Contractual Obligations and Known Future Cash Requirements

As of ~~September~~June 30, ~~2017,~~2023, there were no material changes in our contractual obligations and commitments from those disclosed in ~~the Form S-1 filed with the Securities and Exchange Commission, or SEC, on September 15, 2017,~~our Annual Report, other than those appearing in the notes to the Unaudited Condensed Consolidated Financial Statements appearing elsewhere in this ~~report.~~Quarterly Report, which are hereby incorporated by reference.

Seasonality

Across the retail automotive industry, consumer purchases are 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 due to 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, consumer confidence in the economy, consumer debt levels, the ongoing military conflict between Russia and Ukraine, 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.

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 develop.

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 ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016,~~2022, we did not have any off-balance sheet arrangements, ~~except for operating~~or material leases ~~entered into~~that are less than 12 months in ~~the normal course~~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 ~~business.~~operations, liquidity, capital expenditures, or capital resources.

Critical Accounting ~~Policies and Significant~~ Estimates

~~In preparing our~~The preparation of the Unaudited Condensed Consolidated Financial Statements in ~~accordance~~conformity with GAAP ~~we are required~~requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, ~~revenue, costs~~ and ~~expenses, and~~the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses 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 managements' estimates if these results differ from historical experience, or other assumptions do not turn out to be substantially accurate, even if such assumptions are ~~reported~~reasonable when made. Changes in estimates are recognized in the period in which they become known.

Critical estimates relied upon in preparing the Unaudited Condensed Consolidated Financial Statements include the determination of sales allowance and ~~accompanying disclosures. The accounting estimates that require the most difficult and subjective judgments include~~variable consideration in our revenue recognition, ~~and revenue reserves, contingent liabilities, allowances~~allowance for doubtful accounts, ~~expected future cash flows used to evaluate~~ the ~~recoverability~~impairment of long-lived assets, the ~~expensing and~~ capitalization of product, technology, and development costs for website development, ~~and~~ internal-use software and hosting arrangements, the ~~determination~~valuation of acquired assets and liabilities, the ~~fair value~~valuation and recoverability of ~~stock awards issued, stock-based compensation expense,~~intangible assets and goodwill, the valuation of redeemable noncontrolling interest, the recoverability of our net deferred tax assets and related valuation ~~allowance. Therefore,~~allowance, the valuation of inventory, and the valuation of equity and liability-classified compensation awards. Accordingly, we consider these to be our critical accounting ~~policies. Accordingly, we evaluate our~~ estimates and ~~assumptions on an ongoing basis. Our actual results may differ from~~believe that of our significant accounting policies, these ~~estimates~~involve the greatest degree of judgment and ~~assumptions.~~ complexity.

For a detailed explanation of the judgments made in these areas, refer to Note 2 to our Unaudited Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our ~~final prospectus related to our IPO filed with the~~ ~~SEC~~ ~~pursuant to Rule 424(b)(4) under the Securities Act of 1933, as amended, on October 12, 2017.~~Annual Report.

~~Emerging Growth Company Status~~

We are an “emerging growth company,” as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. We may take advantage of these exemptions until we are no longer an emerging growth company. Section 107 of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards. We have elected to use the extended transition period for complying with new or revised accounting standards; and as a result of this election, our financial statements may not be comparable to companies that comply with public company effective dates. We may take advantage of these exemptions up until December 31, 2022 or such earlier time that we are no longer an emerging growth company. We would cease to be an emerging growth company if we have more than $1.07 billion in annual revenue, we have more than $700.0 million in market value of our stock held by non-affiliates (and we have been a public company for at least 12 months, and have filed one annual report on Form 10-K), or we issue more than $1.0 billion of non-convertible debt securities over a three-year period.

Recently Issued Accounting Pronouncements

Information concerning recently issued accounting pronouncements may be found in Note 2 to our Unaudited Condensed Consolidated Financial Statements ~~included~~appearing elsewhere in this Quarterly ~~Report on Form 10-Q.~~Report.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

Market risk represents the risk of loss that may affect our financial position due to adverse changes in financial market prices and rates. We are exposed to market risks ~~related~~as described below.

Interest Rate Risk

As of June 30, 2023, our exposure to market risk associated with changes in interest ~~rates.~~

~~Interest Rate Risk~~

~~We did~~rates relates primarily to the 2022 Revolver, which allows us to borrow up to $400.0 million. The applicable interest rate is, at our option, based on a number of different benchmark rates and applicable spreads, as determined by the Consolidated Secured Net Leverage Ratio (as defined in Note 7 to the Unaudited Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report). A fluctuation in interest rates does not have ~~any long-term~~an impact on interest expense unless the 2022 Revolver is drawn upon. Such impact would also be dependent on the amount of the draw. As of June 30, 2023, there were no borrowings ~~at September~~and $0.7 million in letters of credit outstanding, which reduces the borrowing capacity under the 2022 Revolver to $399.3 million.

As of June 30, ~~2017 or at December 31, 2016.~~

We2023, we had cash, cash equivalents, and short-term investments of ~~$85.6~~$453.6 million, ~~and $74.3 million at September 30, 2017 and December 31, 2016, respectively,~~ which ~~consist~~consisted of bank deposits, money market ~~funds,~~accounts, and ~~certificates~~mutual funds. As of ~~deposit with maturity dates ranging from six to twelve months.~~ December 31, 2022, we had cash and cash equivalents of $469.5 million, which consisted of bank deposits, money market accounts, and mutual funds.

Such interest-earning instruments carry a degree of interest rate risk.Given recent changes in the interest rate environment and in an effort to ensure liquidity, we expect variable returns from our cash equivalents for the foreseeable future. To date, fluctuations resulting from changes in the interest rate environment in interest income have not been ~~significant.~~material to the operations of the business.

We do not enter into investments for trading or speculative purposes and have not used any derivative financial instruments to manage our interest rate risk exposure.

Inflation Risk

We do not believe that inflation has had a material effect on our business, financial condition, or results of operations to date. However, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs through price increases. Our inability or failure to do so could harm our business, operating results, and financial condition.

Foreign Currency Exchange Risk

Historically, because our operations and sales have been primarily in the United States, we have not faced any significant foreign currency risk. As of ~~September~~June 30, ~~2017~~2023 and December 31, ~~2016,~~2022, we ~~have~~had foreign currency exposures in the British pound, the Euro, and the ~~Euro,~~Canadian dollar, although such exposure ~~is not significant.~~was immaterial.

Our foreign subsidiaries have intercompany ~~accounts~~transactions that are eliminated upon consolidation, and these ~~accounts~~transactions expose us to foreign currency exchange rate fluctuations. Exchange rate fluctuations on ~~short-term~~short‑term intercompany ~~accounts~~transactions are ~~recorded~~recognized within other income (expense), net in our Unaudited Condensed Consolidated ~~Financial Statements of~~Income Statements. Exchange rate fluctuations on long-term intercompany transactions are recognized within accumulated other comprehensive (loss) income in our Unaudited Condensed Consolidated Balance Sheets.

As we seek to grow our international operations ~~under other income, net.~~in Canada and the United Kingdom, our risks associated with fluctuation in currency rates may become greater, and we will continue to reassess our approach to managing these risks.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures.

Our management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the ~~Securities Exchange Act of 1934, as amended, or the~~ Exchange Act), as of the end of the period covered by this Quarterly ~~Report on Form 10-Q. Based on such evaluation, our~~Report.

The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive ~~officer~~ and principal financial ~~officer have~~officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and our management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

As described below, based on the evaluation of our disclosure controls and procedures as of the end of the period covered by this Quarterly Report, management identified a material weakness in our internal control over financial reporting. As a result of the material weakness, our Principal Executive Officer has concluded that, as of such date, our disclosure controls and procedures were ~~effective.~~not effective to provide reasonable assurance that information required to be disclosed in the reports we file and submit under the Exchange Act is recorded, processed, summarized, and reported as and when required.

Notwithstanding this material weakness noted above, our management, including our Principal Executive Officer, has concluded that our financial statements included in this Quarterly Report present fairly, in all material respects, our financial position, results of operations, and cash flows for the periods presented in accordance with GAAP.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company’s annual or interim financial statements will not be prevented or detected on a timely basis.

The control deficiencies, which, in the aggregate, were assessed as a material weakness as disclosed in our Annual Report, have not yet been fully remediated.

We have concluded that this material weakness exists at our CarOffer subsidiary, as CarOffer does not have the necessary business and IT processes, personnel, and related internal controls to operate in a manner to satisfy the accounting and financial reporting requirements of a public company.

The deficiencies at our CarOffer subsidiary were the result of both design and operating deficiencies related to certain controls over information technology systems that are relevant to the preparation of our financial statements, and business controls over our financial statement close processes. The deficiencies were primarily the result of (i) insufficient evidence of management review and performance of control procedures, (ii) the inability to rely on information produced from IT systems and an absence of compensating procedures, (iii) controls not designed to require proper authorization of certain transactions, and (iv) controls not designed or operating effectively related to logical access and change management of IT systems.

Specifically, we did not have sufficient knowledgeable personnel or processes in place which resulted in:

•

Ineffective controls related to user access reviews designed to adequately restrict privileged and end-user access to certain financial applications, programs, and data to appropriate company personnel, including consideration to segregation of incompatible duties;

•

Ineffective change management review controls for certain financial applications to ensure that IT program and data changes affecting financial IT applications and underlying accounting records are identified, tested, authorized, and implemented appropriately; and

•

Ineffective controls over the financial statement close processes, including those related to the review of CarOffer journal entries, reconciliations, management review controls, and analyses of transactions and accounts.

This material weakness did not result in a known material misstatement to our financial statements. However, the material weakness could have resulted in material misstatements in our interim or annual financial statements and disclosures which then may not have been prevented or detected. The material weakness also impacts the effectiveness of segregation of duties, impacts the effectiveness of financial controls which rely on information from relevant financial systems, and increases the reliance on corporate accounting personnel to identify errors at the CarOffer subsidiary level.

Remediation Plan

We and our Board of Directors are committed to maintaining a strong internal control environment. Management, with the oversight of the Audit Committee of our Board of Directors, evaluated the material weakness identified during the second quarter of 2022, and implemented a remediation plan to address the material weakness and enhance our control environment. Management subsequently evaluated the additional control deficiencies, status of remediation, and the material weakness which exists as of June 30, 2023, to determine key remediation activities. The remediation plan addresses the additional deficiencies identified through the annual assessment of the effectiveness of our internal control over financial reporting. Our remediation measures are ongoing and include the following:

•

Implementing robust review controls over user access and change management for relevant financial systems;

•

Implementing effective review of journal entries and account reconciliations, and other financial statement close analyses and processes;

•

Implementing controls to address the inability to rely on information from the IT systems;

•

Enhancing evidence retained which supports the operating effectiveness of controls;

•

Engaging internal and external resources to assist with remediation;

•

Implementation of controls at the corporate level to reduce the risk of material misstatement related to CarOffer financial statements and disclosures;

•

Hiring additional qualified SOX-focused personnel to provide additional capacity and expertise to enhance our IT control environment; and

•

Leveraging CarGurus resources with significant public company experience to provide oversight of CarOffer IT and financial controls programs.

Management is committed to successfully implementing the remediation plan as promptly as possible. As of June 30, 2023, management has implemented or enhanced certain controls to address specific issues related to the material weakness. The material weakness will not be considered remediated until our management implements effective controls that operate for a sufficient period of time and our management has concluded through testing that these controls are effective. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects. See “Risk Factors—Risks Related to Our Business and Industry— We have identified a material weakness in our internal control over financial reporting. If we are unable to remediate this material weakness, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect our business and the market price of our Class A common stock.”

Changes in Internal Control ~~Over~~over Financial Reporting.

There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Quarterly Report ~~on Form 10-Q~~ that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings.

From time to time we may become involved in legal proceedings or be subject to claims arising in the ordinary course of our business. We are not presently subject to any pending or threatened litigation that we believe, if determined adversely to us, would individually, or taken together, reasonably be expected to have a material adverse effect on our business or financial results.

Item 1A. Risk Factors.

Investing in our Class A common stock involves a high degree of risk. You should carefully consider ~~carefully~~ the risks and uncertainties described below, some of which have previously occurred and any of which may occur in the future, together with all of the other information contained in this ~~report,~~Quarterly Report, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our Unaudited Consolidated Financial Statements and the related notes thereto appearing elsewhere in ~~our other public filings in~~this Quarterly Report, before evaluating our business. Our business, financial condition, operating results, cash flow, and prospects could be materially and adversely affected by any of these risks or uncertainties. In that event, the trading price of our Class A common stock could decline. See “Special Note Regarding ~~Forward-Looking Statements”.~~Forward‑Looking Statements.”

Risks Related to Our Business and Industry

Our business is substantially dependent on our relationships with ~~dealers, and our subscription agreements with these dealers do not contain long-term contractual commitments.~~dealers. If a significant number of dealers terminate their subscription agreements with us, and/or dealer closures or consolidations occur that reduce demand for our products, our business and financial results would be materially and adversely affected.

~~Our primary~~A significant source of our revenue consists of subscription fees paid to us by dealers for access to enhanced features on our automotive ~~marketplace.~~marketplaces. Our subscription agreements with dealers generally may be terminated by us with 30 days’ notice and by dealers with 30 days’ notice ~~after~~prior to the ~~initial~~commencement of the applicable renewal term. ~~While the~~The majority of our contracts with dealers currently ~~includes~~provide for one-month ~~initial~~committed terms ~~we are in the process of transitioning many of these dealers to contracts with one-year initial terms. The contracts~~and do not contain contractual obligations requiring a dealer to maintain its relationship with us beyond the ~~initial~~committed term. ~~Accordingly, these dealers~~A dealer may be influenced by several factors to cancel ~~their subscriptions~~its subscription with us, ~~in accordance~~including national and regional dealership associations, national and local regulators, automotive manufacturers, consumer groups, and consolidated dealer groups. If any of these influential groups indicate that dealers should not enter into or maintain subscription agreements with ~~the terms~~us, dealers could share this belief and we may lose a number of ~~their subscription agreements.~~our paying dealers. If a significant number of our paying dealers terminate their subscriptions with us, our ~~revenue would be materially and adversely affected.~~

If we fail to maintain or increase the number of dealers that pay subscription fees to us, or fail to maintain or increase the fees paid to us for subscriptions, our business and financial results would be harmed.

If paying dealers do not experience the volume of consumer connections that they expect during their monthly or annual subscription period, or do not experience the level of car sales they expect from those connections, they may terminate their subscriptions or may insist on renewing their subscriptions at a lower level of fees. Even if dealers do experience increased consumer connections or sales, they may not attribute such increases to our marketplace. If we fail to expand our base of paying dealers, or fail to maintain or increase the level of fees that we receive from them, our business and financial results would be materially and adversely affected.

~~We allow dealers to list their inventory~~Additionally, in our marketplace for free; however, dealer identity and contact information is not permitted in such free listings and these dealers do not receive access to the paid features of our marketplace. Many dealers start with us on a non-paying basis and then become paid customers in order to take advantage of the features of our Enhanced or Featured Listing products. If dealers using our platform do not convert to our paid offerings at the rates we expect, or if a greater than expected number of our paying dealers elect to terminate their subscriptions, our business and financial results would be harmed.

~~If dealers or other advertisers reduce their advertising spend with us and we are unable to attract new advertisers, our business would be harmed.~~

A significant amount of our revenue is derived from advertising revenues generated primarily through advertising sales to dealers, auto manufacturers, and other auto-related brand advertisers. We compete for this advertising revenue with other online automotive marketplaces and with television, print media, and other traditional advertising channels. Our ability to attract and retain advertisers, and to generate advertising revenue, depends on a number of factors, including:

~~our ability to increase the number of consumers using our marketplace;~~

~~our ability to compete effectively for advertising spending with other online automobile marketplaces;~~

~~our ability to continue to develop our advertising products in our marketplace;~~

•

~~our ability to keep pace with changes in technology and the practices and offerings of our competitors; and~~

~~our ability to offer an attractive return on investment, or ROI, to our advertisers for their advertising spend with us.~~

Our agreements with dealers for display advertising generally include initial terms ranging from one month to one year and may be terminated by us with 30 days’ notice and by dealers with 30 days’ notice after the initial term. The contracts do not contain contractual obligations requiring an advertiser to maintain its relationship with us beyond the initial term. Our other advertising contracts, including those with auto manufacturers, are typically for a defined period of time and do not have ongoing commitments to advertise on our site beyond the initial time period. We may not succeed in capturing a greater share of our advertisers’ spending if we are unable to convince advertisers of the effectiveness or superiority of our marketplace as compared to alternative channels. If current advertisers reduce or end their advertising spending with us and we are unable to attract new advertisers, our advertising revenue and business and financial results would be harmed.

If we are unable to provide a compelling vehicle search experience to consumers through our platform, the number of connections between consumers and dealers using our marketplace may decline and our business and financial results would be materially and adversely affected.

If we fail to continue to provide a compelling vehicle search experience to consumers, the number of connections between consumers and dealers facilitated through our marketplace could decline, which in turn could lead dealers to stop listing their inventory in our marketplace, cancel their subscriptions, or reduce their advertising spend with us. If dealers stop listing their inventory in our marketplace, we may not be able to maintain and grow our consumer traffic, which may cause other dealers to stop using our marketplace. This reduction in the number of dealers using our marketplace would likely adversely affect our marketplace and our business and financial results. As consumers increasingly use their mobile devices to access the Internet and our marketplace, our success will depend, in part, on our ability to provide consumers with a robust and user-friendly experience through their mobile devices. We believe that our ability to provide a compelling vehicle search experience, both on the web and through mobile devices, is subject to a number of factors, including:

~~our ability to maintain an attractive marketplace for consumers and dealers, including on mobile platforms;~~

~~our ability to continue to innovate and introduce products for our marketplace on mobile platforms;~~

~~our ability to launch new products that are effective and have a high degree of consumer engagement;~~

~~our ability to maintain the compatibility of our mobile application with operating systems, such as iOS and Android, and with popular mobile devices running such operating systems; and~~

~~our ability to access a sufficient amount of data to enable us to provide relevant information to consumers, including pricing information and accurate vehicle details.~~

~~If use of our marketplace, particularly on mobile devices, does not continue to grow, our business and operating results would be harmed.~~

~~We rely on Internet search engines to drive traffic to our website, and if we fail to appear prominently in the search results, our traffic would decline and our business would be adversely affected.~~

We depend, in part, on Internet search engines such as Google, Bing, and Yahoo! to drive traffic to our website. The number of consumers we attract to our marketplace from search engines is due in part to how and where our websites rank in unpaid search results. These rankings can be affected by a number of factors, many of which are not under our direct control and may change frequently. For example, when a consumer searches for a vehicle in an Internet search engine, we rely on a high organic search ranking of our webpages to refer the consumer to our website. Our competitors’ Internet search engine optimization efforts may result in their websites receiving higher search result rankings than ours, or Internet search engines could change their methodologies in a way that would adversely affect our search result rankings. If Internet search engines modify their search algorithms in ways that are detrimental to us, or if our competitors’ efforts are more successful than ours, overall growth in our traffic could slow or our traffic could decline. In addition, Internet search engine providers could provide dealer and pricing information directly in search results, align with our competitors, or choose to develop competing products. Search engines may also adopt a more aggressive auction-pricing system for keywords that would cause us to incur higher advertising costs or reduce our market visibility to prospective users. Our website has experienced fluctuations in search result rankings in the past, and we anticipate similar fluctuations in the future. Any reduction in the number of consumers directed to our website through Internet search engines could harm our business and operating results.

~~Any inability by us to develop new products, or achieve widespread consumer adoption of those products, could negatively impact our business and financial results.~~

Our success depends on our continued innovation to provide products and services that make our marketplace, website, and mobile application useful for consumers. These new products must be widely adopted by consumers in order for us to continue to attract dealers to our subscription products and services. Accordingly, we must continually invest resources in product, technology, and development in order to improve the attractiveness and comprehensiveness of our marketplace and its related products and effectively incorporate new Internet and mobile technologies into them. These product, technology, and development expenses may include costs of hiring additional personnel and of engaging third-party service providers and other research and development costs. In addition, revenue relating to new products is typically unpredictable and our new products may have lower gross margins and higher marketing and sales costs than our existing products. We may also change our pricing models for both existing and new products so that our prices for our offerings reflect the value those offerings are providing to consumers and dealers. Our pricing models may not effectively reflect the value of products to consumers and dealers, and, if we are unable to provide a marketplace and products that consumers and dealers want to use, they may become dissatisfied and instead use our competitors’ websites and mobile applications. Without an innovative marketplace and related products, we may be unable to attract additional, unique consumers or retain current consumers, which could affect the number of dealers that become paying dealers and the number of advertisers that want to advertise in our marketplace, which could, in turn, harm our business and financial results.

We may be unable to maintain or grow relationships with data providers, or may experience interruptions in the data they provide, which may create a less valuable or transparent shopping experience and negatively affect our business and operating results.

We obtain data regarding available cars from many third-party data providers, including inventory management systems, automotive websites, customer relationship management systems, dealer management systems, and third-party data licensors. Our business relies on our ability to obtain data for the benefit of consumers and dealers using our marketplace. For example, our success in International markets is dependent in part upon our ability to obtain and maintain inventory data and other vehicle information for those markets. The large amount of inventory and vehicle information available in our marketplace is critical to the value we provide for consumers. The loss or interruption of such inventory data and other vehicle information, such as vehicle history, could decrease the number of consumers using our marketplace. We could experience interruptions in our data access for a number of reasons, including difficulties in renewing our agreements with data providers, changes to the software used by data providers, efforts by industry participants to restrict access to data, and increased fees we may be charged by data providers. While we believe we have identified other providers in the event any of our current providers terminate their relationships with us, or our service is interrupted, there may be a delay while we transition to new providers, which could disrupt our marketplace. If there is a material disruption in the data provided to us, the information that we provide to consumers and dealers using our marketplace may be limited. In addition, the quality, accuracy, and timeliness of this information may suffer, which may lead to a less valuable and less transparent shopping experience for consumers using our marketplace and could materially and adversely affect our business and financial results.

~~The failure to build and maintain our brand would harm our ability to grow our audience and to expand the use of our marketplace by consumers and dealers.~~

While we are focused on building our brand recognition, maintaining and enhancing our brand will depend largely on the success of our efforts to maintain the trust of consumers and dealers and to deliver value to each consumer and dealer using our marketplace. If consumers were to believe that we are not focused on providing them with a better automobile shopping experience, our reputation and the strength of our brand may be adversely affected.

Complaints or negative publicity about our business practices, our marketing and advertising campaigns, our compliance with applicable laws and regulations, the integrity of the data that we provide to consumers, data privacy and security issues, and other aspects of our business, irrespective of their validity, could diminish consumers’ and dealers’ confidence and participation in our marketplace and could adversely affect our brand. There can be no assurance that we will be able to maintain or enhance our brand, and failure to do so would harm our business growth prospects and operating results.

The “Questions” section of our website enables consumers and dealers using our site to communicate with one another and other persons seeking information or advice on the Internet. Although all such information or feedback is generated by users and not by us, claims of defamation or other injury could be made against us for content posted on our website. In addition, negative publicity and user sentiment generated as a result of fraudulent or deceptive conduct by users of our marketplace could damage our reputation, reduce our ability to attract new users or retain our current users, and diminish the value of our brand.

~~While we have historically focused our marketing efforts on Internet and mobile channels, we have begun brand-focused campaigns using television and radio and these efforts may not be successful.~~

As a consumer brand, it is important for us to increase the visibility of our brand with potential users of our marketplace. While we have historically focused our marketing efforts on Internet and mobile channels, we have begun to advertise through television, radio, and other channels we have not used previously, with the goal of driving greater brand recognition, trust, and loyalty from a broader consumer audience. If our brand-focused campaigns are not successful and we are unable to recover our marketing costs through increases in user traffic and increased subscription and advertising revenue, or if we discontinue our brand marketing campaigns, it could have a material adverse effect on our business and financial results.

~~Our recent, rapid growth is not indicative of our future growth, and our revenue growth rate will decline in the future.~~

Our revenue increased from $137.4 million in the nine months ended September 30, 2016 to $226.3 million in the nine months ended September 30, 2017, representing a 65% increase between such periods. In the future, our revenue growth rates will inevitably decline as we achieve higher market penetration rates, as our revenue increases to higher levels, and as we experience increased competition. As our revenue growth rates decline, investors’ perceptions of our business may be adversely affected and the market price of our Class A common stock could decline. In addition, we will not be able to grow as expected, or at all, if we do not accomplish the following:

~~increase the number of consumers using our marketplace;~~

~~maintain and expand the number of dealers that subscribe to our marketplace;~~

~~attract and retain advertisers placing advertisements in our marketplace;~~

~~further improve the quality of our marketplace, and introduce high quality new products; and~~

~~increase the number of connections between consumers and dealers using our marketplace.~~

~~If we fail to expand effectively into new markets, both domestically and abroad, our revenue, business, and financial results will be harmed.~~

We intend to continue to expand our operations to target new markets, both domestically and abroad, and there can be no assurance our expansion into these new markets will be successful. Our expansion into new markets places us in unfamiliar competitive environments and involves various risks, including the need to invest significant resources and the likelihood that returns on such investments will not be achieved for several years, or possibly at all. In attempting to establish a presence in new markets, we expect, as we have in the past, to incur significant losses in those markets and face various other challenges, such as obtaining and maintaining access to inventory data, competition for consumers and dealers using our marketplace, monetizing dealers, new regulatory environments and laws, different consumer shopping habits than those we are familiar with in the United States, and our ability to expand our number of account managers to cover those new markets. Our current and any future expansion plans will require significant resources and management attention. Furthermore, expansion into international markets may not yield results similar to those we have achieved in the United States.

Our international operations involve risks that are different from, or in addition to, the risks we may experience as a result of our domestic operations, and our exposure to these risks will increase as we expand internationally.

We have started to expand our operations internationally. We recently launched marketplaces in Canada, the United Kingdom, and Germany and plan to enter additional markets in the next twelve months. We expect to expand our international operations significantly by continuing to enter new markets abroad and expanding our offerings in new languages. In most international markets, we would not be the first entrant, and our competitors may be more established or otherwise better positioned than we are to succeed. Our competitors may offer services to dealers that make dealers dependent on them, such as hosting dealers’ webpages and providing inventory feeds for dealers, which would make it difficult to attract dealers to our marketplace. Dealers may also be parties to agreements with other dealers and syndicates that prevent them from being able to access our marketplace. In addition, we may also face litigation from competitors in new markets. Any of these barriers could impede our expansion into international markets, which could affect our business and potential growth.

We have made portions of our platform available in English, French, German, and Spanish, and we will need to make our platform available in additional languages as we expand into new countries. We may have difficulty modifying our technology and content for use in non-English speaking markets or fostering new communities in non-English speaking markets. Our ability to manage our business and conduct our operations internationally requires considerable management attention and resources, and is subject to the particular challenges of supporting a rapidly growing business in an environment of multiple languages, cultures,

customs, legal systems, alternative dispute resolution systems, regulatory systems, and commercial infrastructures. Expanding internationally may subject us to new risks or increase our exposure in connection with current risks, including risks associated with:

~~recruiting and retaining qualified, multilingual employees, including sales personnel;~~

~~adapting the website to conform to local automobile shopping expectations;~~

~~increased competition from local websites and periodicals and potential preferences by local populations for local providers;~~

~~compliance with applicable foreign laws and regulations, including different privacy, censorship, and liability standards and regulations, and different intellectual property laws;~~

~~providing solutions in different languages for different cultures, which may require that we modify our solutions and features so they are culturally relevant in different countries;~~

~~the enforceability of our intellectual property rights;~~

~~credit risk and higher levels of payment fraud;~~

~~compliance with anti-bribery laws, including compliance with the Foreign Corrupt Practices Act and the U.K. Bribery Act;~~

~~currency exchange rate fluctuations;~~

~~foreign exchange controls that might prevent us from repatriating cash earned outside the United States;~~

~~political and economic instability in some countries;~~

~~double taxation of our international earnings and potentially adverse tax consequences due to changes in the tax laws of the United States or the foreign jurisdictions in which we operate; and~~

~~higher costs of doing business internationally.~~

~~We participate in a highly competitive market, and pressure from existing and new companies may adversely affect our business and operating results.~~

We face significant competition from companies that provide listings, information, lead generation, and car-buying services designed to help consumers shop for cars and to enable dealers to reach these consumers. Our competitors offer various marketplaces, products, and services that compete with us. Some of these competitors include:

~~major U.S. online automotive marketplaces: AutoTrader.com, Cars.com, and TrueCar.com;~~

~~U.S. online automotive content publishers, such as Edmunds.com and KBB.com;~~

~~Internet search engines;~~

~~peer to peer marketplaces; and~~

~~sites operated by individual automobile dealers.~~

We compete with these and other companies for a share of dealers’ overall marketing budget for online and offline media marketing spend. To the extent that dealers view alternative marketing and media strategies to be superior to our marketplace, we may not be able to maintain or grow the number of dealers subscribing to, and advertising on, our marketplace, and our business and financial results may be harmed.

We also expect that new competitors will continue to enter the online automotive retail industry with competing marketplaces, products, and services, which could have an adverse effect on our business and financial results.

Our competitors could significantly impede our ability to expand the number of dealers using our marketplace. Our competitors may also develop and market new technologies that render our existing or future marketplace and associated products less competitive, unmarketable, or obsolete. In addition, if our competitors develop marketplaces with similar or superior functionality to ours, and our web traffic declines, we may need to decrease our subscription and advertising fees. If we are unable to maintain our current pricing structure due to competitive pressures, our revenue would likely be reduced and our financial results would be negatively affected.

Our existing and potential competitors may have significantly more financial, technical, marketing, and other resources than we have, and the ability to devote greater resources to the development, promotion, and support of their marketplaces, products, and services. Additionally, they may have more extensive automotive industry relationships than we have, longer operating histories, and greater name recognition. As a result, these competitors may be able to respond more quickly with new technologies and to undertake more extensive marketing or promotional campaigns than we can. In addition, to the extent that any of our competitors have existing relationships with dealers or auto manufacturers for marketing or data analytics solutions, those dealers and auto manufacturers may be unwilling to partner with us. If we are unable to compete with these competitors, the demand for our marketplace and related products and services could substantially decline.

In addition, if one or more of our competitors were to merge or partner with another of our competitors, the change in the competitive landscape could adversely affect our ability to compete effectively. Our competitors may also establish or strengthen cooperative relationships with our existing or future data providers, technology partners, or other parties with whom we have relationships, thereby limiting our ability to develop, improve, and promote our solutions. We may not be able to compete successfully against current or future competitors, and competitive pressures may harm our business and financial results.

~~Our business could be adversely affected if dealer associations or auto manufacturers were to discourage or otherwise deter dealers from subscribing to our marketplace.~~

Although the dealership industry is highly fragmented, a small number of interested parties have significant influence over the industry. These parties include state and national dealership associations, state regulators, car manufacturers, consumer groups, independent dealers, and consolidated dealer groups. If and to the extent these parties believe that dealerships should not enter into or maintain subscription agreements with us, this belief could become shared by dealerships and we may lose a number of our paying dealers.

Furthermore, auto manufacturers may provide their franchise dealers with financial or other marketing support conditioned upon such dealers’ adhering to certain marketing guidelines. Auto manufacturers may determine that the manner in which certain of their franchise dealers use our marketplace is inconsistent with the terms of such marketing guidelines, which determination could result in potential or actual loss of the manufacturers’ financial or other marketing support to the dealers whose use of our marketplace is deemed objectionable. The potential or actual loss of such marketing support may cause such dealers to cease paying for our paid features, which may adversely affect our ability to maintain or grow the number of our paying dealers.

~~Dealer closures or consolidations could reduce demand for our products, which may decrease our revenue.~~

In the past, the number of ~~U.S.~~United States dealers has declined due to dealership closures and consolidations as a result of ~~factors such as global economic downturns.~~industry dynamics and macroeconomic issues. When dealers consolidate, the services they previously purchased separately are often purchased by the combined entity in a lesser quantity or for a lower aggregate price than before, leading to volume compression and loss of revenue. Further dealership consolidations or closures could reduce the aggregate demand for our products and services. If dealership closures and consolidations occur in the future, our business and financial ~~position and~~ results ~~of operations~~ could be materially and adversely affected.

~~We rely on third-party service providers~~If we fail to maintain or increase the number of dealers that pay subscription fees to us, or fail to maintain or increase the fees paid to us for ~~many aspects of~~subscriptions, our business and ~~any failure~~financial results would be materially and adversely affected.

If paying dealers do not receive the volume of consumer connections that they expect during their subscription period, do not experience the level of car sales they expect from those connections, or fail to attribute consumer connections or sales to our platform, they may terminate their subscriptions prior to the commencement of the applicable renewal term. If we fail to maintain ~~these relationships could harm~~or expand our ~~business.~~base of paying dealers or fail to maintain or increase the level of fees that we receive from them, our business and financial results would be materially and adversely affected.

~~Our success will depend upon~~We allow dealers to list their inventory in CarGurus' marketplaces for free; however, we impose certain limitations on such free listings. In the future, we may decide to impose additional restrictions on Restricted Listings or modify the services available to non-paying dealers. These changes to our ~~relationships with third parties, including those with~~Restricted Listings product may result in less inventory being displayed to consumers, which may impair our ~~payment processor~~efforts to attract consumers, and ~~data center host, our security providers, our data providers for dealer inventory~~cause paying and ~~vehicle information, our human resources information system provider, our billing subscription software provider, our customer relationship management software provider,~~non-paying dealers to receive fewer leads and our general ledger provider. If these third parties experience difficulty meeting our requirements or standards, or if the license agreements we have entered into with such third parties are terminated or not renewed, it couldconnections, which may make it more difficult for us to ~~operate some aspects~~convert non-paying dealers to paying dealers or maintain or expand our base of paying dealers. If dealers do not subscribe to our ~~business, which could damage~~paid offerings at the rates we expect, our business and ~~reputation.~~ financial results would be materially and adversely affected.

Our business is subject to risks related to the larger automotive industry ecosystem, which could have a material adverse effect on our business, revenue, results of operations, and financial condition.

Decreases in consumer demand could adversely affect the market for automobile purchases and, as a result, reduce the number of consumers using our platform. Consumer purchases of new and used automobiles generally decline during recessionary periods and other periods in which disposable income is adversely affected. Purchases of new and used automobiles are typically discretionary for consumers and have been, and may continue to be, affected by negative trends in the economy, including: the lingering effects of the COVID-19 pandemic; the cost of energy and gasoline; the availability and cost of credit; increased interest rates; reductions in business and consumer confidence; stock market volatility; and unemployment.

Further, in recent years the market for motor vehicles has experienced rapid changes in technology and consumer demands. Self-driving technology, ride sharing, transportation networks, and other fundamental changes in transportation could impact consumer demand for the purchase of automobiles. A reduction in the number of automobiles purchased by consumers could

adversely affect dealers and car manufacturers and lead to a reduction in other spending by these groups, including targeted incentive programs.

In addition, ~~if such third-party service providers were~~our business has been and may continue to ~~cease~~be negatively affected by challenges to the larger automotive industry ecosystem, including global supply chain challenges, the effects of the global semiconductor chip shortage, changes to trade policies, including tariff rates and customs duties, trade relations between the United States and China and other macroeconomic issues, including the lingering effects of the COVID-19 pandemic, and increased interest rates. Increasing global inflation rates have spurred a cycle of monetary policy tightening, including through central bank increases to key short-term lending rates. Both the availability and cost of credit are factors affecting consumer confidence, which is a critical driver of vehicle sales for our consumers and dealers. Additionally, vehicle affordability for our consumers is becoming more challenging due to a combination of factors, including elevated vehicle pricing resulting from inflationary cost increases and vehicle production constraints, and rising vehicle finance costs due to increased interest rates. These factors could have a material adverse effect on our business, revenue, results of operations, ~~temporarily~~ and financial condition.

If the CarOffer business and/or ~~permanently, face financial distress or other~~our combined offerings do not continue to grow, our revenue and business ~~disruptions, increase their fees, or if~~would be significantly harmed.

A significant amount of our ~~relationships with these providers deteriorate, we could suffer increased costs~~revenue is now derived from the wholesale sale of automobiles and ~~delays in~~IMCO. Continued achievement of our transaction synergies and our ability to ~~provide~~continue to grow the CarOffer business and the revenue associated with it depends on a number of factors, including, but not limited to, our ability to continue to: expand the number of dealers engaging on the CarOffer platform; retain existing customers and increase the share of wholesale transactions that they complete on the CarOffer platform; attract prospective customers who have historically purchased or sold vehicles through physical auctions and may choose not to transact online; and successfully compete with competitors, including other online vehicle auction companies and large, national offline vehicle auction companies that are expanding into the online channel and have launched online auctions in connection with their physical auctions. Additionally, our ability to continue to grow IMCO and the revenue associated with it also depends on a number of factors, including, but not limited to, our ability to continue to: effectively scale and market IMCO; attract prospective consumers to sell their vehicles online through IMCO; and successfully compete with ~~content~~competitors, including online dealerships. If our anticipated transaction synergies do not fully materialize, or ~~provide similar~~the CarOffer business and/or IMCO fail to continue to grow at the rate we expect, our revenue and business would be significantly harmed.

Industry conditions such as a significant change in retail vehicle prices or a decline in the used vehicle inventory supply coming to the wholesale market could also adversely impact CarOffer’s business and growth. For example, if retail prices for used vehicles rise relative to retail prices for new vehicles, it could make buying a new vehicle more attractive to consumers than buying a used vehicle, which could result in reduced used vehicle wholesale sales on the CarOffer platform. Used vehicle dealers may also decide to retail more of their vehicles on their own, which could adversely impact the volume of vehicles offered for sale on the CarOffer platform. We also face inventory risk in connection with vehicles acquired by CarOffer via arbitration, including the risk of inventory obsolescence, a decline in values, and significant inventory write-downs or write-offs. Such inventory risk would be higher if arbitrations increase, which is more likely to occur in connection with declining wholesale market conditions.

Furthermore, activity on the CarOffer platform has in the past fluctuated, and may again in the future fluctuate, from period to period based on macroeconomic conditions and changing demand requirements, which could adversely impact our revenue, results of operations, and financial condition for such period(s). Macroeconomic issues, including increased interest rates and lower consumer confidence, could also adversely impact dealer demand for sourcing inventory and therefore lead to a reduction in the number of vehicle wholesale sales on the CarOffer platform and/or transacted via IMCO, which would adversely impact CarOffer’s business and financial results. Additionally, inventory challenges in the automotive industry, including for reasons attributable to the COVID-19 pandemic, have contributed and could continue to contribute to a decrease in the supply of vehicles coming to the wholesale market and reduce the number of vehicles sold on the CarOffer platform and/or transacted via IMCO. An inability by CarOffer to retain customers and/or increase or find alternative sources of vehicle supply would adversely impact our revenue and business.

If dealers or other advertisers reduce their spending with us, our advertising revenue and business and our financial results would be harmed.

A portion of our revenue is derived from advertising revenue generated primarily through short-term advertising sales, including on-site advertising and audience targeting services, ~~until~~to dealers, auto manufacturers, and other auto-related brand advertisers. We compete for this advertising revenue with other online automotive marketplaces and with television, print media, and other traditional advertising channels. Our ability to attract and retain advertisers and to generate advertising revenue depends on a number of factors, including our ability to: increase the number of consumers using our marketplaces; compete effectively for advertising spending with other online automotive marketplaces; continue to develop our advertising products; keep pace with changes in technology and the practices and offerings of our competitors; and offer an ~~equivalent provider could be found~~attractive ROI to our advertisers for their advertising spend with us.

As a result of the effects of the COVID-19 pandemic, some advertisers canceled or ~~we could develop replacement technology~~reduced their advertising with us and it is possible that advertising customers will cancel or ~~operations.~~reduce their advertising with us in the future for a variety of reasons, including the

lingering effects of the COVID-19 pandemic and other macroeconomic issues, such as increased interest rates and other matters that influence consumer spending. In addition, ~~if we are unsuccessful~~the year-over-year decline in ~~identifying~~the number of consumer visits to our sites as a result of the COVID-19 pandemic or ~~finding high-quality partners, if we fail~~otherwise resulted in the delivery of fewer impressions for our advertising customers than anticipated year-over-year for the years ended December 31, 2020, 2021, and 2022, which has caused, and may continue to ~~negotiate cost-effective relationships with them, or if we ineffectively manage these relationships, it could have~~cause, an adverse impact on our advertising revenue. We may not succeed in capturing a greater share of our advertisers’ spending if we are unable to convince advertisers of the effectiveness or superiority of our advertising offerings as compared to alternative channels. If current advertisers reduce their advertising spending with us and we are unable to replace such reduced advertising spending, our advertising revenue and business and financial ~~results.~~results would be harmed.

If we are unable to provide a compelling experience to consumers on our platform, connections between consumers and dealers using our marketplaces may decline and our business and financial results would be materially and adversely affected.

If we fail to continue to ~~grow rapidly,~~provide a compelling vehicle search experience to consumers, the number of connections between consumers and dealers through our marketplaces could decline, which, in turn, could lead dealers to suspend listing their inventory in our marketplaces, cancel their subscriptions, or reduce their spending with us. If dealers pause or cancel listing their inventory in our marketplaces, we may not be able to ~~manage~~attract a large consumer audience, which may cause other dealers to pause or cancel their use of our ~~growth effectively.~~

~~We have experienced rapid growth~~marketplaces. This reduction in the number of dealers using our ~~headcount~~marketplaces would likely materially and ~~operations, which places substantial demand on management~~adversely affect our marketplaces and our ~~operational infrastructure. As~~business and financial results. We believe that our ability to provide a compelling vehicle search experience, both on desktop computers and through mobile devices, is subject to a number of factors, including our ability to: maintain attractive marketplaces for consumers and dealers; continue to innovate and introduce products for our marketplaces; anticipate or adapt to new and changing technologies and consumer requirements on a timely basis; launch new products that are effective and have a high degree of consumer engagement; display a wide variety of automobile inventory to attract more consumers to our websites; provide mobile applications that engage consumers; maintain the compatibility of our mobile applications with operating systems, such as iOS and Android, and with popular mobile devices running such operating systems; and access and analyze a sufficient amount of data to enable us to provide relevant information to consumers, including pricing information and accurate vehicle details.

Any inability by us to develop new products, adapt to new technologies, or achieve widespread consumer and dealer adoption of those products, could negatively impact our business and financial results.

Our success depends on our continued innovation to provide products that make our marketplaces, websites, and mobile applications useful for consumers and dealers or that otherwise provide value to consumers and dealers. For example, we continue to ~~grow,~~develop digital retail offerings, including those that expand a dealer’s geographic footprint and others that bring additional elements of the car buying experience online through our websites. A failure by us to capture the benefits that we ~~must effectively integrate, develop,~~expect from these digital retail investments could negatively impact our business and ~~motivate a large number of new~~financial results.

~~employees, while maintaining the beneficial aspects of~~We also anticipate that over time our ~~company culture. If we do not manage~~investments in our current products may become less productive and the growth of our revenue will require more focus on developing new products. These new products must be widely adopted by consumers and dealers in order for us to continue to attract consumers to our marketplaces and dealers to our products and services. Accordingly, we must continually invest resources in product, technology, and development to improve the attractiveness of our marketplaces and adapt to new and changing technologies and consumer requirements. Our ability to engage in these activities may decline as a result of macroeconomic effects and any cost-savings initiatives on our business. These product, technology, and development expenses may include costs of hiring additional personnel and retaining our current employees, engaging third-party service providers and conducting other research and development activities. There can be no assurance that innovations to our products like IMCO, or the development of future products, will increase consumer or dealer engagement, achieve market acceptance, create additional revenue, or become profitable. There can also be no assurance that our future products will meet consumer expectations in light of new technologies offered by others in the marketplace. In addition, revenue relating to new products is typically unpredictable and our new products may have lower gross margins, lower retention rates, and higher marketing and sales costs than our existing products. We are likely to continue to modify our pricing models for both existing and new products so that our prices for our offerings reflect the value those offerings are providing to consumers and dealers. Our pricing models may not effectively reflect the value of products to dealers, and, if we are unable to provide marketplaces and products that consumers and dealers want to use, they may reduce or cease the use of our marketplaces and products. Without innovative marketplaces and related products, we may be unable to attract additional, unique consumers or retain current consumers, which could affect the number of dealers that become paying dealers and the number of advertisers that want to advertise in our marketplaces, as well as the amounts that they are willing to pay for our products, which could, in turn, negatively impact our business and ~~operations effectively,~~financial results.

We rely on internet search engines to drive traffic to our websites, and if we fail to appear prominently in the search results, our traffic would decline and our business would be adversely affected.

We rely, in part, on internet search engines such as Google, Bing, and Yahoo! to drive traffic to our websites. The number of consumers we attract to our marketplaces from search engines is due in part to how and where our websites rank in unpaid search results. These rankings can be affected by a number of factors, many of which are not under our direct control and may change

frequently. For example, when a consumer searches for a vehicle in an internet search engine, we rely on a high organic search ranking of our webpages to refer the consumer to our websites. Our competitors’ internet search engine optimization efforts may result in their websites receiving higher search result rankings than ours, or internet search engines could change their methodologies and/or introduce competing products in a way that would adversely affect our search result rankings. If internet search engines modify their methodologies in ways that are detrimental to us, as they have done from time to time, or if our efforts to improve our search engine optimization are unsuccessful or less successful than our competitors’ efforts, our ability to attract a large consumer audience could diminish, traffic to our marketplaces could decline, and the number of leads that we send to our dealers could be adversely impacted. Additionally, competing products from internet search engine providers, such as those that provide dealer and vehicle pricing and other information directly in search results, could also adversely impact traffic to our websites and the number of leads that we are able to send to our dealers. Our business would also be adversely affected if internet search engine providers choose to align with our competitors. Reductions in our own search advertising spend or more aggressive spending by our competitors could also cause us to incur higher advertising costs and/or reduce our market visibility to prospective users. Our websites have experienced fluctuations in organic and paid search result rankings in the past, and we anticipate fluctuations in the future. Any reduction in the number of consumers directed to our websites through internet search engines would harm our business and operating results.

We obtain data from many third-party data providers, including inventory management systems, automotive website providers, customer relationship management systems, dealer management systems, governmental entities, and third-party data licensors. Our business relies on our ability to obtain data for the benefit of consumers and dealers using our marketplaces. For example, our success in each market is dependent in part upon our ability to obtain and maintain inventory data and other vehicle information for those markets. The loss or interruption of such inventory data or other vehicle information could decrease the number of consumers using our marketplaces. We could experience interruptions in our data access for a number of reasons, including difficulties in renewing our agreements with data providers, changes to the software used by data providers, efforts by industry participants to restrict access to data, and increased fees we may be charged by data providers. Our marketplaces could be negatively affected if any current provider terminates its relationship with us or our service from any provider is interrupted. If there is a material disruption in the data provided to us, the information that we provide to consumers and dealers using our marketplaces may be limited. In addition, the quality, accuracy, and timeliness of this information may suffer, which may lead to a less valuable and less transparent shopping experience for consumers using our marketplaces and could negatively affect our business and operating results.

The failure to build, maintain and protect our brands would harm our ability to attract a large consumer audience and to expand the use of our marketplaces by consumers and dealers.

While we are focused on building our brand recognition, maintaining and enhancing our brands will depend largely on the success of our efforts to maintain the trust of consumers and dealers and to deliver value to each consumer and dealer using our marketplaces. Our ability to protect our brands is also impacted by the success of our efforts to optimize our significant brand spend and overcome the intense competition in brand marketing across our industry, including competitors that may imitate our messaging. In addition, we have reduced our brand spend in comparison to our pre-COVID-19 pandemic levels, and it is possible that we may in the future decide to further suppress such spend depending on macroeconomic conditions. If consumers believe that we are not focused on providing them with a better automobile shopping experience, or if we fail to overcome brand marketing competition and maintain a differentiated value proposition in consumers’ minds, our reputation and the strength of our brands may be adversely affected.

Complaints or negative publicity about our business practices and culture, our management team and employees, our marketing and advertising campaigns, our compliance with applicable laws and regulations, the integrity of the data that we provide to consumers, data privacy and security issues, third party content and conduct on our websites and other aspects of our business, irrespective of their validity, could diminish consumers’ and dealers’ confidence and participation in our marketplaces and could adversely affect our brands. There can be no assurance that we will be able to maintain or enhance our brands, and failure to do so would harm our business growth prospects and operating results.

Our recent, rapid growth is not indicative of our future growth, and our revenue growth rate in the future is uncertain, including due to potential macroeconomic effects.

While our revenue increased to $1,655.0 million for the year ended December 31, 2022, from $951.4 million for the year ended December 31, 2021, representing a 74% increase between such periods, our revenue decreased to $239.7 million for the three months ended June 30, 2023, from $511.2 million, representing a 53% decrease between such periods. Our revenue in the future may not grow at such a rate and could potentially be impacted by macroeconomic issues, such as declining wholesale vehicle prices, the war in Ukraine and Russian sanctions, increased interest rates, lower consumer confidence, consumer debt levels, and other matters that influence consumer spending and preferences. In addition, we will not be able to grow as expected, or at all, if we fail to: increase the number of consumers using our marketplaces; attract new consumers to sell their vehicles online through IMCO; maintain and expand

the number of dealers that subscribe to our marketplaces and maintain and increase the fees that they are paying; expand the number of dealers engaging on the CarOffer platform and increase the share of wholesale transactions which they complete on such platform; attract and retain advertisers placing advertisements in our marketplaces; further improve the quality of our ~~services~~marketplaces and ~~efficiency~~introduce high quality new products; and increase the number of connections between consumers and dealers using our marketplaces and connections to paying dealers, in particular. If our revenue declines or fails to grow, investors’ perceptions of our business may be adversely affected, and the market price of our Class A common stock could decline.

We may require additional capital to pursue our business objectives and respond to business opportunities, challenges, or 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.

If we are unable to generate sufficient cash flows, we would require additional capital to pursue our business objectives and respond to business opportunities, challenges, or unforeseen circumstances, including the effects of macroeconomic issues and the lingering effects of COVID-19 as well as to make marketing expenditures to improve our brand awareness, develop new products, further improve our platform and existing products, enhance our operating infrastructure, and acquire complementary businesses and technologies. Accordingly, we may need to engage in equity or debt financings to secure additional funds, in addition to the 2022 Revolver. However, additional funds may not be available when we need them on terms that are acceptable to us or at all. Volatility in the equity and credit markets may also have an adverse effect on our ability to obtain equity or debt financing. An inability to obtain adequate financing or financing on terms satisfactory to us when we require it could significantly limit our ability to continue to pursue our business objectives and to respond to business opportunities, challenges, or unforeseen circumstances, and may adversely affect our business, operating results, financial condition, and prospects.

Our international operations involve risks that may differ from, or are in addition to, our domestic operational risks.

In addition to the United States, we operate marketplaces in the United Kingdom and Canada, which are less familiar competitive environments and involve various risks, including the need to invest significant resources and the likelihood that returns on such investments will not be achieved for several years, or possibly at all. We have incurred losses in prior periods in the United Kingdom and Canada and may incur losses there again in the future. We also face various other challenges in those jurisdictions. For example, our competitors may be more established or otherwise better positioned than we are to succeed in the United Kingdom and Canada. Our competitors may offer services to dealers that make dealers dependent on them, such as hosting dealers’ websites and providing inventory feeds for dealers, which would make it difficult to attract dealers to our marketplaces. Any of these barriers could ~~suffer,~~impede our operations in our international markets, which could ~~harm~~affect our ~~brand, results~~business and potential growth.

Our ability to manage our business and conduct our operations internationally requires considerable management attention and resources, and is subject to the particular challenges of ~~operations,~~supporting a business in an environment of multiple languages, cultures, customs, legal and ~~overall business.~~regulatory systems, alternative dispute resolution systems, and commercial infrastructures. Operating internationally may subject us to different risks or increase our exposure in connection with current risks, including risks associated with: adapting our websites and mobile applications to conform to local consumer behavior; increased competition from local providers and potential preferences by local populations for local providers; compliance with applicable foreign laws and regulations, including different privacy, censorship, and liability standards and regulations, and different intellectual property laws; the enforceability of our intellectual property rights; credit risk and higher levels of payment fraud; compliance with anti-bribery laws, including compliance with currency exchange rate fluctuations; adverse changes in trade relationships among foreign countries and/or between the United States and such countries; double taxation of our international earnings and potentially adverse tax consequences arising from the tax laws of the United States or the foreign jurisdictions in which we operate; and higher costs of doing business internationally.

We depend on key personnel to operate our business, and if we are unable to retain, attract and integrate qualified personnel, or if we experience turnover of our key personnel, our ability to develop and successfully grow our business could be ~~harmed.~~materially and adversely affected.

We believe our success has depended, and continues to depend, ~~on the efforts and talents of our executives and employees. Our future success depends~~ on our continuing ability to attract, develop, motivate, and retain highly qualified and skilled employees. ~~Qualified individuals are in high demand,~~We have encountered intense competition for retaining and attracting qualified and skilled employees. Accordingly, we have incurred, and we may continue to incur, significant costs to attract new employees and retain ~~them.~~ existing ones, and we may in the future become less competitive in attracting and retaining employees as a result of any expense reduction efforts that we may initiate.

In addition, ~~the loss of~~any unplanned turnover, reduced involvement, or our failure to develop an adequate succession plan for any of our executive officers or key employees, or the reduction in their involvement in the management of our business, could materially adversely affect our ability to execute our business plan and strategy, and we may not be able to find adequate replacements on a timely basis, or at all. Our executive officers and other employees are at-will, ~~employees,~~ which means they may terminate their employment relationships with us at any time, and their knowledge of our business and industry would be extremely difficult to replace. We cannot ensure that we will be able to retain the services of any members of our senior management or other key employees. If we do not

succeed in attracting well-qualified employees or retaining and motivating existing employees, our business could be materially and adversely affected.

~~If we are unable to successfully respond to changes in the market, our business could be harmed.~~

While our business has grown rapidly as consumers and dealers have increasingly accessed our marketplace, we expect that our business will evolve in ways which may be difficult to predict. For example, we anticipate that over time Additionally, we may ~~reach a point when investments~~face risks related to future transitions in ~~new user traffic are less productive~~our leadership, including the disruption of our operations and the ~~continued growth~~depletion of our revenue will require more focus on developing new products for consumers and dealers, expanding our marketplaces into new international markets to attract new consumers and dealers, and increasing our fees for our products. It is also possible that consumers and dealers could broadly determine that they no longer believe in the value of our marketplace. Our continued success will depend on our ability to successfully adjust our strategy to meet the changing market dynamics. If we are unable to do so, our business could be harmed and our results of operations and financial condition could be materially and adversely affected.institutional knowledge base.

We may be subject to disputes regarding the accuracy of Instant Market ~~Value,~~Values, Deal ~~Rating,~~Ratings, Dealer ~~Rating,~~Ratings, New Car Price Guidance, and other features of our ~~marketplace.~~marketplaces.

We provide consumers using our ~~marketplace~~CarGurus platform and dealers using our CarOffer platform with our proprietary Instant Market Value, or IMV, Deal ~~Rating,~~Ratings, and Dealer ~~Rating, and~~Ratings, as well as other features to help them evaluate vehicle ~~listings.~~listings, including price guidance for new car listings, or New Car Price Guidance. Our valuation models depend on the inventory listed on our websites as well as public information regarding automotive sales. If the inventory on our websites declines significantly, or if the number of automotive sales declines significantly or used car sales prices become volatile, whether as a result of macroeconomic effects or otherwise, our valuation models may not perform as expected. Revisions to or errors in our automated valuation models, or the algorithms that underlie them, may cause the IMV, the Deal Rating, New Car Price Guidance, or other features to vary from our expectations regarding the accuracy of these tools. In addition, from time to time, regulators, consumers, dealers, and ~~regulators~~other industry participants may question or disagree with our IMV, Deal Rating, Dealer Rating, or ~~Dealer Rating.~~New Car Price Guidance. Any such questions or disagreements could result in distraction from our business or potentially harm our reputation, could result in a decline in consumers’ confidence in, or use of, our ~~marketplace or~~marketplaces, and could result in legal disputes.

We are subject to a complex framework of ~~federal, state, and foreign~~ laws and regulations, many of which are unsettled, still developing, and contradictory, which have in the past, and could in the future, subject us to claims, challenge our business model, or otherwise harm our business.

Various aspects of our business are, may become, or may be viewed by regulators from time to time as subject, directly or indirectly, to United States federal, state, and ~~state~~local laws and regulations, and to foreign laws and regulations. Failure to comply with such laws or regulations may result in the suspension or termination of our ability to do business in affected jurisdictions, the imposition of significant civil and criminal penalties, including fines or the award of significant damages against us and dealers in class action or other civil litigation, or orders or settlements requiring us to make adjustments to our marketplace and related products and services.

~~State~~Local Motor Vehicle Sales, Advertising and Brokering, and Consumer Protection Laws

The advertising and sale of new orand used motor vehicles is highly regulated by the ~~states~~jurisdictions in which we do business. ~~Although we do not sell motor vehicles, and although we believe that vehicle listings on our site are not themselves advertisements, state regulatory~~Regulatory authorities or third parties could take the position that some of the laws or regulations applicable to dealers or to the manner in which motor vehicles are advertised and sold generally are directly applicable to our business. These state advertising laws and regulations are frequently subject to multiple interpretations and are not uniform from state to state, sometimes imposing inconsistent requirements with respect to new or used motor vehicles. If our ~~marketplace~~marketplaces and related products are determined to not comply with relevant regulatory requirements, we or dealers could be subject to ~~significant~~ civil and criminal penalties, including fines, or the award of significant damages in class actions or other civil litigation, as well as orders interfering with our ability to continue providing our ~~marketplace~~marketplaces and related products and services in certain ~~states.~~jurisdictions. In addition, even absent such a determination, to the

extent dealers are uncertain about the applicability of such laws and regulations to our business, we may lose, or have difficulty increasing the number of paying dealers, which would affect our future growth. For example, in April 2015 the Texas Department of Motor Vehicles, or the TX DMV, notified us that it believed the Price History and IMV information on our website violated the prohibition on advertising savings clauses on used vehicles. The TX DMV informed us that if we failed to address the issue within 30 days, it would potentially subject dealers it considered to be advertising on our website to fines. After discussions with the TX DMV, we modified our website to remove the Price History and certain references and comparisons to IMV for used vehicles listed on our website that are for sale in Texas.

If ~~state~~ regulators or other third parties take the position ~~in the future~~ that our ~~marketplace~~marketplaces or related products violate applicable dealer licensing, brokering, bird-dog, consumer protection, consumer finance, or advertising laws or regulations, responding to such allegations could be costly, could require us to pay significant sums in settlements, could require us to pay civil and criminal penalties, including fines, could interfere with our ability to continue providing our ~~marketplace~~marketplaces and related products in certain ~~states,~~jurisdictions, or could require us to make adjustments to our ~~marketplace~~marketplaces and related products or the manner in which we derive revenue from dealers using our ~~marketplace,~~platform, any or all of which could result in substantial adverse publicity, termination of subscriptions by dealers, decreased ~~revenues,~~revenue, distraction for our employees, increased expenses, and decreased profitability.

Federal Laws and Regulations

The United States Federal Trade Commission, or the FTC, has the authority to take actions to remedy or prevent acts or practices that it considers to be unfair or deceptive and that affect commerce in the United States. If the FTC takes the position in the future that any aspect of our business, including our advertising and privacy practices, constitutes an unfair or deceptive act or practice, responding to such allegations could require us to defend our practices and pay significant damages, settlements, and civil penalties, or could require us to make adjustments to our ~~marketplace~~marketplaces and related products and services, any or all of which could result in substantial adverse publicity, distraction for our employees, loss of participating dealers, lost ~~revenues,~~revenue, increased expenses, and decreased profitability.

Our ~~platform enables~~platforms enable us, dealers, and users to send and receive text messages and other mobile phone ~~communications in certain circumstances.~~communications. The Telephone Consumer Protection Act, or the TCPA, as interpreted and implemented by the United States Federal Communications Commission, or the FCC, and federal and state courts, ~~imposes~~impose significant restrictions on utilization of telephone calls and text messages to residential and mobile telephone numbers as a means of communication, particularly if the prior express consent of the person being contacted has not been obtained. Violations of the TCPA may be enforced by the FCC, by state attorneys general, or by others through litigation, including class actions. ~~Statutory penalties for TCPA violations range from $500 to $1,500 per violation, which is often interpreted to mean per phone call or text message.~~ Furthermore, several provisions of the TCPA, as well as applicable rules and orders, are open to multiple interpretations, and compliance may involve fact-specific analyses.

Any failure by us, or the third parties on which we rely, to adhere to, or successfully implement, appropriate processes and procedures in response to existing or future laws and regulations could result in legal and monetary liability, fines and penalties, or

damage to our reputation in the marketplace, any of which could have a material adverse effect on our business, financial condition, and results of operations. Even if the claims are meritless, we may be required to expend resources and pay costs to defend against regulatory actions or third-party claims. Additionally, any change to ~~the TCPA~~applicable laws or ~~its interpretation~~their interpretations that further restricts the way ~~users~~consumers and dealers interact through our ~~platform,~~platforms, or any governmental or private enforcement actions related thereto, could adversely affect our ability to attract customers and could harm our business, financial condition, results of operations, and cash flows.

~~Federal~~ Antitrust and Other Laws

~~The antitrust~~Antitrust and competition laws prohibit, among other things, any joint conduct among competitors that would lessen competition in the marketplace. ~~We believe that we are in compliance with the legal requirements imposed by the antitrust laws. However, a~~A governmental or private civil action alleging ~~the improper exchange of information, or unlawful participation in price maintenance or other~~ unlawful or anticompetitive activity ~~even if unfounded,~~ could be costly to defend and could harm our business, results of operations, financial condition, orand cash flows.

~~Other~~

Claims could be made against us under both United States and foreign laws, including claims for defamation, libel, invasion of privacy, ~~copyright or trademark~~false advertising, intellectual property infringement, or claims based on other theories related to the nature and content of the materials disseminated by ~~users~~our marketplaces and on portions of our ~~marketplace and the “Questions” section of our~~ websites. ~~In addition, domestic and foreign legislation has been proposed that could prohibit or impose liability for the transmission over the Internet of certain types of information.~~ Our defense against any of these actions could be costly and involve significant time and attention of our management and other resources. If we become liable for information ~~provided by our users and~~ transmitted in our ~~marketplace in any jurisdiction in which we operate,~~marketplaces, we could be directly harmed and we may be forced to implement new measures to reduce our exposure to this liability.

The foregoing description of laws and regulations to which we are or may be subject is not exhaustive, and the regulatory framework governing our operations is subject to continuous change. ~~As we expand our operations internationally, we~~We are, and we will continue to be, exposed to legal and regulatory risks including with respect to privacy, tax, law enforcement, content, intellectual property, competition, and other matters. The enactment of new laws and regulations or the interpretation of existing laws and regulations, both domestically and internationally, ~~in an unfavorable way~~ may affect the operation of our business, directly or indirectly, which could result in substantial regulatory compliance costs, civil or criminal penalties, including fines, adverse publicity, loss of ~~participating~~subscribing dealers, lost ~~revenues,~~revenue, increased expenses, and decreased profitability. Further, investigations by governmental agencies, including the FTC, into allegedly anticompetitive, unfair, deceptive, or other business practices by us or dealers using our ~~marketplace,~~marketplaces, could cause us to incur additional expenses and, if adversely concluded, could result in substantial civil or criminal penalties and significant legal liability, or orders requiring us to make adjustments to our ~~marketplace~~marketplaces and related products and services.

~~Our business is subject~~Expectations relating to ~~risks related~~environmental, social and governance considerations expose us to ~~the larger automotive industry ecosystem, including consumer demand, global supply chain challenges,~~potential liabilities, increased costs, reputational harm, and other adverse effects on our business.

Expectations relating to environmental, social and governance, or ESG, considerations expose us to potential liabilities, increased costs, reputational harm, and other adverse effects on our business.

Many governments, regulators, investors, employees, customers, and other stakeholders are increasingly focused on ESG considerations relating to our business, including climate change and greenhouse gas emissions, human capital, and diversity, equity and inclusion. We make statements about our ESG goals and initiatives through information provided on our website. Responding to these ESG considerations and implementation of these goals and initiatives involves risks and uncertainties, requires investments, and are impacted by factors that may be outside our control. In addition, some stakeholders may disagree with our ESG goals and initiatives and the focus of stakeholders may change and evolve over time. Stakeholders also may have very different views on where ESG focus should be placed, including differing views of regulators in various jurisdictions in which we operate. Any failure, or perceived failure, by us to achieve our ESG goals, further our initiatives, adhere to our public statements, comply with federal, state, or international ESG laws and regulations, or meet evolving and varied stakeholder expectations and standards could result in legal and regulatory proceedings against us and materially adversely affect our business, reputation, results of operations, financial condition, and stock price. Additionally, meeting evolving and varied stakeholder expectations and standards may require management time and expense and may result in a significant increase in costs, which may negatively impact our business and financial results.

We rely on third-party service providers and strategic partners for many aspects of our business, and any failure to maintain these relationships or to successfully integrate certain third-party platforms could harm our business.

Our success depends upon our relationships with third parties, including, among others: our transaction processor; our data center hosts; our information technology providers; our data providers for inventory and vehicle information; and our partners for vehicle transportation, inspection, and other logistics associated with our CarOffer business and IMCO. If these third parties experience difficulty meeting our requirements or standards, have adverse audit results, violate the terms of our agreements or applicable law, fail to obtain or maintain applicable licenses, or if the relationships we have established with such third parties expire or otherwise terminate, it could make it difficult for us to operate some aspects of our business, which could damage our business and reputation. In addition, if such third-party service providers or strategic partners were to cease operations, temporarily or permanently, face financial distress or other business disruptions, increase their fees, or if our relationships with these providers or partners deteriorate or terminate, whether as a result of macroeconomic ~~issues.~~conditions or otherwise, we could suffer increased costs and we may be unable to provide similar services until an equivalent provider could be found or we could develop replacement technology or operations.

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For example, primarily in ~~consumer demand~~connection with our Dealer-to-Dealer transactions, we utilize a single third-party transaction processor that collects customer payments on our behalf and remits them to us, provides payments in advance for certain selling dealers, provides titling services for transactions, and holds auction licenses. If our relationship with this third-party transaction processor were to deteriorate or terminate, we would have to identify a succeeding transaction processor or assume in-house facilitation of these services, which would disrupt our business and could adversely affect ~~the market for automobile purchases and, as a result, reduce the number of consumers using~~ our platform. Consumer purchases of new and used automobiles generally decline during recessionary periods and other periods in which disposable income is adversely affected. Purchases of new and used automobiles are typically discretionary for consumers and have been, and may continue to be, affected by negative trends in the economy, including the cost of energy and gasoline, the availability and cost of credit, reductions in business and consumer confidence, stock market volatility, and increased unemployment. Further, in recent years the market for motor vehicles has experienced rapid changes in technology and consumer demands. Self-driving technology, ride sharing, transportation networks, and other fundamental changes in transportation could impact consumer demand for the purchase of automobiles. A reduction in the number of automobiles purchased by consumers could adversely affect dealers and car manufacturers and lead to a reduction in other spending by these groups, including targeted incentive programs. In addition, our business may be negatively affected by challenges to the larger automotive industry ecosystem, including global supply chain challenges and other macroeconomic issues. These factors could have a material adverse effect on our business,revenue, results of operations, and financial condition. Furthermore, if we are unsuccessful in identifying or finding high-quality partners, if we fail to negotiate cost-effective relationships with them, or if we ineffectively manage these relationships, it could have an adverse impact on our business and financial results.

Our ~~dedication~~enterprise systems require that we integrate the platforms hosted by certain third-party service providers. We are responsible for integrating these platforms and updating them to ~~making decisions based primarily on the best interests of~~maintain proper functionality. Issues with these integrations, our ~~marketplace may cause us~~failure to ~~forgo short-term gains in pursuit of potential but uncertain long-term growth.~~

~~Our guiding principle is~~properly update third-party platforms or any interruptions to ~~build~~our internal enterprise systems could harm our business by ~~making decisions based primarily upon the best interests of~~causing delays in our ~~entire marketplace, including consumers, dealers,~~ability to quote, activate service, and ~~other participants, which we believe has been essential to~~bill new and existing customers on our success in increasing our user growth rate and engagement and has served the long-term interests of our company and our stockholders. In the past, we have forgone, and we will in the future continue to forgo, certain expansion or short-term revenue opportunities that we do not believe are in the best interests of our marketplace and its users, even if such decisions negatively impact our results of operations in the short term. For example, we have begun to manage the text-chat feature of our website where consumers can message paying dealers. Our management of this feature has helped improve dealer response times to consumers, which in turn improves the consumer experience. While our management of this feature provides value to both consumers and paying dealers and could be a potential source of short-term revenue for us, we are not currently charging for this feature and are instead focusing on the potential long-term value of this feature to our marketplace and its users. However, this strategy may not result in the long-term benefits that we expect, in which case our user traffic and engagement, business, and financial results could be harmed.platform.

A significant disruption in service on our ~~website~~websites or ~~our~~ mobile ~~application~~applications could damage our reputation and result in a loss of consumers, which could harm our business, ~~brand,~~brands, operating results, and financial condition.

Our ~~brand,~~brands, reputation, and ability to attract consumers, dealers, and advertisers depend on the reliable performance of our technology infrastructure and content delivery. We have experienced, and we may in the future experience, ~~significant~~ interruptions with our ~~systems in the future.~~systems. Interruptions in these systems ~~whether due to system failures, computer viruses, ransomware, or physical or electronic break-ins,~~ could affect the security or availability of our ~~marketplace on our website and mobile application,~~marketplaces, and prevent or inhibit the ability of dealers and consumers to access our ~~marketplace.~~marketplaces. For example, past disruptions have impacted our ability to activate customer accounts and manage our billing activities in a timely manner. Such interruptions ~~could also~~have resulted, and may in the future result, in third parties accessing our confidential and proprietary information, including our intellectual property. Problems with the reliability or security of our systems could harm our reputation, harm our ability to protect our confidential and proprietary information, result in a loss of consumers and dealers, and result in additional costs.

Substantially all of the communications, network, and computer hardware used to operate our ~~platform~~platforms is located in the ~~United States in Boston, Massachusetts and Dallas, Texas, and in Europe in London, United Kingdom. Although we have two locations in~~Eastern region of the United States, and internationally near each of London, England, Dublin, Ireland, and Frankfurt, Germany. These facilities include hosting through Amazon Web Services, a provider of cloud infrastructure services. Although we can host our U.S. CarGurus’ marketplace from two alternative locations and we believe our systems are ~~fully~~ redundant, there may be exceptions for certain ~~hardware.~~hardware or software. In addition, we do not own or control the operation of these facilities. Any disruptions or other operational performance problems with these facilities or problems faced by their operators, including our cloud infrastructure service provider, could result in material interruptions in our services, adversely affect our reputation and results of operations, and subject us to liability. We also use ~~Amazon Web Services and Google Cloud Storage~~third-party hosting services to back up some data but do not maintain redundant systems or facilities for some of the services. A disruption to one or more of these systems has caused, and may in the future cause, us to experience an extended period of system unavailability, which could negatively impact our ~~data.~~

relationship with consumers, customers, and advertisers. Our systems and operations are vulnerable to damage or interruption from fire, flood, extreme weather conditions, power loss, telecommunications failure, terrorist attacks, acts of war, electronic ~~and~~breaches, cyber-attacks, phishing attempts, errors by employees, physical break-ins, computer viruses, earthquakes, and similar events. The occurrence of any of these events could result in damage to our systems and hardware or could cause them to fail. In addition, we may not have sufficient protection or recovery plans in certain circumstances.

Problems faced by our third-party web hosting providers could adversely affect the experience of consumers using our marketplace. Our third-party web hosting providers could close their facilities without adequate notice. Any financial difficulties, up to and including bankruptcy, faced by our third-party web hosting providers or any of the service providers with whom they contract may have negative effects on our business, the nature and extent of which are difficult to predict. If our third-party web hosting providers are unable to keep up with our growing capacity needs, our business could be harmed.

Any errors, defects, disruptions, or other performance or reliability problems with our network operations could cause interruptions in access to our ~~marketplace~~marketplaces as well as delays and additional expense in arranging new facilities and services and fixing or replacing any affected systems or hardware and could harm our reputation, business, brands, operating results, and financial condition.

Although we carry ~~business interruption~~ insurance, it may not be sufficient to compensate us for the potentially significant losses, including the potential harm to the future growth of our business, that may result from interruptions in our service as a result of system failures.

We, and our third-party service providers, collect, process, store, transfer, share, disclose, and use consumer information and other data, and our actual or perceived failure, or the actual or perceived failure of our third-party service provides, to protect such information and data or respect users’ privacy could ~~damage~~expose us to liability and adversely affect our reputation and ~~brand~~brands and ~~harm our~~ business and operating results.

~~Use of some~~Some functions of our ~~marketplace involves~~marketplaces involve the storage and transmission of consumers’ information, ~~some~~such as IP addresses, contact information of ~~which~~users who connect with dealers, credit applications and other financial data, and profile information of users who create accounts on our marketplaces, as well as dealers’ information. We also process and store personal and confidential information of our vendors, partners, and employees, and we employ third-party service providers, such as payment processing providers, who also regularly have access to customer and consumer data. Some of this information may be private, and security breaches against us or our third-party service providers could expose us to a risk of loss or exposure of this information, which could result in potential liability, litigation, and remediation costs. For example, hackers could steal our users’ profile passwords, names, email addresses, phone numbers, and ~~zip codes.~~other personal information. We ~~also~~ rely on encryption and authentication technology licensed from third parties to effect secure transmission of such information, and we also rely on our third-party service providers to use sufficient

security measures to protect such information. Despite all of our efforts to protect this information and data, none of our security measures or those of our third-party service providers provide absolute security, and they may not be effective in preventing a future failure of our systems. Like all information systems and technology, our ~~website,~~websites, mobile ~~application,~~applications, and information systems, ~~may be~~and those of our third-party service providers, are subject to computer viruses, break-ins, phishing attacks, attempts to overload ~~our servers~~the systems with denial-of-service or other attacks, ransomware, and similar incidents or disruptions from unauthorized use of our or our third-party service providers’ computer systems, any of which could lead to interruptions, delays, or website shutdowns, orand could cause loss of critical data orand the unauthorized disclosure, access, acquisition, alteration, orand use of personal or other confidential information. If we or our third-party service providers experience compromises to ~~our~~data security that result in website or mobile application performance or availability problems, the complete shutdown of our ~~website~~websites or mobile ~~application,~~applications, or the loss or unauthorized disclosure, access, acquisition, alteration, or use of confidential information, consumers, customers, advertisers, partners, vendors, and ~~advertisers~~employees may lose trust and confidence in us, and consumers may decrease the use of our ~~website~~websites or stop using our ~~website~~websites entirely, dealers may stop or decrease their subscriptions with us, and advertisers may decrease or stop advertising on our ~~website.~~ websites.

Further, outside parties ~~may~~have attempted and will likely continue to attempt to fraudulently induce employees, consumers, or advertisers to disclose sensitive information in order to gain access to our information or our consumers’ or, dealers’, advertisers’, and employees’ information. ~~Because~~As cyber-attacks increase in frequency and sophistication, our cyber-security and disaster recovery plans may not be effective in anticipating, preventing, and effectively responding to all potential cyber-risk exposures. In addition, because the techniques used to obtain unauthorized access, disable or degrade service, or sabotage systems change frequently, often are not recognized until after ~~being~~having been launched against a target, and may originate from less regulated and remote areas around the world, we may be unable to proactively address these techniques or to implement adequate preventative measures.

Any or all of the issues above could adversely affect our brand reputation, negatively impact our ability to attract new consumers, and increase engagement by existing consumers, cause existing consumers to ~~curtail~~reduce or stop the use of our ~~marketplace~~marketplaces or close their accounts, cause existing dealers and advertisers to cancel their contracts, cause employees to terminate their employment, cause employment candidates to be unwilling to pursue employment opportunities or accept employment offers, and/or subject us to governmental or third-party lawsuits, investigations, regulatory fines, or other actions or liability, thereby harming our business, results of operations, and financial condition. Although we carry privacy, data breach, and network security liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or sufficient to compensate us for the potentially significant losses, or that insurance will continue to be available to us on economically reasonable terms or at all.

There are numerous federal, national, state, and local laws and regulations in the United States and around the world regarding privacy and the collection, processing, ~~storing,~~storage, sharing, ~~disclosing, using,~~disclosure, use, cross-border transfer, and ~~protecting~~protection of personal information and other ~~data, the scope of which~~data. These laws and regulations are ~~changing,~~evolving, are subject to differing interpretations, ~~and which~~ may be costly to comply with, may result in regulatory fines or penalties, ~~and~~may subject us to third-party lawsuits, may be inconsistent between countries and jurisdictions, orand may conflict with other ~~rules.~~

requirements. We seek to comply with industry standards and are subject to the terms of our privacy policies and privacy-related obligations to third ~~parties. We strive to comply with~~parties, as well as all applicable laws ~~policies, legal obligations,~~ and ~~industry codes of conduct~~regulations relating to privacy and data ~~protection, to the extent possible.~~protection. However, it is possible that these obligations may be interpreted and applied in new ways or in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices orand that new regulations could be enacted. Several proposals have recently become effective or are pending, as applicable, before federal, state, local, and foreign legislative and regulatory bodies that could significantly affect our business, which we refer to collectively as the Privacy Regulations. The Privacy Regulations include, but are not limited to, the European Union’s, or EU, General Data Protection Regulation and the California Consumer Privacy Act. Certain of the Privacy Regulations have already required, and certain others may further require, us to change our policies and procedures and may in the future require us to make changes to our marketplaces and other products. These and other requirements could reduce demand for our marketplaces and other offerings, require us to take on more onerous obligations in our contracts, and restrict our ability to store, transfer, and process data, which may seriously harm our business. Similarly, Brexit and the Schrems II decision of the Court of Justice of the EU, which effectively invalided the EU-U.S. Privacy Shield Framework, may require us to change our policies and procedures and, if we are not in compliance, may also seriously harm our business. We may not be entirely successful in our efforts to comply with the evolving regulations to which we are subject due to various factors within our control, such as limited internal resource allocation, or outside our control, such as a lack of vendor cooperation, new regulatory interpretations, or lack of regulatory guidance in respect of certain Privacy Regulations and other statutory requirements.

Any failure or perceived failure by us to comply with United States and international data protection laws and regulations, our privacy policies, or our privacy-related obligations to consumers, orcustomers, employees, and other third parties, ~~or our privacy-related legal obligations,~~ or any compromise of security that results in the unauthorized release or transfer of ~~sensitive information,~~data, which could include ~~personally identifiable~~personal information or other user data, may result in governmental investigations, enforcement actions, regulatory fines, litigation, criminal penalties, or public statements against us by

consumer advocacy groups or others, and could cause consumers and dealers to lose trust in us, which could significantly impact our brand reputation and have an adverse effect on our business. Additionally, if any third ~~parties~~party that we ~~work~~ share information

with ~~violate applicable laws~~experiences a security breach or ~~our policies,~~fails to comply with its privacy-related legal obligations or commitments to us, such ~~violations~~matters may ~~also~~ put employee, consumer or dealer information at risk and could, in turn, expose us to claims for damages or regulatory fines or penalties and harm our reputation, business, and operating results.

Our ability to attract consumers to our own websites and to provide certain services to our customers depends on the collection of consumer data from various sources, which may be restricted by consumer choice, privacy restrictions, and developments in laws, regulations, and industry standards.

The success of our consumer marketing and the delivery of internet advertisements for our customers depends on our ability to leverage data, including data that we collect from our customers, data we receive from our publisher partners and third parties, and data from our operations. Using cookies and non-cookie-based technologies, such as mobile advertising identifiers, we collect information about the interactions of users with our customers’ and publishers’ digital properties (including, for example, information about the placement of advertisements and users’ shopping or other interactions with our customers’ websites or advertisements). Our ability to successfully leverage such data depends on our continued ability to access and use such data, which could be restricted by a number of factors, including: increasing consumer adoption of “do not track” mechanisms as a result of legislation; privacy restrictions imposed by web browser developers, advertising partners or other software developers that impair our ability to understand the preferences of consumers by limiting the use of third-party cookies or other tracking technologies or data indicating or predicting consumer preferences; and new developments in, or new interpretations of, privacy laws, regulations and industry standards. Each of these developments could materially impact our ability to collect consumer data and deliver relevant internet advertisements to attract consumers to our websites or to deliver targeted advertising for our advertising customers. If we are unsuccessful in evolving our advertising and marketing strategies to adapt to and mitigate these evolving consumer data limitations, our business results could be materially impacted.

We have been, and may ~~in the future~~again be, subject to intellectual property disputes, which are costly to defend and could harm our business and operating results.

We ~~may from time~~have been, and expect in the future to ~~time face allegations~~be, subject to claims and litigation alleging that we ~~have infringed~~or content on our websites infringe others’ intellectual property rights, including the trademarks, copyrights, patents, and other intellectual property rights of third parties, including from our competitors or non-practicing ~~entities, or~~entities. We may also learn of possible infringement to our trademarks, copyrights, patents, and other intellectual property. We could also be subject to lawsuits where consumers and dealers posting content on the “Questions” section of our website disseminate materials that infringe the intellectual property rights of third parties. We have encountered lawsuits in the past containing allegations of intellectual property infringement. For example, in December 2015, Trader Corporation, or Trader, alleged that we infringed its copyright in 196,740 photos of cars that were uploaded onto our Canadian website. Trader sought statutory and punitive damages of approximately CAD$ 99 million along with a permanent injunction prohibiting us from reproducing any other photos in which Trader owns copyright without Trader’s consent. On April 6, 2017, the Commercial List of the Ontario Superior Court, or the Commercial List, granted an order declaring that we infringed Trader’s copyright in 152,532 photos and awarded Trader statutory damages of CAD$ 305,064 in the aggregate, but dismissed Trader’s claim for punitive damages and a permanent injunction. Following release of the decision, the parties agreed that there would be no legal fees or interest payable. In addition, the parties agreed that neither would appeal the decision of the Commercial List.

Patent and other intellectual property litigation may be protracted and expensive, and the results are difficult to predict and may ~~require~~result in significant settlement costs or payment of substantial damages. Many potential litigants, including patent holding companies, have the ability to dedicate substantially greater resources to enforce their intellectual property rights and to defend claims that may be brought against them. Furthermore, a successful claimant could secure a judgment that requires us to stop offering some features ~~purchase licenses,~~ or prevents us from conducting our business as we have historically done or may desire to do in the future. We might also be required to seek a license and pay royalties for the use of such intellectual property, which may not be available on commercially acceptable terms, or at all. Alternatively, we may be required to modify our ~~marketplace~~marketplaces and features, ~~while we develop non-infringing substitutes or~~which could require significant effort and expense and may ~~result in significant settlement costs.~~ultimately not be successful.

In addition, we use open source software in our platform and will use open source software in the future. From time to time, we may face claims ~~from companies that incorporate open source software into their products, claiming~~regarding ownership of, or demanding release of, the source code, the open source software, or derivative works that were developed using such software, or otherwise seeking to enforce the terms of the applicable open source license. These claims could also result in litigation, require us to purchase a costly license, or require us to devote additional product, technology, and development resources to change our ~~platform~~platforms or services, any of which would have a negative effect on our business and operating results.

Even if these matters do not result in litigation or are resolved in our favor or without significant cash settlements, these matters, and the time and resources necessary to litigate or resolve them, could harm our business, our operating results, and our reputation.

Failure to adequately protect our intellectual property could harm our business and operating results.

Our business depends on our intellectual property, the protection of which is crucial to the success of our business. We rely on a combination of patent, trademark, trade secret, and copyright law and contractual restrictions to protect our intellectual property. In addition, we attempt to protect our intellectual property, technology, and confidential information by requiring our employees and consultants to enter into confidentiality and assignment of inventions agreements and third parties to enter into nondisclosure agreements as we deem appropriate. Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to copy aspects of our ~~website~~platform’s features, software, and functionality or obtain and use information that we consider proprietary.

Competitors may adopt ~~service~~trademarks or trade names similar to ours, thereby harming our ability to build brand identity and possibly leading to user confusion. In addition, there could be potential trade name or trademark infringement claims ~~brought~~asserted against us by owners of other registered or unregistered trademarks logos or slogans, for our use of registered or unregistered trademarks, logos or slogans, or third-party trademarks that incorporate variations of our trademarks. We have registered the ~~term “CarGurus.” If we are restricted in any way in registering our~~ CARGURUS ~~mark in~~and CG logos, as well as the European Union or in other international markets, it would impact our ability to establish and grow our business in Europe and other countries. For example, O2 Holdings Limited (now O2 Worldwide Limited, which we refer to as O2 Worldwide), basedword-mark CARGURUS, in the United ~~Kingdom, previously opposed our UK application to register~~States, Canada, and the ~~mark CARGURUS based on its prior~~United Kingdom. Additionally, CarOffer has a number

of registered ~~rights for~~and unregistered trademarks, including “CarOffer” and the ~~mark GURU~~CarOffer logo, and related marks, which CarOffer has registered as trademarks in the United Kingdom. We have reached an agreement with O2 Worldwide that provides that we are permitted to continue to use our CARGURUS mark in the United Kingdom and the European Union for our services in the automotive field in the manner we have to date, and to register such mark in the United Kingdom and the European Union for such services.States.

We currently hold the “CarGurus.com” ~~Internet~~internet domain name and various other related domain ~~names.~~names relating to our brands. The regulation of domain names is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars, or modify the requirements for holding domain names. As a result, we may not be able to acquire or maintain all domain names that use the ~~name CarGurus.~~

We may acquire other companies or technologies, which could divert our management’s attention, result in additional dilution to our stockholders, and otherwise disrupt our operations and harm our operating results.

Our success will depend, in part, on our ability to grow our business in response to the demands of consumers, dealers, and other constituents within the automotive industry as well as competitive pressures. In some circumstances, we may determine to do so through the acquisition of complementary businesses and technologies rather than through internal development. The identification of suitable acquisition candidates can be difficult, time-consuming, and costly, and we may not be able to successfully complete identified acquisitions. The risks we face in connection with acquisitions include:

~~diversion of management time and focus from operating our business to addressing acquisition integration challenges;~~

~~coordination of technology, product, research, and development, and sales and marketing functions;~~

~~transition of the acquired company’s consumers and data to our marketplace and products;~~

~~retention of employees from the acquired company;~~

~~cultural challenges associated with integrating employees from the acquired company into our organization;~~

~~integration of the acquired company’s accounting, management information, human resources, and other administrative systems;~~

~~the need to implement or improve controls, procedures, and policies at a business that prior to the acquisition may have lacked effective controls, procedures, and policies;~~

~~potential write-offs of intangibles or other assets acquired in such transactions that may have an adverse effect on our operating results in a given period;~~

potential liabilities for activities of the acquired company before the acquisition, including patent and trademark infringement claims, violations of laws, commercial disputes, tax liabilities, and other known and unknown liabilities; and

~~litigation or other claims in connection with the acquired company, including claims from terminated employees, consumers, former stockholders, or other third parties.~~

Our failure to address these risks or other problems encountered in connection with future acquisitions and investments could cause us to fail to realize the anticipated benefits of these acquisitions or investments, cause us to incur unanticipated liabilities, and harm our business generally. Future acquisitions could also result in dilutive issuancesnames of our ~~equity securities,~~brands. In addition, third parties have created and may in the ~~incurrence of debt, contingent liabilities, amortization expense,~~future create copycat or ~~impairment charges associated with acquired intangible assets or goodwill, any of~~squatter domains to deceive consumers, which could harm our ~~financial condition. Also, the anticipated benefits of any acquisitions may not materialize.~~

~~Confidentiality agreements~~brands, interfere with ~~employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.~~

In order to protect our technologies and processes, we rely in part on confidentiality agreements with our employees, independent contractors, and other advisors. These agreements may not effectively prevent disclosure of confidential information, including trade secrets, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information, and in such cases we may not be able to assert our trade secret rights against such parties. To the extent that our employees, contractors, or other third parties with whom we do business use intellectual property owned by others in their work for us, disputes may arise as to the rights to related or resulting know-how and inventions. The loss of confidential information or intellectual property rights, including trade secret protection, could make it easier for third parties to compete with our products. In addition, any changes in, or unexpected interpretations of, intellectual property laws may compromise our ability to ~~enforce our trade secret~~register domain names, and intellectual property rights. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain protection of our trade secrets or other proprietary information could harm our business, results of operations, reputation, and competitive position.result in additional costs.

We may be unable to halt the operations of websites that aggregate or misappropriate our data.

From time to time, third parties may misappropriate our data through website scraping, robots, or other means and aggregate this data ~~on their websites~~ with data from other ~~companies.~~sources. In addition, copycat websites may misappropriate data in our ~~marketplace~~marketplaces and attempt to imitate our ~~brand~~brands or the functionality of our ~~website. If we become aware of such activities, we intend to employ technological or legal measures in an attempt to halt their operations. However, we~~websites. We may be unable to detect and remedy all such activities in a timely ~~manner~~ and ~~even if we could, technological and legal measures may be insufficient to halt their operations. In some cases,~~

~~particularly in the case of entities operating outside of the United States, our available remedies may not be~~ adequate ~~to protect us against the impact of the operation of such websites.~~manner. Regardless of whether we can successfully enforce our rights against ~~the operators of~~ these ~~websites,~~third parties, any measures that we may take could require us to expend significant financial or other resources, which could harm our business, results of operations, orand financial condition. In addition, to the extent that such activity creates confusion among consumers or advertisers, our ~~brand~~brands and business could be harmed.

~~We have incurred operating losses in the past and we may generate losses in the future.~~

We have incurred net operating losses in the past. Although we did not experience such losses in 2016 and have not experienced such losses in 2017 and we have experienced significant growth in revenue, our revenue growth rate may decline in the future as a result of a variety of factors. Our international expansion may cause our costs to increase in future periods as we continue to expend substantial financial resources to enter into those markets. Our costs may also increase due to our continued new product development and general administrative expenses, such as legal and accounting expenses related to being a public company. If we fail to increase our revenue or manage these additional costs, we may incur losses in the future.

~~Complying with the laws and regulations affecting public companies has increased and will continue to increase our costs and the demands on management and could harm our operating results.~~

~~Now that we are a public company, we expect to incur significant legal, accounting,~~Seasonality and other expenses that we did not incur as a private company and these expenses will increase after we cease to be an “emerging growth company.” In addition, the Sarbanes-Oxley Act and rules subsequently implemented by the Securities and Exchange Commission, or the SEC, and NASDAQ impose various requirements on public companies, including requiring changes in corporate governance practices. Our management and other personnel expect to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations have increased and will continue to increase our legal, accounting, and financial compliance costs and have made and will continue to make some activities more time consuming and costly. For example, these rules and regulations have made it more difficult and more expensive for us to obtain director and officer liability insurance. These rules and regulations could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors or our board committees or as executive officers.

In addition, the Sarbanes-Oxley Act requires, among other things, that we assess the effectiveness of our internal control over financial reporting annually and the effectiveness of our disclosure controls and procedures quarterly. In particular, beginning with the year ending December 31, 2018, we will need to perform system and process evaluation and testing of our internal control over financial reporting to allow management to report on, and our independent registered public accounting firm potentially to attest to, the effectiveness of our internal control over financial reporting, as required by Section 404 of the Sarbanes-Oxley Act, or Section 404. As an “emerging growth company” we may elect to avail ourselves of the exemption from the requirement that our independent registered public accounting firm attest to the effectiveness of our internal control over financial reporting under Section 404. However, we may no longer avail ourselves of this exemption when we cease to be an “emerging growth company” and, when our independent registered public accounting firm is required to undertake an assessment of our internal control over financial reporting, the cost of our compliance with Section 404 will correspondingly increase. Our compliance with applicable provisions of Section 404 will require that we incur substantial accounting expense and expend significant management time on compliance-related issues as we implement additional corporate governance practices and comply with reporting requirements.

Failure to establish and maintain effective internal controls in accordance with Section 404 of the Sarbanes‑Oxley Act could have a material adverse effect on our stated operating results and harm our reputation.

We are not currently required to comply with the rules of the SEC implementing Section 404 of the Sarbanes-Oxley Act and are therefore not required to make a formal assessment of the effectiveness of our internal control over financial reporting for that purpose. As a newly public company, we are required to comply with the SEC’s rules implementing Sections 302 and 404 of the Sarbanes‑Oxley Act, which require management to certify financial and other information in our quarterly and annual reports and provide an annual management report on the effectiveness of controls over financial reporting. Though we are required to disclose changes made in our internal controls and procedures on a quarterly basis, we are not required to make our first annual assessment of our internal control over financial reporting pursuant to Section 404 until the year following our first annual report required to be filed with the SEC. As an emerging growth company, our independent registered public accounting firm will not be required to formally attest to the effectiveness of our internal control over financial reporting pursuant to Section 404 until the later of the year following our first annual report required to be filed with the SEC or the date we are no longer an emerging growth company. At such time, our independent registered public accounting firm may issue a report that is adverse in the event it is not satisfied with the level at which our controls are documented, designed or operating.

To comply with the requirements of being a public company, we have undertaken various actions, and may need to take additional actions, such as implementing new internal controls and procedures and hiring additional accounting or internal audit staff.

Testing and maintaining internal control can divert our management’s attention from other matters that are important to the operation of our business. Additionally, when evaluating our internal control over financial reporting, we may identify material weaknesses that we may not be able to remediate in time to meet the applicable deadline imposed upon us for compliance with the requirements of Section 404. If we identify any material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner or to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting once we are no longer an emerging growth company, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our Class A common stock could be materially adversely affected, and we could become subject to investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources.

~~Seasonality~~factors may cause fluctuations in our operating ~~results.~~results and our marketing spend.

Across the retail automotive industry, consumer purchases are typically ~~increase through~~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, and our consumer-marketing spend ~~grows~~generally fluctuates accordingly. ~~As consumer purchases slow in the fourth quarter, our marketing spend growth also slows.~~ This seasonality has not been immediately apparent historically due to the overall growth of other operating expenses. In addition, any reduction of our marketing spend in response to any macroeconomic-related expense management or otherwise, and shifts in demand from dealers and consumers could impact the efficiency of our marketing spend. As our growth rates ~~begin to~~ moderate or cease, the impact of these seasonality trends and other influences on our results of operations could become more pronounced.

~~We expect our results~~ In addition, the volume of ~~operations~~wholesale vehicle sales can fluctuate from quarter to ~~fluctuate on a quarterly and annual basis.~~

~~Our revenue and results of operations could vary significantly from period to period and may fail to match expectations~~quarter as a result of macroeconomic issues, which may have a ~~variety~~corresponding impact on our results of operations. This variability is due to several factors ~~some~~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 ~~are outside~~affect the demand side of the wholesale industry. This variability has affected our Digital Wholesale segment in the past, and may continue to in the future.

Failure to deal effectively with fraud or other illegal activity could harm our business.

Based on the nature of our ~~control. Our results~~business, we are exposed to potential fraudulent and illegal activity in our marketplaces, including: listings of automobiles that are not owned by the purported dealer or that the dealer has no intention of selling at the listed price; receipt of fraudulent leads that we may ~~vary as a result~~send to our dealers; and deceptive practices in our peer-to-peer marketplace. The measures we have in place to detect and limit the occurrence of ~~fluctuations~~such fraudulent and illegal activity in our marketplaces may not always be effective or account for all types of fraudulent or other illegal activity now or in the ~~number~~future. Failure to limit the impact of ~~dealers subscribing~~fraudulent and illegal activity on our websites could lead to potential legal liability, harm our ~~marketplace~~business, cause us to lose paying dealer customers, and ~~the size~~adversely affect our reputation, financial performance, and ~~seasonal variability of our advertisers’ marketing budgets. As~~growth prospects.

We have identified a ~~result of the potential variations~~material weakness in our ~~revenue and results of operations, period-to-period comparisons~~internal control over financial reporting. If we are unable to remediate this material weakness, we may not be ~~meaningful and the~~able to accurately or timely report our financial condition or results of ~~any one period should not be relied on as an indication of future performance. In addition, our results of~~ operations, ~~may not meet the expectations of investors or public market analysts who follow us,~~ which may adversely affect our ~~stock price.~~business and the market price of our Class A common stock.

We have identified a material weakness in our internal control over financial reporting. If we are unable to remediate this material weakness, we may ~~require additional capital~~not be able to ~~pursue~~accurately or timely report our financial condition or results of operations, which may adversely affect our business ~~objectives~~ and ~~respond~~the market price of our Class A common stock. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company's annual or interim financial statements will not be prevented or detected on a timely basis. We have identified deficiencies in controls at our CarOffer subsidiary. These deficiencies include controls over (i) certain IT general controls for systems that are relevant to ~~business opportunities, challenges, or unforeseen circumstances. If capital is not available to us,~~the preparation of our ~~business, operating results,~~financial statements and (ii) our financial ~~condition may be harmed.~~

~~Although we have not needed to raise substantial equity~~statement close process, which in the ~~past to support the growth~~aggregate constitute a material weakness. While this material weakness did not result in a material misstatement of our ~~business,~~financial statements, it could impact the effectiveness of our segregation of duties controls, as well as the effectiveness of IT-dependent controls, which could result in misstatement(s) impacting financial statement accounts and disclosures, resulting in a material misstatement of our annual or interim financial statements that we ~~intend~~would have failed to ~~continue to make investments to support~~prevent or detect. As a result of this material weakness, our ~~growth~~management concluded that our disclosure controls and ~~may require additional capital to pursue our business objectives and respond to business opportunities, challenges, or unforeseen circumstances, including to increase our marketing expenditures~~procedures were not effective as of June 30, 2023.

We have implemented a remediation plan designed to improve our ~~brand awareness, develop new products, further improve our marketplace~~internal control over financial reporting to remediate this material weakness. This remediation plan includes implementation of additional controls and ~~existing products, enhance our operating infrastructure,~~procedures, including timely

performance of user access and ~~acquire complementary businesses~~change management reviews, as well as an effective review of journal entries and ~~technologies. Accordingly,~~accounts reconciliations. We cannot assure you that the measures we have taken to date, and actions we may ~~need~~take in the future, will be sufficient to remediate the control deficiencies that led to the material weakness in our internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. If we are unable to successfully remediate the material weakness in our internal control over financial reporting, the accuracy and timing of our financial reporting may be adversely affected, investors could lose confidence in the accuracy and completeness of our financial reports, the market price of our Class A common stock could decline, we could be subject to sanctions or investigations by Nasdaq, the SEC, or other regulatory authorities, and our ability to access the capital markets could be limited.

The 2022 Revolver contains certain covenants and other restrictions on our actions that may limit our operational flexibility or otherwise adversely affect our results of operations.

The terms of the 2022 Revolver include a number of covenants that limit our ability to, among other things, grant or incur liens, incur additional indebtedness, make certain restricted investments or payments, enter into certain mergers and acquisitions, or engage in ~~equity~~certain asset sales, subject in each case to certain exceptions. In addition, the 2022 Revolver also subjects us to financial covenants in respect of minimum liquidity and requires that we maintain a net leverage ratio. The terms of the 2022 Revolver may restrict our current and future operations and could adversely affect our ability to finance our future operations or capital needs. Complying with these covenants may make it more difficult for us to successfully execute our business strategy and compete against companies which are not subject to such restrictions. Further, interest rate fluctuations may materially adversely affect our results of operations and financial conditions due to the variable interest rate on the 2022 Revolver, in the event that we draw down funds thereunder.

A failure by us to comply with the covenants or payment requirements specified in the 2022 Revolver could result in an event of default, which would give the lenders the right to terminate their commitments to provide loans under the 2022 Revolver and to declare any borrowings outstanding, together with any accrued and unpaid interest and fees, to be immediately due and payable. If any debt ~~financings~~under the 2022 Revolver were to ~~secure additional funds. However, additional~~be accelerated, we may not have sufficient cash or be able to borrow sufficient funds to refinance the debt or sell sufficient assets to repay the debt, which could immediately adversely affect our business, cash flows, results of operations, and financial condition. Even if we were able to obtain new financing, it may not be ~~available when we need them,~~on commercially reasonable terms or on terms that are acceptable to ~~us, or at all. Volatility in~~us. As of June 30, 2023, there were no amounts outstanding under the ~~credit markets may also have an adverse effect on our ability to obtain debt financing.~~2022 Revolver.

If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution, and any new equity securities we issue could have rights, preferences, and privileges superior to those of holders of our Class A common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us, when we require it, our ability to continue to pursue our business objectives and to respond to business opportunities, challenges, or unforeseen circumstances could be significantly limited, and our business, operating results, financial condition, and prospects could be adversely affected.

Risks Related to Our Class A Common Stock

Our founder controls a majority of the voting power of our outstanding capital stock, and, therefore, has control over key decision-making and could control our actions in a manner that conflicts with the interests of other stockholders.

Primarily by virtue of his holdings in shares of our Class B common stock, which has a ten-to-one voting ratio compared to our Class A common stock, Langley Steinert, our founder, ~~Chief~~Chairman of the Board and Executive ~~Officer, President, and~~ Chairman, is able to exercise voting rights with respect to a majority of the voting power of our outstanding capital stock and therefore has the ability to control the outcome of matters submitted to our stockholders for approval, including the election of directors and any merger, consolidation, or sale of all or substantially all of our assets. This concentrated control could delay, defer, or prevent a change of control, merger, consolidation, or sale of all or substantially all of our assets that our other stockholders support, or conversely this concentrated control could result in the consummation of such a transaction that our other stockholders do not support. This concentrated control could also discourage a potential investor from acquiring our Class A common stock, which ~~has limited voting power relative to the Class B common stock, and~~ might harm the trading price of our Class A common stock. In addition, Mr. Steinert has ~~the ability to control~~significant influence in the management and

major strategic investments of our company as a result of his ~~positions~~position as ~~our Chief~~ Executive ~~Officer, President, and~~ Chairman, and his ability to control the election or replacement of our directors. As ~~a board member~~Chairman of the Board and ~~officer,~~our Executive Chairman, Mr. Steinert owes a fiduciary duty to our stockholders and must act in good faith in a manner he reasonably believes to be in the best interests of our stockholders. If ~~Langley~~Mr. Steinert’s status as an officer and a director is terminated, his fiduciary duties to our stockholders will also terminate, but his voting power as a stockholder will not be reduced as a result of such termination unless such termination is either made voluntarily by Mr. Steinert or due to Mr. Steinert’s death, or if the sum of the number of shares of our capital stock held by ~~Langley~~Mr. Steinert, by any Family Member of ~~Langley~~Mr. Steinert, and by any Permitted Entity of ~~Langley~~Mr. Steinert (as such capitalized terms are defined in our amended and restated certificate of ~~incorporation)~~incorporation, included as Exhibit 3.1 to our Annual Report), assuming the exercise and settlement in full of all outstanding options and convertible securities and calculated on an as-converted to Class A common stock basis, is less than 9,091,484 ~~shares~~.shares. As a stockholder, even a controlling stockholder, Mr. Steinert is entitled to vote his shares in his own interests, which may not always be aligned with the interests of our other stockholders.

We believe that Mr. Steinert’s continued control of a majority of the voting power of our outstanding capital stock is beneficial to us and is in the best interests of our stockholders. In the event that Mr. Steinert no longer controls a majority of the voting power, whether as a result of the disposition of some or all his shares of Class A or Class B common stock, the conversion of ~~the~~our Class B common stock into Class A common stock in accordance with its terms, or otherwise, our business, or the trading price of our Class A common stock may be adversely affected.

The multiple class structure of our common stock has the effect of concentrating voting control with our founder and certain other holders of our Class B common stock, which will limit or preclude ~~your~~the ability of our stockholders to influence corporate matters.

Our Class B common stock has ten votes per share and our Class A common stock has one vote per share. ~~Stockholders who~~Our founder and certain of his affiliates hold a substantial number of the outstanding shares of our Class B common stock ~~including certain of our executive officers, employees,~~ and ~~directors and their affiliates, together~~therefore hold a substantial majority of the voting power of our outstanding capital stock. Because of the ten-to-one voting ratio between our Class B and Class A common stock, the holders of our Class B common stock collectively control a majority of the combined voting power of our common stock and therefore are able to control all matters submitted to our stockholders for approval so long as the shares of Class B common stock represent at least 9.1% of all outstanding shares of our Class A and Class B common stock. This concentrated control will limit or preclude ~~your~~the ability of our other stockholders to influence corporate matters for the foreseeable future.

~~Transfers~~ Additionally, transfers by holders of Class B common stock will generally result in those transferred shares converting into Class A common stock, subject to limited exceptions, such as certain transfers effected for estate planning or charitable purposes. The conversion of Class B common stock into Class A common stock has had and will continue to have the effect, over time, of increasing the relative voting power of those holders of Class B common stock who retain ~~their shares in the long term.~~such shares. If, for example, Mr. Steinert retains a significant portion of his holdings of Class B common stock, ~~for an extended period of time,~~ he could ~~in the future,~~ continue to control a majority of the combined voting power of our outstanding capital stock.

~~The~~Our status as a “controlled company” could make our Class A common stock less attractive to some investors or otherwise harm the trading price of our Class A common stock.

More than 50% of our voting power is held by Mr. Steinert. As a result, we are a “controlled company” under the corporate governance rules for Nasdaq-listed companies and may elect not to comply with certain Nasdaq corporate governance requirements. We rely and have relied on certain or all of these exemptions. Accordingly, should the interests of our controlling stockholder differ from those of other stockholders, the other stockholders may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance rules for Nasdaq-listed companies. Our status as a controlled company could make our Class A common stock ~~may be volatile and the value of your investment could decline.~~less attractive to some investors or otherwise harm our stock price.

The trading price of our Class A common stock has been and may continue to be volatile and the value of our stockholders’ investment in our stock could decline.

The trading price of our Class A common stock has been and may continue to be volatile and fluctuate substantially. The trading price of our Class A common stock depends on a number of factors, including those described in this “Risk Factors” section, many of which are beyond our control and may not be related to our operating performance. Factors that could cause fluctuations in the trading price of our Class A common stock ~~include the following:~~

~~price and volume fluctuations~~include: changes in the ~~overall stock market from time to time;~~

~~changes in~~ operating performance and stock market valuations of other technology companies generally, or those in our industry in particular;

sales of shares of our Class A common stock by us or our stockholders;

adverse changes to recommendations regarding our stock by covering securities analysts; failure of securities analysts to maintain coverage of us, changes in financial estimates by any securities analysts who follow our company, or our failure to meet these estimates or the expectations of investors;

announcements by us or our competitors of new products;

the public’s reaction to our ~~press releases,~~issuances of earnings guidance or other public announcements and ~~filings with the SEC;~~

~~rumors and market speculation involving us~~filing; real or ~~other companies~~perceived inaccuracies in our ~~industry;~~

key metrics; actions of an activist stockholder; actual or anticipated changes in our operating results or fluctuations in our operating ~~results;~~

~~actual~~results or ~~anticipated~~ developments in our business, our competitors’ businesses, or the competitive landscape generally;

•

litigation involving us ~~our industry or both,~~ or investigations by regulators into our operations or those of our competitors;

developments or disputes concerning our ~~intellectual property or other~~ proprietary rights;

announced or completed acquisitions of businesses or technologies by us or our competitors;

new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

changes in accounting standards, policies, ~~guidelines, interpretations,~~ or ~~principles;~~

guidelines; any significant change in our management;

~~conditions~~changes in the automobile industry; public health emergencies, such as the COVID-19 pandemic; and

general economic ~~conditions~~conditions.

We cannot guarantee that the Share Repurchase Program will be fully implemented or that it will enhance stockholder value, and ~~slow or negative growth~~share repurchases could affect the price of our ~~markets.~~Class A common stock.

In ~~addition,~~December 2022 our Board of Directors authorized the 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 $250.0 million, with an expiration date of December 31, 2023. Share repurchases under the Share Repurchase Program may be made through a variety of methods, and are subject to market inand business conditions, levels of available liquidity, cash requirements for other purposes, regulatory, and other relevant factors. The timing, pricing, and size of share repurchases will depend on a number of factors, including price, corporate and regulatory requirements, and general market and economic conditions. The Share Repurchase Program does not obligate us to repurchase any minimum dollar amount or number of shares, and the Share Repurchase Program may be modified, suspended, or discontinued by our Board of Directors at any time, which may result in a decrease in the price of our Class A common stock.

Repurchases under the Share Repurchase Program will decrease the number of outstanding shares of our Class A common stock and therefore could affect the price of our Class A common stock and increase its volatility. The existence of the Share Repurchase Program could also cause the price of our Class A common stock to be higher than it would be in the absence of such a program and could reduce the market liquidity for ~~technology companies in particular, have experienced extreme price~~our Class A common stock. Additionally, repurchases under the Share Repurchase Program will diminish our cash reserves, which could impact our ability to further develop our business and ~~volume fluctuations~~service our indebtedness. There can be no assurance that ~~have often been unrelated or disproportionate to the operating performance of those companies. Broad market and industry factors may seriously affect~~any share repurchases will enhance stockholder value because the market price of our Class A common stock ~~regardless~~may decline below the levels at which we repurchased such shares. Any failure to repurchase shares after we have announced our intention to do so may negatively impact our reputation and investor confidence in us and may negatively impact our Class A common stock price. Although the Share Repurchase Program is intended to enhance long-term stockholder value, short-term price fluctuations could reduce the Share Repurchase Program’s effectiveness.

General Risk Factors

We participate in a highly competitive market, and pressure from existing and new companies may adversely affect our business and operating results.

We face significant competition from companies that provide listings, car-shopping information, lead generation, marketing, wholesale, and digital car-buying and -selling services designed to help consumers and dealers shop for cars and to enable dealers to reach these consumers. Our competitors include: online automotive marketplaces and websites; internet search engines; peer-to-peer marketplaces; social media marketplaces; sites operated by automobile dealers; online dealerships; and vehicle auction companies. We compete with these and other companies for a share of dealers’ overall marketing budget for online and offline media marketing spend and we compete with these and other companies in attracting consumers to our ~~actual operating performance.~~websites. To the extent that dealers view alternative marketing and media strategies to be superior to our marketplaces, we may not be able to maintain or grow the number of dealers subscribing to, and advertising on, our marketplaces, and our business and financial results may be adversely affected. We also expect that new competitors will continue to enter the online automotive retail and wholesale industries with competing marketplaces, products, and services, and that existing competitors will expand to offer competing products or services, which could have an adverse effect on our business and financial results.

Our competitors could significantly impede our ability to expand the number of dealers using our marketplaces or could offer discounts that could significantly impede our ability to maintain our pricing structure. Our competitors may also develop and market new technologies that render our existing or future platforms and associated products less competitive, unmarketable, or obsolete. In addition, ~~in the past, following periods of volatility in the overall market~~if our competitors develop platforms with similar or superior functionality to ours, or if our web traffic declines, we may need to decrease our subscription and advertising fees. If we are unable to maintain our current pricing structure due to competitive pressures, our revenue would likely be reduced and our financial results would be negatively affected. Furthermore, our existing and potential competitors may have significantly more financial, technical, marketing, and other resources than we have, which may allow them to offer more competitive pricing and the ~~market prices~~ability to devote greater resources to the development, promotion, and support of their marketplaces, products, and services. They may also have more extensive automotive industry relationships than we have, longer operating histories, and greater name recognition. In addition, these competitors may be able to respond more quickly with technological advances and to undertake more extensive marketing or promotional campaigns than we can. To the extent that any competitor has existing relationships with dealers or auto manufacturers for marketing or data analytics solutions, those dealers and auto manufacturers may be unwilling to partner with us. If we are unable to compete with these competitors, the demand for our marketplaces and related products and services could substantially decline.

We must maintain proper and effective internal control over financial reporting and any failure to maintain the adequacy of these internal controls may adversely affect investor confidence in our company and, as a ~~particular company’s securities, securities class action litigations have often been instituted against these companies. Litigation of this type, if instituted against us, could~~ result, ~~in substantial costs and a diversion of our management’s attention and resources.~~

~~Sales of substantial amounts~~the value of our Class A common ~~stock~~stock.

We are required, pursuant to Section 404 of the Sarbanes-Oxley Act and the related rules adopted by the SEC, to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting on an annual basis. This assessment includes disclosure of any material weaknesses identified by our management in our internal control over financial reporting, such as those described above. In addition, our independent registered public accounting firm must attest to the effectiveness of our internal control over financial reporting under Section 404. Our independent registered public accounting firm may issue a report that is adverse to us in the event it is not satisfied with the level at which our controls are documented, designed, or operating. We may not be able to remediate the material weakness described above and/or any future material weaknesses that may be identified, or to complete our evaluation, testing and required remediation in a timely fashion. We are also required to disclose significant changes made to our internal control procedures on a quarterly basis. Our compliance with Section 404 requires that we incur substantial accounting expense and expend significant management efforts. Any failure to maintain internal control over financial reporting could severely inhibit our ability to accurately report our financial condition or results of operations. If we are unable to assert that our internal control over financial reporting is effective or our independent registered public ~~markets, or~~accounting firm is unable to express an opinion on the ~~perception that~~effectiveness of our internal control over financial reporting when it is required to issue such ~~sales might occur,~~opinion, we could ~~depress~~lose investor confidence in the accuracy and completeness of our financial reports, the market price of our Class A ~~common stock.~~

~~The market price for our Class A~~ 65

common stock could decline, and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities. Failure to remedy the material weakness described above and/or any future material weaknesses that may be identified, or to implement or maintain other effective control systems required of public companies, could also restrict our future access to the capital markets.

We expect our results of operations to fluctuate on a quarterly and annual basis.

Our revenue and results of operations could vary significantly from period to period and may fail to match expectations as a result of ~~the sale~~a variety of ~~substantial amounts~~factors, some of which are outside of our ~~Class A common stock, particularly sales by our directors, executive officers,~~control, including the lingering effects of the COVID-19 pandemic and ~~significant stockholders,~~other macroeconomic issues, such as increased interest rates. Our results may vary as a ~~large~~result of fluctuations in the number of ~~shares~~dealers subscribing to our marketplaces, the size and seasonal variability of our Class A common stock becoming available for sale, or the perception in the market that holders of a large number of shares intend to sell their shares. Based on shares outstanding at October 31, 2017, we had outstanding approximately 77,877,494 shares of Class A common stock. Of these shares, the 10,810,000 shares of our Class A common stock sold in our initial public offering, or IPO, are freely tradable,advertisers’ marketing budgets, and the ~~balance~~impact of ~~the outstanding shares will be available for sale~~vehicle arbitrations, volume, and prices in ~~the public market beginning following the expiration of lock-up agreements entered into~~a given period in connection with our ~~IPO, which is expected to occur on April 10, 2018. The representatives~~IMCO product and the wholesale sale of automobiles. As a result of the ~~underwriters~~potential variations in our ~~IPO~~revenue and results of operations, period-to-period comparisons may ~~release these stockholders from their lock-up agreements at~~not be meaningful and the results of any ~~time and without notice, which would allow for earlier sales~~one period should not be relied on as an indication of shares in the public market. Sales of a substantial number of such shares upon expiration of the lock-up, the perception that such sales may occur, or early release of these agreements, could cause our market price to fall or make it more difficult for you to sell your Class A common stock at a time and price that you deem appropriate.

On April 10, 2018, the holders of 54,998,789 shares of our Class A common stock will have rights, subject to some conditions, to require us to file registration statements covering their shares of Class A common stock or to include their shares in registration statements that we may file for ourselves or our stockholders.

future performance. In addition, our results of operations may not meet the ~~shares~~expectations of Class A common stock subject to outstanding options and restricted stock units for Class A common stock under our equity incentive plans and the shares reserved for future issuance under our equity incentive plans,investors or covering analysts, which we registered on a registration statement on Form S-8 which we filed with the SEC on October 24, 2017, will become eligible for sale in the public market in the future, subject to certain legal and contractual limitations.

~~If a substantial number of shares are sold, or if it is perceived that they will be sold, in the public market, before or after the expiration of the contractual lock-up period,~~may adversely affect the trading price of our Class A common ~~stock~~stock.

We could ~~decline substantially.~~be subject to adverse changes in tax laws, regulations and interpretations, plus challenges to our tax positions.

~~The exclusion~~We are subject to taxation in the United States and certain other jurisdictions in which we operate. Changes in applicable tax laws or regulations may be proposed or enacted that could materially and adversely affect our effective tax rate, tax payments, results of operations, financial condition, and cash flows. In addition, tax laws and regulations are complex and subject to varying interpretations. There is also uncertainty over sales tax liability as a result of recent U.S. Supreme Court and Massachusetts Supreme Court decisions, which could precipitate reactions that could adversely increase our ~~Class A common stock~~tax administrative costs and tax risk, and negatively affect our overall business, results of operations, financial condition, and cash flows. We are also regularly subject to audits by tax authorities. Any adverse development or outcome in connection with any such tax audits, and any other audits or litigation, could materially and adversely impact our effective tax rate, tax payments, results of operations, financial condition, and cash flows.

COVID-19 may adversely impact our business operations, financial performance, and results of operations.

Our operations have been and may continue to be materially adversely affected by a range of factors related to COVID-19, including periodic changes in restrictions that vary from ~~major stock indexes could~~region to region in which we operate and may require rapid response to new or reinstated orders. Many of these orders resulted in, and, to the extent reinstated, may in the future result in, changes to our on-site work policies and restrictions on the ability of consumers to buy and sell automobiles by restricting operations at dealerships and/or by closing or reducing the services provided by certain service providers upon which dealerships rely. In addition, these restrictions and continued concern about the spread of COVID-19 have impacted car shopping by consumers and disrupted the operations of dealerships, which has adversely affected and may continue to adversely affect the ~~trading~~ market for automobile purchases.

These effects from the COVID-19 pandemic on our revenue caused us to implement certain cost-savings measures across our business, which previously disrupted our business and ~~price of~~operations. Any future cost-savings measures implemented by us due to macroeconomic issues may affect our ~~Class A common stock.~~

~~Several major stock index providers have announced they will begin to exclude, or are considering plans to exclude, from their indexes the securities of companies with unequal voting rights~~future business and operations and yield unintended consequences, such as ~~ours. Exclusion from stock indexes could make it more difficult,~~ loss of key employees, increased costs in hiring new employees, undesired attrition, and the risk that we may not achieve anticipated cost savings at the levels we expect, any of which may have a material adverse effect on our results of operations and/or ~~impossible, for some fund managers~~financial condition.

The global outbreak of COVID-19 continues to ~~buy the excluded securities, particularly~~evolve, and significant adverse changes in the ~~case~~spread or severity of ~~index tracking mutual funds~~COVID-19 infections and ~~exchange traded funds.~~ the resulting economic impact could have a material adverse effect on our business operations, financial performance, and results of operations.

The ~~exclusion~~Russian invasion of ~~our Class A common stock from major stock indexes could adversely affect~~Ukraine and the ~~trading market and price of our Class A common stock.~~

~~Anti-takeover provisions contained in our certificate of incorporation and bylaws, as well as provisions of Delaware law, could impair a takeover attempt.~~

~~The provisions of our amended and restated certificate of incorporation and amended and restated bylaws, and provisions of Delaware law, may have~~retaliatory measures imposed by the ~~effect of rendering more difficult, delaying, or preventing an acquisition deemed undesirable by our board of directors. Our corporate governance documents include provisions:~~

~~creating a classified board of directors whose members serve staggered three-year terms;~~

~~authorizing “blank check” preferred stock, which may contain voting, liquidation, dividend,~~United States, the United Kingdom, the EU, and other ~~rights superior~~countries and the responses of Russia to ~~our Class A common stock~~such measures have caused significant disruptions to domestic and ~~which, from~~foreign economies.

The Russia and ~~after~~Ukraine conflict had an immediate impact on the ~~date, referred to as~~global economy resulting in higher prices for oil and other commodities, including vehicle components. Economic sanctions and bans, together with Russia’s own retaliatory measures have disrupted supply chains and economic markets. The global impact of these measures is continually evolving and the ~~threshold date, on which~~future impact cannot be predicted with certainty. In particular, the ~~votes applicable to the Class A common stock~~Russia and Class B common stock controlled by our founder, Chief Executive Officer, President, and Chairman, Langley Steinert, represent less than a majority of the aggregate votes applicable to all shares of the outstanding Class A common stock and Class B common stock, could be issued by our board of directors without stockholder approval;

~~limiting the liability of, and providing indemnification to, our directors and officers;~~

~~limiting~~Ukraine conflict has further impacted the ability of ~~our stockholders~~certain manufacturers to ~~call~~produce new vehicles and ~~bring business before special meetings;~~

~~requiring advance notice of stockholder proposals for business to be conducted at meetings of our stockholders and for nominations of candidates for election to our board of directors;~~

~~limiting the ability, from and after the threshold date, of stockholders to amend our amended and restated certificate of incorporation;~~

~~limiting the ability, from and after the threshold date, of stockholders to fill vacant directorships and remove directors; and~~

~~prohibiting cumulative voting by stockholders.~~

~~These provisions, alone or together, could delay or prevent hostile takeovers and changes~~new vehicle parts, which may result in ~~control or changes in our management.~~

As a Delaware corporation, we are also subject to provisions of Delaware law, including Section 203 of the Delaware General Corporation law, which prevents some stockholders holding more than 15% of our outstanding common stock from engaging in certain business combinations without approval of the holders of substantially all of our outstanding common stock.

Any provision of our amended and restated certificate of incorporation, amended and restated bylaws, or Delaware law that has the effect of delaying or deterring a change in control could limit the opportunity for our stockholders to receive a premium for their shares of our Class A common stock, and could also affect the price that some investors are willing to pay for our Class A common stock.

~~Our amended and restated certificate of incorporation includes a forum selection clause, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us.~~

~~Our amended and restated certificate of incorporation provides that, unless we consent in writing~~continued disruptions to the ~~selection~~supply of ~~an alternative forum,~~new and used vehicles. Further, there is no assurance that when the ~~Court of Chancery of~~Russia and Ukraine conflict ends, countries will not continue to impose sanctions and bans.

While these events have not materially interrupted our operations, these or future developments resulting from the ~~State of Delaware will, to~~Russia and Ukraine conflict, such as a cyberattack on the fullest extent permitted by law, be the sole and exclusive forum for any stockholder to bring: (i) any derivative action or proceeding brought on behalf of us; (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees or agents to us or to our stockholders; (iii) any action asserting a claim against us arising pursuant to any provision of the Delaware General Corporation LawUnited States or our ~~amended and restated certificate~~suppliers, could disrupt our operations, our customers’ operations, or the activity of incorporation or amended and restated bylaws; (iv) any action to interpret, apply, enforce or determine the validity of our amended and restated certificate of incorporation or our amended and restated bylaws; or (v) any action asserting a claim against us or any of our directors, officers, or other employees or agents governed by the internal affairs doctrine. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock is deemed to have notice of and consented to the foregoing provisions. This forum selection provision in our amended and restated certificate of incorporation may limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us. It is also possible that, notwithstanding the forum selection clause included in our certificate of incorporation, a court could rule that such a provision is inapplicable or unenforceable.

If securities or industry analysts do not publish, or cease publishing, research or reports about us, our business or our market, or if they change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

The trading market for our Class A common stock is influenced by the research and reports that industry or securities analysts may publish about us, our business, our market, or our competitors. If any of the analysts who may cover us change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, our stock

~~price would likely decline. If any analyst that covers us were to cease coverage of ourcompany or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.~~

~~Our management team has limited experience managing a public company.~~

Most members of our management team have limited experience managing a publicly traded company, interacting with public company investors and complying with the increasingly complex laws pertaining to public companies. Our management team may not successfully or efficiently manage our transition to being a public company subject to significant regulatory oversight and reporting obligations under the federal securities laws and the scrutiny of securities analysts and investors. These new obligations and constituents will require significant attention from our management team and could divert their attention away from the day‑to‑~~day management of our business, which could materially adversely affect our business, financial condition and operating results.~~

~~We do not intend to pay cash dividends for the foreseeable future.~~

~~We have never declared or paid cash dividends~~consumers on our capital stock. We currently intend to retain any future earnings to finance the operation and expansion of our business, and we do not expect to declare or pay any cash dividends in the foreseeable future. As a result, you may only receive a return on your investment in our Class A common stock if the trading price of your shares increases.websites.

~~Our status as a “controlled company” could make our Class A common stock less attractive to some investors or otherwise harm our stock price.~~66

More than 50% of our voting power is held by Langley Steinert. As a result, we are a “controlled company” under the corporate governance rules for NASDAQ-listed companies. Under these rules, a company of which more than 50% of the voting power is held by an individual, a group or another company is a “controlled company” and may elect not to comply with certain NASDAQ corporate governance requirements, including:

~~the requirement that a majority of our board of directors consist of “independent directors” as defined under the rules of NASDAQ;~~

the requirement that we have a compensation committee that is composed entirely of directors meeting NASDAQ independence standards applicable to compensation committee members with a written charter addressing the committee’s purpose and responsibilities;

the requirement that our compensation committee be responsible for the hiring and overseeing of persons acting as compensation consultants and be required to consider certain independence factors when engaging such persons; and

the requirement that director nominees either be selected, or recommended for board of directors’ selection, either by “independent directors” as defined under the rules of NASDAQ constituting a majority of the board of director’s “independent directors” in a vote in which only “independent directors” participate, or by a nominations committee comprised solely of “independent directors.”

We have relied on certain of these exemptions. Accordingly, should the interests of our controlling stockholder differ from those of other stockholders, the other stockholders may not have the same protections afforded to stockholders of companies that are subject to all of the corporate governance rules for NASDAQ-listed companies. Our status as a controlled company could make our Class A common stock less attractive to some investors or otherwise harm our stock price.

~~We are an “emerging growth company,” and the reduced disclosure requirements applicable to emerging growth companies may make our Class A common stock less attractive to investors.~~

We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, and may remain an emerging growth company until the last day of our fiscal year following the fifth anniversary of our IPO, subject to specified conditions. For so long as we remain an emerging growth company, we are permitted and intend to rely on exemptions from some disclosure requirements that are applicable to other public companies that are not emerging growth companies. These exemptions include:

being permitted to provide only two years of audited financial statements, in addition to any required unaudited interim financial statements, with correspondingly reduced “Management’s Discussion and Analysis of Financial Condition and Results of Operations” disclosure;

~~not being required to comply with the auditor attestation requirements in the assessment of our internal control over financial reporting;~~

•

not being required to comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements;

~~reduced disclosure obligations regarding executive compensation; and~~

~~exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.~~

We have taken advantage of reduced reporting burdens in this Quarterly Report on Form 10-Q. We cannot predict whether investors will find our Class A common stock less attractive because we rely on these exemptions. If some investors find our Class A common stock less attractive as a result, there may be a less active trading market for our Class A common stock and our stock price may be more volatile. In addition, the JOBS Act provides that an emerging growth company can take advantage of an extended transition period for complying with new or revised accounting standards. This allows an emerging growth company to delay the adoption of these accounting standards until they would otherwise apply to private companies. We have elected to avail ourselves of this exemption and, therefore, while we are an emerging growth company we will not be subject to new or revised accounting standards at the same time that they become applicable to other public companies that are not emerging growth companies.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

~~Sale~~Recent Sales of Unregistered Securities

~~From July 1, 2017 through September 30, 2017, we issued and sold to employees, consultants and other service providers an aggregate~~None.

Purchases of ~~79,244 shares~~Equity Securities

The following table summarizes information about our purchases of our Class A common stock upon the exercise of options granted under our Amended and Restated 2006 Equity Incentive Plan and Amended and Restated 2015 Equity Incentive Plan exercise prices ranging from $0.09 to $6.78 per share,equity securities for ~~an aggregate exercise price of approximately $120,000.~~

~~None~~each of the ~~foregoing transactions involved any underwriters, underwriting discounts or commissions, or any public offering, and we believe that each such transaction was exempt from~~months during the registration requirements of the Securities Act of 1933, as amended, or the Securities Act, in reliance on either Section 3(a)(9) of the Securities Act, Rule 701 promulgated under the Securities Act, as transactions pursuant to a compensatory benefit plan approved by our board of directors, Section 4(a)(2) of the Securities Act, as transactions by an issuer not involving a public offering, or transactions which did not constitute sales of securities under the Securities Act. Each recipient of securities issued in the transactions that were deemed to be exempt in reliance upon Section 4(a)(2) of the Securities Act acquired the securities for investment only and not with a view to, or for resale in connection with, any distribution thereof, and appropriate legends were affixed to thethree months ended June 30, 2023:


Period	Total Number of Shares of Common Stock Purchased		Weighted Average Price Paid per Share of Common Stock(1)		Total Number of Shares of Common Stock Purchased as Part of Publicly Announced Plans or Programs(2)(3)		Maximum Approximate Dollar Value of Shares of Common Stock that May Yet be Purchased Under the Plans or Programs (in thousands)(2)
April 1, 2023 through April 30, 2023		651,992	$	16.99		651,992	$	155,081
May 1, 2023 through May 31, 2023		652,318	$	16.49		652,318	$	144,324
June 1, 2023 through June 30, 2023		7,077	$	18.90		7,077	$	144,190
Total		1,311,387	$	16.75		1,311,387	$	144,190

(1)

The weighted average price paid per share certificates issued in each such transaction. In each case, the recipient received adequate information regarding us or had adequate access, through his or her relationship with us, to information about us.

~~Use of Proceeds~~

On October 11, 2017, our registration statement on Form S-1, as amended (File No. 333-220495), filed in connection with our IPO, was declared effective by the SEC and, on October 16 2017, we closed our IPO consisting of 10,810,000 shares of Class A common stock does not include cost of commissions.

(2)

On December 8, 2022, we announced that our Board of Directors authorized the Share Repurchase Program, pursuant to which ~~included the full exercise by the underwriters of their option~~we may, from time to time, purchase ~~1,410,000 additional~~ shares of our Class A common stock for an aggregate purchase price not to exceed $250.0 million. Share repurchases under the 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 Share Repurchase Program does not obligate us to repurchase any minimum dollar amount or number of shares. The Share Repurchase Program has an expiration date of December 31, 2023, and prior to its expiration may be modified, suspended, or discontinued by our Board of Directors at ~~a public offering price~~any time without prior notice. All repurchased shares will be retired. We expect to fund any share repurchases through cash on hand and cash generated from operations.

(3)

The total number of ~~$16.00 per share, before underwriting discounts. We issued and sold 3,205,000~~ shares of ~~Class A~~ common stock and the selling stockholders sold an additional 7,605,000 shares of Class A common stock. The aggregate offering price for shares sold in our IPO was approximately $173.0 million. Following the salepurchased as part of the Share Repurchase Program was inclusive of any shares ~~in connection with the closing~~purchased but not settled as of our IPO, the offering was concluded. We received approximately $43.0 million in net proceeds, after deducting underwriting discounts and commissions of $3.6 million and approximately $4.7 million of other offering expenses. The selling stockholders received, in the aggregate, approximately $113.2 million in net proceeds, after deducting underwriting discounts and commissions of $8.5 million. Certain of the underwriting discounts and commissions paid in our IPO were paid to Allen & Company LLC, an entity that beneficially owned more than 10% of our preferred stock prior to our IPO and that is affiliated with Ian Smith, a member of our board of directors. June 30, 2023.

There has been no material change in the planned use of proceeds from our initial public offering as described in our final prospectus filed with the SEC pursuant to Rule 424(b) under the Securities Act on October 12, 2017. Goldman Sachs & Co. LLC and Allen & Company LLC acted as joint lead book-running managers. RBC Capital Markets, LLC also acted as a joint-book running manager. JMP Securities LLC, Raymond James, and William Blair & Company, L.L.C. acted as co-managers.

I~~tem~~

Item 6. E~~xhibits.~~Exhibits.

The exhibits listed below are filed or incorporated by reference into this Quarterly ~~Report on Form 10-Q.~~Report.

Incorporated by Reference

Exhibit
Number

Exhibit Description

Form

File
Number

Filing Date

Exhibit
Number

Filed
Herewith

Exhibit Description

Form

File

Number

Filing

Date

Exhibit

Number

Filed

Herewith

3.1

Amended and Restated Certificate of Incorporation of the Registrant.

8-K

001-38233

October 16, 2017

3.1

Second Amended and Restated By-laws of the Registrant

8-K

001-38233

August 4, 2023

3.1

3.2

Amended and Restated Bylaws of the Registrant.

8-K

001-38233

October 16, 2017

3.2

4.1

Specimen Class A common stock certificate of the Registrant.

S-1/A

333-220495

September 29, 2017

4.1

10.1

Form of Indemnification Agreement between the Registrant and each of its directors and executive officers.

S-1

333-220495

September 15, 2017

10.1

10.1#

Separation Agreement, dated May 30, 2023, between the Registrant and Tom Caputo

31.1

Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2

Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS

XBRL Instance Document.

Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded with the Inline XBRL document.

101.SCH

XBRL Taxonomy Extension Schema Document.

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document.

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

XBRL Taxonomy Extension Definition Linkbase Document.

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

XBRL Taxonomy Extension Label Linkbase Document.

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document.

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

Cover Page Interactive Data File (Embedded within the Inline XBRL document and included in Exhibit)

# Indicates a management contract or compensatory plan

* The ~~certifications~~certification furnished in Exhibit 32.1 ~~and Exhibit 32.2~~ hereto ~~are~~is deemed to accompany this Quarterly Report ~~on Form 10-Q~~ and will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, except to the extent that the registrant specifically incorporates it by reference.

~~SIGNATURES~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


	CarGurus, Inc.

Date: ~~November 14, 2017~~August 9, 2023	By:	/s/ ~~Langley Steinert~~Jason Trevisan
		~~Langley Steinert~~Jason Trevisan
		Chief Executive Officer (Principal Executive ~~Officer)~~

~~Date: November 14, 2017~~	~~By:~~	~~/s/ Jason Trevisan~~
		~~Jason Trevisan~~
		~~Chief Financial~~ Officer, (Principal Financial Officer and Principal Accounting Officer)

5369

	At September 30, 2017			At December 31, 2016
Assets
Current assets
Cash and cash equivalents	$	25,636		$	29,476
Investments		60,000			44,774
Accounts receivable, net of allowance for doubtful accounts of $141 and $164, respectively		10,123			6,653
Prepaid income taxes		—			1,815
Prepaid expenses and other current assets		3,485			2,789
Total current assets		99,244			85,507
Property and equipment, net (Note 4)		16,100			12,780
Restricted cash		1,783			2,044
Deferred tax assets		371			—
Other long-term assets (Note 5)		4,158			—
Total assets	$	121,656		$	100,331
Liabilities, convertible preferred stock, and stockholders’ deficit
Current liabilities
Accounts payable	$	22,737		$	16,426
Accrued expenses (Note 6)		9,953			8,384
Deferred revenue		4,598			3,330
Accrued income taxes		156			—
Deferred rent		1,144			910
Total current liabilities		38,588			29,050
Deferred rent, net of current portion		5,701			5,673
Deferred tax liabilities		—			292
Other non-current liabilities		969			590
Total liabilities		45,258			35,605
Commitments and contingencies (Note 7)
Convertible preferred stock (Note 8)		132,698			132,698
Stockholders’ deficit:
Class A common stock, $0.001 par value per share; 120,020,700 shares authorized, 14,107,816 and 14,022,132 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively.		14			14
Class B common stock, $0.001 par value per share; 80,013,800 shares authorized, 28,213,276 and 28,044,264 shares issued and outstanding at September 30, 2017 and December 31, 2016, respectively.		28			28
Additional paid-in capital		4,225			3,714
Accumulated deficit		(60,766	)		(71,698	)
Accumulated other comprehensive income (loss)		199			(30	)
Total stockholders’ deficit		(56,300	)		(67,972	)
Total liabilities, convertible preferred stock, and stockholders’ deficit	$	121,656		$	100,331

	At September 30, 2017
	Quoted Prices in Active Markets for Identical Assets (Level 1 Inputs)		Significant Other Observable Inputs (Level 2 Inputs)		Significant Unobservable Inputs (Level 3 Inputs)		Total
Assets:
Cash equivalents:
Money market funds	$	10,627	$	—	$	—	$	10,627
Investments:
Certificates of deposit		—		60,000		—		60,000
Total	$	10,627	$	60,000	$	—	$	70,627

	At December 31, 2016
	Quoted Prices in Active Markets for Identical Assets (Level 1 Inputs)		Significant Other Observable Inputs (Level 2 Inputs)		Significant Unobservable Inputs (Level 3 Inputs)		Total
Assets:
Investments:
Certificates of deposit	$	—	$	44,774	$	—	$	44,774
Total	$	—	$	44,774	$	—	$	44,774


	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
September 30, 2017
Cash and cash equivalents due in 90 days or less	$	25,636	$	—	$	—	$	25,636
Investments:
Certificates of deposit due in one year or less		60,000					$	60,000
Total cash, cash equivalents, and investments	$	85,636	$	—	$	—	$	85,636

	At September 30, 2017			At December 31, 2016
Computer equipment		3,009			2,001
Capitalized software		174			114
Website development costs		4,167			2,680
Furniture and fixtures		4,461			3,386
Leasehold improvements		10,646			8,202
Construction in progress		35			119
		22,492			16,502
Less accumulated depreciation		(6,392	)		(3,722	)
Property and equipment, net	$	16,100		$	12,780

	At September 30, 2017		At December 31, 2016
Deferred IPO issuance costs	$	4,142	$	—
Other long-term assets		16		—
	$	4,158	$	—

	At September 30, 2017		At December 31, 2016
Accrued bonuses	$	5,086	$	4,662
Accrued commissions		1,520		1,305
Other accrued expenses		3,347		2,417
	$	9,953	$	8,384

	Original Issue Price Per Share		Shares Authorized		Issued and Outstanding		Liquidation Amount		Carrying Value
Series A Preferred Stock	$	0.525053		3,333,000		2,824,703	$	1,483	$	1,483
Series B Preferred Stock	$	0.780899		3,329,497		2,938,486		2,295		2,295
Series C Preferred Stock	$	0.849012		1,648,978		1,550,612		1,316		1,316
Series D Preferred Stock	$	40.642989		1,673,105		1,673,105		68,000		67,872
Series E Preferred Stock	$	54.190650		1,107,202		1,107,202		60,000		59,732
				11,091,782		10,094,108	$	133,094	$	132,698

	Three Months Ended September 30,						Change
	2017			2016			Amount		%
	(dollars in thousands)
Revenue
Marketplace subscription	$	73,937		$	46,477		$	27,460		59	%
Advertising and other		9,052			6,659			2,393		36
Total	$	82,989		$	53,136		$	29,853		56	%
Percentage of total revenue:
Marketplace subscription		89	%		87	%
Advertising and other		11			13
Total		100	%		100	%

	Nine Months Ended September 30,						Change
	2017			2016			Amount		%
				(dollars in thousands)
Revenue
Marketplace subscription	$	201,889		$	118,115			83,774		71	%
Advertising and other		24,375			19,262			5,113		27
Total	$	226,264		$	137,377		$	88,887		65	%
Percentage of total revenue:
Marketplace subscription		89	%		86	%
Advertising and other		11			14
Total		100	%		100	%