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 every Interactive Data File required to be submitted 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 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.

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 29, 2020,~~November 4, 2021, the registrant had ~~94,160,683~~101,684,111 shares of Class A common stock, $0.001 par value per share, and ~~19,076,500~~15,999,173 shares of Class B common stock, par value $0.001 per share, outstanding.

This 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 “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “likely,” “may,” “might,” “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 include, but are not limited to, statements about:

You should not rely upon forward‑looking statements as predictions of future events. We have based the forward‑looking statements contained in this 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 described in the section titled “Risk Factors” and elsewhere in this 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. 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 only to events as of the date on which the statements are made. We undertake no obligation to update any forward‑looking statement made in this report to reflect events or circumstances after the date of this report or to reflect new information or the occurrence of unanticipated events, except as required by law.

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

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

(1)

Includes depreciation and amortization expense for the three months ended September 30, 2021 and 2020 and for the nine months ended September 30, 2021 and 2020 of ~~Comprehensive Income~~

~~(in thousands)~~

Three Months Ended
September 30,

Nine Months Ended
September 30,

2020

2019

2020

2019

Net income

$
32,563

$
10,384

$
52,390

$
28,975

Other comprehensive income (loss):

Foreign currency translation adjustment

1,013

(929
)

1,001

(997
)
Comprehensive income

$
33,576

$
9,455

$
53,391

$
27,978

$1,429, $944, $3,571, and $4,250, respectively.

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

CarGurus, Inc.

Unaudited Condensed Consolidated Statements of ~~Stockholders’ Equity~~Comprehensive Income

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

Class A
Common Stock

Class B
Common Stock

Additional
Paid–in

Retained

Accumulated
Other
Comprehensive

Total
Stockholders’

Shares

Amount

Shares

Amount

Capital

Earnings

Income (Loss)

Equity

Balance at December 31, 2019

91,819,649

$
92

20,314,644

$
20

$
205,234

$
51,859

$
(350
)

$
256,855

Net income

—

—

—

—

—

12,696

—

12,696

Stock–based compensation expense

—

—

—

—

11,793

—

—

11,793

Issuance of common stock upon exercise of stock options

160,668

—

—

—

514

—

—

514

Issuance of common stock upon vesting of restricted stock units

308,303

1

—

—

(1
)

—

—

—

Payment of withholding taxes on net share settlements of equity awards

(106,934
)

—

—

—

(3,397
)

—

—

(3,397
)
Conversion of common stock

335,741

—

(335,741
)

—

—

—

—

—

Foreign currency translation adjustment

—

—

—

—

—

—

(493
)

(493
)
Balance at March 31, 2020

92,517,427

93

19,978,903

20

214,143

64,555

(843
)

277,968

Net income

—

—

—

—

-

7,131

—

7,131

Stock–based compensation expense

—

—

—

—

12,249

—

—

12,249

Issuance of common stock upon exercise of stock options

84,796

—

—

—

415

—

—

415

Issuance of common stock upon vesting of restricted stock units

375,645

—

—

—

-

—

—

—

Payment of withholding taxes on net share settlements of equity awards

(119,009
)

—

—

—

(2,389
)

—

—

(2,389
)
Conversion of common stock

3,748

—

(3,748
)

—

-

—

—

—

Foreign currency translation adjustment

—

—

—

—

-

—

481

481

Balance at June 30, 2020

92,862,607

93

19,975,155

20

224,418

71,686

(362
)

295,855

Net income

—

—

—

—

—

32,563

—

32,563

Stock–based compensation expense

—

—

—

—

11,684

—

—

11,684

Issuance of common stock upon exercise of stock options

31,523

—

—

—

66

—

—

66

Issuance of common stock upon vesting of restricted stock units

335,153

—

—

—

—

—

—

—

Payment of withholding taxes on net share settlements of equity awards

(111,370
)

—

—

—

(2,922
)

—

—

(2,922
)
Conversion of common stock

898,655

1

(898,655
)

(1
)

—

—

—

—

Foreign currency translation adjustment

—

—

—

—

—

—

1,013

1,013

Balance at September 30, 2020

94,016,568

$
94

19,076,500

$
19

$
233,246

$
104,249

$
651

$
338,259

Balance at December 31, 2018

89,728,223

$
90

20,702,084

$
21

$
184,216

$
9,713

$
71

$
194,111

Net income

—

—

—

—

—

12,584

—

12,584

Stock–based compensation expense

—

—

—

—

7,995

—

—

7,995

Issuance of common stock upon exercise of stock options

447,210

—

—

—

697

—

—

697

Issuance of common stock upon vesting of restricted stock units

297,374

—

—

—

—

—

—

—

Payment of withholding taxes on net share settlements of equity awards

(102,034
)

—

—

—

(3,954
)

—

—

(3,954
)
Foreign currency translation adjustment

—

—

—

—

—

—

(424
)

(424
)
Balance at March 31, 2019

90,370,773

90

20,702,084

21

188,954

22,297

(353
)

211,009

Net income

—

—

—

—

—

6,007

—

6,007

Stock–based compensation expense

—

—

—

—

9,260

—

—

9,260

Issuance of common stock upon exercise of stock options

133,838

—

—

—

391

—

—

391

Issuance of common stock upon vesting of restricted stock units

362,447

1

—

—

(1
)

—

—

—

Payment of withholding taxes and option costs on net share
settlement of restricted stock units and stock options

(122,137
)

—

—

—

(4,637
)

—

—

(4,637
)
Foreign currency translation adjustment

—

—

—

—

—

356

356

Balance at June 30, 2019

90,744,921

91

20,702,084

21

193,967

28,304

3

222,386

Net income

—

—

—

—

—

10,384

—

10,384

Stock–based compensation expense

—

—

—

—

9,085

—

—

9,085

Issuance of common stock upon exercise of stock options

144,760

—

—

—

368

—

—

368

Issuance of common stock upon vesting of restricted stock units

343,909

—

—

—

—

—

—

—

Payment of withholding taxes on net share settlements of equity awards

(120,943
)

—

—

—

(4,192
)

—

—

(4,192
)
Conversion of common stock

200,000

—

(200,000
)

—

—

—

—

—

Foreign currency translation adjustment

—

—

—

—

—

—

(929
)

(929
)
Balance at September 30, 2019

91,312,647

$
91

20,502,084

$
21

$
199,228

$
38,688

$
(926
)

$
237,102


	Three Months Ended September 30,					Nine Months Ended September 30,
	2021			2020		2021			2020
Consolidated net income	$	29,267		$	32,563	$	76,214		$	52,390
Other comprehensive income (loss):
Foreign currency translation adjustment		(738	)		1,013		(1,573	)		1,001
Consolidated comprehensive income		28,529			33,576		74,641			53,391
Less comprehensive income (loss) attributable to redeemable noncontrolling interests		68			—		(3,398	)		—
Comprehensive income attributable to common stockholders	$	28,461		$	33,576	$	78,039		$	53,391

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

CarGurus, Inc.

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

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

Nine Months Ended
September 30,

2020

2019

Operating Activities

Net income

$
52,390

$
28,975

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

Depreciation and amortization

8,779

5,659

Currency gain on foreign denominated transactions

(32
)

(927
)
Deferred taxes

14,769

(5,025
)
Provision for doubtful accounts

1,742

695

Stock-based compensation expense

34,403

25,390

Amortization of deferred contract costs

8,595

5,797

Changes in operating assets and liabilities:

Accounts receivable, net

5,954

(4,984
)
Prepaid expenses, prepaid income taxes, and other assets

7,104

(871
)
Deferred contract costs

(6,922
)

(11,442
)
Accounts payable

(19,745
)

10,740

Accrued expenses, accrued income taxes, and other current liabilities

(497
)

(2,047
)
Deferred revenue

(313
)

(1,027
)
Lease obligations

356

(1,882
)
Other non-current liabilities

2,223

500

Net cash provided by operating activities

108,806

49,551

Investing Activities

Purchases of property and equipment

(2,732
)

(10,765
)
Capitalization of website development costs

(3,045
)

(2,074
)
Cash paid for acquisition, net of cash acquired

(21,056
)

(19,139
)
Investments in certificates of deposit

—

(134,808
)
Maturities of certificates of deposit

111,692

122,800

Net cash provided by (used in) investing activities

84,859

(43,986
)
Financing Activities

Proceeds from exercise of stock options

995

1,456

Payment of finance lease obligations

(28
)

(21
)
Payment of withholding taxes and option costs on net share settlement of
restricted stock units and stock options

(8,708
)

(12,783
)
Net cash used in financing activities

(7,741
)

(11,348
)
Impact of foreign currency on cash, cash equivalents, and restricted cash

171

(97
)
Net increase (decrease) in cash, cash equivalents, and restricted cash

186,095

(5,880
)
Cash, cash equivalents, and restricted cash at beginning of period

70,723

37,558

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

$
256,818

$
31,678

Supplemental disclosure of cash flow information:

Cash paid for income taxes

$
875

$
153

Unpaid purchases of property and equipment

$
165

$
244

Capitalized stock-based compensation expense in website development and
internal-use software costs

$
1,323

$
950

Cash paid for operating lease liabilities

$
10,329

$
8,465


	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		Income (Loss)			Equity
Balance at December 31, 2020	$	—			94,310,309		$	94		19,076,500		$	19		$	242,181		$	129,412	$	1,880			373,586
Net income (loss)		(2,810	)		—			—		—			—			—			22,361		—			22,361
Stock–based compensation expense		—			—			—		—			—			14,929			—		—			14,929
Issuance of common stock upon exercise of stock options		—			93,455			—		—			—			258			—		—			258
Issuance of common stock upon vesting of restricted stock units		—			473,883			1		—			—			(1	)		—		—			—
Payment of withholding taxes on net share settlements of equity awards		—			(162,950	)		—		—			—			(5,041	)		—		—			(5,041	)
Conversion of common stock		—			929,597			1		(929,597	)		(1	)		—			—		—			—
Issuance of common stock upon for acquisition		—			3,115,282			3		—			—			103,642			—		—			103,645
Acquisition of a 51% interest in CarOffer, LLC		58,031			—			—		—			—			—			—		—			—
Foreign currency translation adjustment		—			—			—		—			—			—			—		(1,083	)		(1,083	)
Balance at March 31, 2021	$	55,221			98,759,576		$	99		18,146,903		$	18		$	355,968		$	151,773	$	797		$	508,655
Net income (loss)		(656	)		—			—		—			—			—			28,052		—			28,052
Stock–based compensation expense		—			—			—		—			—			15,253			—		—			15,253
Issuance of common stock upon exercise of stock options		—			36,027			—		—			—			140			—		—			140
Issuance of common stock upon vesting of restricted stock units		—			391,468			—		—			—			—			—		—			—
Payment of withholding taxes on net share settlements of equity awards		—			(126,703	)		—		—			—			(3,167	)		—		—			(3,167	)
Conversion of common stock		—			—			—		—			—			—			—		—			—
Foreign currency translation adjustment		—			—			—		—			—			—			—		248			248
Balance at June 30, 2021	$	54,565			99,060,368		$	99		18,146,903		$	18		$	368,194		$	179,825	$	1,045		$	549,181
Net income		68			—			—		—			—			—			29,199		—			29,199
Stock–based compensation expense		—			—			—		—			—			14,581			—		—			14,581
Issuance of common stock upon exercise of stock options		—			43,909			—		—			—			139			—		—			139
Issuance of common stock upon vesting of restricted stock units		—			338,509			—		—			—			—			—		—			—
Payment of withholding taxes on net share settlements of equity awards		—			(114,973	)		—		—			—			(3,106	)		—		—			(3,106	)
Conversion of common stock		—			1,676,061			2		(1,676,061	)		(2	)		—			—		—			—
Foreign currency translation adjustment		—			—			—		—			—			—			—		(738	)		(738	)
Balance at September 30, 2021	$	54,633			101,003,874		$	101		16,470,842		$	16		$	379,808		$	209,024	$	307		$	589,256

Balance at December 31, 2019	$	—			91,819,649		$	92		20,314,644		$	20		$	205,234		$	51,859	$	(350	)		256,855
Net income		—			—			—		—			—			—			12,696		—			12,696
Stock–based compensation expense		—			—			—		—			—			11,793			—		—			11,793
Issuance of common stock upon exercise of stock options		—			160,668			—		—			—			514			—		—			514
Issuance of common stock upon vesting of restricted stock units		—			308,303			1		—			—			(1	)		—		—			—
Payment of withholding taxes on net share settlements of equity awards		—			(106,934	)		—		—			—			(3,397	)		—		—			(3,397	)
Conversion of common stock		—			335,741			—		(335,741	)		—			—			—		—			—
Foreign currency translation adjustment		—			—			—		—			—			—			—		(493	)		(493	)
Balance at March 31, 2020	$	—			92,517,427		$	93		19,978,903		$	20		$	214,143		$	64,555	$	(843	)	$	277,968
Net income		—			—			—		—			—			—			7,131		—			7,131
Stock–based compensation expense		—			—			—		—			—			12,249			—		—			12,249
Issuance of common stock upon exercise of stock options		—			84,796			—		—			—			415			—		—			415
Issuance of common stock upon vesting of restricted stock units		—			375,645			—		—			—			—			—		—			—
Payment of withholding taxes and option costs on net share settlement of restricted stock units and stock options		—			(119,009	)		—		—			—			(2,389	)		—		—			(2,389	)
Conversion of common stock		—			3,748			—		(3,748	)		—			—			—		—			—
Foreign currency translation adjustment		—			—			—		—			—			—			—		481			481
Balance at June 30, 2020	$	—			92,862,607		$	93		19,975,155		$	20		$	224,418		$	71,686	$	(362	)	$	295,855
Net income		—			—			—		—			—			—			32,563		—			32,563
Stock–based compensation expense		—			—			—		—			—			11,684			—		—			11,684
Issuance of common stock upon exercise of stock options		—			31,523			—		—			—			66			—		—			66
Issuance of common stock upon vesting of restricted stock units		—			335,153			—		—			—			—			—		—			—
Payment of withholding taxes on net share settlements of equity awards		—			(111,370	)		—		—			—			(2,922	)		—		—			(2,922	)
Conversion of common stock		—			898,655			1		(898,655	)		(1	)		—			—		—			—
Foreign currency translation adjustment		—			—			—		—			—			—			—		1,013			1,013
Balance at September 30, 2020	$	—			94,016,568		$	94		19,076,500		$	19		$	233,246		$	104,249	$	651		$	338,259

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)


	Nine Months Ended September 30,
	2021			2020
Operating Activities
Consolidated net income	$	76,214		$	52,390
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Depreciation and amortization		29,487			8,779
Currency gain on foreign denominated transactions		(72	)		(32	)
Deferred taxes		5,774			14,769
Provision for doubtful accounts		727			1,742
Stock-based compensation expense		42,551			34,403
Amortization of deferred contract costs		9,643			8,595
Impairment of website development costs		2,351			—
Changes in operating assets and liabilities:
Accounts receivable, net		(51,595	)		5,954
Inventory		(4,057	)		—
Prepaid expenses, prepaid income taxes, and other assets		(2,970	)		7,104
Deferred contract costs		(6,522	)		(6,922	)
Accounts payable		24,548			(19,745	)
Accrued expenses, accrued income taxes, and other liabilities		4,808			1,726
Deferred revenue		3,390			(313	)
Lease obligations		786			356
Net cash provided by operating activities		135,063			108,806
Investing Activities
Purchases of property and equipment		(4,935	)		(2,732	)
Capitalization of website development costs		(4,145	)		(3,045	)
Cash paid for acquisitions, net of cash acquired		(64,273	)		(21,056	)
Investments in certificates of deposit		(90,000	)		—
Maturities of certificates of deposit		100,000			111,692
Net cash (used in) provided by investing activities		(63,353	)		84,859
Financing Activities
Proceeds from exercise of stock options		537			995
Payment of finance lease obligations		(29	)		(28	)
Payment of withholding taxes and option costs on net share settlement of restricted stock units and stock options		(11,314	)		(8,708	)
Repayment of line of credit		(14,250	)		—
Net cash used in financing activities		(25,056	)		(7,741	)
Impact of foreign currency on cash, cash equivalents, and restricted cash		(359	)		171
Net increase in cash, cash equivalents, and restricted cash		46,295			186,095
Cash, cash equivalents, and restricted cash at beginning of period		200,926			70,723
Cash, cash equivalents, and restricted cash at end of period	$	247,221		$	256,818
Supplemental disclosure of cash flow information:
Cash paid for income taxes	$	21,798		$	875
Unpaid purchases of property and equipment and internal-use software	$	504		$	165
Capitalized stock-based compensation expense in website development and internal-use software costs	$	2,212		$	1,323
Cash paid for operating lease liabilities	$	12,320		$	10,329
Obtaining a right-of-use asset in exchange for a finance lease liability	$	664		$	—
Obtaining a right-of-use asset in exchange for an operating lease liability	$	12,336		$	—
Issuance of stock for acquisition	$	103,645		$	—

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”), 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 online wholesale platform. The CarGurus marketplace gives consumers the confidence to purchase or sell a vehicle either online or in-person; and ~~used cars. Using~~gives dealerships the power to accurately price, effectively market, instantly acquire 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 and dealer reputation, as well as 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 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 the CarOffer, LLC (“CarOffer”) digital wholesale marketplace, in which it has a 51% interest. In addition to the United States, ithe Company t operates online marketplaces under the CarGurus brand in Canada and the United Kingdom. In the United Kingdom, it also operates as an independent brand the PistonHeads online marketplace, which it wholly owns. The Company also operated online marketplaces in Germany, Italy, and Spain until it ceased the operations of each of these marketplaces in the second quarter of 2020.~~In the United States and the United Kingdom, the Company also operates the Autolist and PistonHeads online marketplaces, respectively, as independent brands.~~

The Company has subsidiaries in the United States, Canada, Ireland, and the United Kingdom. Additionally, ~~the Company~~it has 2 reportable segments, United States and International. See Note 1413 of the Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.

2. Summary of Significant Accounting Policies

Basis of Presentation

The accompanying interim condensed consolidated financial statements (the “Unaudited Condensed Consolidated Financial Statements”) are unaudited. The Unaudited Condensed Consolidated Financial Statements and related disclosures have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”). Any reference in these notes to applicable guidance is meant to refer to GAAP as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting Standards Board (“FASB”).

The Unaudited Condensed Consolidated Financial Statements have also been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with 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 30, ~~2020~~2021 and December 31, ~~2019,~~2020, results of operations, comprehensive income, changes in shareholders’ equity for the three and nine months ended September 30, ~~2020~~2021 and ~~2019~~2020 and cash flows for the nine months ended September 30, ~~2020~~2021 and ~~2019.~~2020. These interim period results are not necessarily indicative of the results to be expected for any other interim period or the full year.

The Unaudited Condensed Consolidated Financial Statements should be read in conjunction with the Company’s audited consolidated financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, filed with the SEC on February ~~14, 2020~~12, 2021 (the “Annual Report”).

While the Company disclosed other non-current liabilities separately in the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2020, filed with the SEC on November 5, 2020, the accompanying Unaudited Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 present other non-current liabilities with accrued expenses, accrued income taxes and other current liabilities to conform to the current year presentation, as other non-current liabilities did not meet the threshold for separate disclosure.

Principles of Consolidation

The accompanying Unaudited Condensed Consolidated Financial Statements include the accounts of the Company and its subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

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. The Company has evaluated all subsequent events and determined that there are no material recognized or unrecognized subsequent events requiring ~~disclosure~~.disclosure.

Use of Estimates

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

~~Significant estimates relied upon in preparing these~~ ~~Unaudited Condensed Consolidated Financial Statements~~ include revenue recognition, allowance for doubtful accounts and sales allowances, variable consideration, the recoverability of long-lived assets, the valuation and recoverability of goodwill and intangible assets, the expensing and capitalization of product, technology, and development costs for website development and internal‑use software, and the recoverability of the Company’s net deferred tax assets and related valuation allowance. Accordingly, the Company considers these to be its critical accounting policies.

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 recorded in the period in which they become known.

Significant estimates relied upon in preparing the Unaudited Condensed Consolidated Financial Statements include the determination of sales allowance and variable consideration in the Company’s revenue recognition, allowance for doubtful accounts, the valuation of a redeemable noncontrolling interest, the valuation of equity and liability-classified compensation awards under ASC 718, the expensing and capitalization of product, technology, and development costs for website development and internal‑use software, the valuation and recoverability of goodwill and intangible assets and other long-lived assets, and the recoverability of the Company’s net deferred tax assets and related valuation allowance. Accordingly, the Company considers these to be its critical accounting policies, and believes that of the Company’s significant accounting policies, these policies involve the greatest degree of judgment and complexity.

Concentration of Credit Risk

The 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, investments, and trade accounts receivable.

The Company maintains its cash, cash equivalents, and investments principally with accredited financial institutions of high credit standing. Although the Company deposits its cash, cash equivalents, and investments with multiple financial institutions, its deposits may often exceed governmental insured limits.

Credit risk with respect to accounts receivable is dispersed due to the large number of customers. The Company routinely assesses the creditworthiness of its customers. The Company generally has not experienced any material losses related to receivables from individual customers, or groups of customers. The Company does not require collateral. 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 accounts receivable.

For the three and nine months ended September 30, 2021 and 2020, ~~and 2019,~~ 0 individual customer accounted for more than 10% of total revenue.

As of September 30, ~~2020~~2021, , 2 customers ~~each~~ accounted for ~~approximately 10%~~30% and 15% of net accounts ~~receivable.~~receivable, respectively. As of December 31, ~~2019,~~ 2020, 1 customer accounted for approximately ~~18%~~10% of net accounts receivable.

Included in net accounts receivable at September 30, ~~2020~~2021 and December 31, ~~2019,~~2020 are ~~$6,869~~$6,694 and ~~$8,880,~~$7,426, respectively, of unbilled accounts receivable relating primarily ~~related~~ to advertising customers ~~that are generally~~ billed ~~within~~in a ~~quarter~~period subsequent to services ~~being~~ 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~~. Statements. As of September 30, ~~2020,~~2021, the Company’s significant accounting policies and estimates, which are detailed in the Annual Report, have not changed, other than those impacted by ~~new accounting standards~~the acquisition of a 51% interest in CarOffer and recently issued equity awards, as described below. ~~These changes were not material.~~

Redeemable Noncontrolling Interest

~~Allowance for Credit Losses~~

TIn connection with the Company’s acquisition of a he51% interest in CarOffer on January 14, 2021, the Company ~~is exposed~~became a party with the noncontrolling equity holders of CarOffer to ~~credit losses primarily through its trade accounts receivable. The Company determines~~ the ~~required allowance for expected credit losses using information such as historical loss trends, current conditions, and reasonable and supportable forecasts of economic conditions such as the impacts~~CarOffer Operating Agreement (as defined in Note 4 of the ~~novel strain of coronavirus that surfaced~~Unaudited Condensed Consolidated Financial Statements included elsewhere in ~~Wuhan, China~~this Quarterly Report), which, among other matters, sets forth certain put and call rights described in ~~December 2019 and was subsequently declared a pandemic by the World Health Organization (“COVID-19”). Amounts are charged against the allowance when it is determined that expected credit losses may occur.~~

~~In light~~Note 4 of the ~~COVID-19 pandemic,~~Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report. The CarOffer Operating Agreement provides the Company ~~assessed~~with the ~~implications on accounts receivable~~right to purchase, and ~~increased its allowance for doubtful accounts~~the noncontrolling equity holders with the right to $~~610~~ ~~as of September 30, 2020 as compared to $240 as of December 31, 2019. The increase in account delinquencies due~~sell to the ~~COVID-19 pandemic resulted~~Company, the noncontrolling CarOffer equity holders’ equity interests in ~~$1,742~~CarOffer at a contractually defined formulaic purchase price, which is based on a multiple of ~~bad debt expense and $1,372 of write offs, net of recoveries for~~earnings. As the ~~nine months ended September 30, 2020.~~

~~Below~~purchase is ~~a summary~~contingently redeemable at the option of the ~~changes~~noncontrolling equity holders, the Company classifies the carrying amount of the redeemable noncontrolling interests in the ~~Company’s allowance for doubtful accounts for the nine months ended September 30, 2020:~~

Balance at
Beginning of
Period

Provision

Write–offs,
Net of
Recoveries

Balance at
End of Period

Nine Months Ended September 30, 2020

$
240

$
1,742

$
(1,372
)

$
610

~~Recent Accounting Pronouncements Adopted~~

~~Goodwill and Intangibles~~

~~In January 2017, the FASB issued~~ ~~ASU~~ ~~2017-04,~~ ~~Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment~~ (“~~ASU~~ ~~2017-04”)~~. ASU 2017-04 simplifies the accounting for goodwill impairment by eliminating Step 2 of the goodwill impairment test. Under previous guidance, Step 2 of the goodwill impairment test required entities to calculate the implied fair value of goodwill in the same manner as the amount of goodwill recognized in a business combination by assigning the fair value of a reporting unit to all of the assets and liabilities of the reporting unit. The carrying value in excess of the implied fair value was recognized as goodwill impairment. Under ASU 2017-04, goodwill impairment is recognized based on Step 1 of the goodwill impairment test, which calculates the carrying value in excess of the reporting unit’s fair value. The standard was effective beginning in January 2020, with early adoption permitted. The Company adopted the guidance on January 1, 2020 and applied it on a prospective basis. The adoption did not have a material impactmezzanine section on the Unaudited Condensed Consolidated ~~Financial Statements.~~

~~Credit Losses~~

~~In June 2016,~~Balance Sheet, which is presented above the ~~FASB issued ASU 2016-13,~~ ~~Financial Instruments-Credit Losses (Topic 326): Measurement~~equity section and below the liabilities section. As of ~~Credit Losses on Financial Instruments~~ (“~~ASU~~ 2016-13”). ASU 2016-13 and its subsequent related updates establish a forward-looking “expected loss model” that requires entities to estimate current expected credit losses on accounts receivable and financial instruments by using all practical and relevant information. ASU 2016-13 and its subsequent related updates were effective for fiscal years beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. The Company adopted the ~~guidance on January 1, 2020 and applied it on a prospective basis. The adoption did not have a material impact on~~date of Closing (as defined in Note 4 of the Unaudited Condensed Consolidated Financial ~~Statements.~~Statements included elsewhere in this Quarterly Report), the noncontrolling interest was recognized at fair value computed using the Least Square Monte Carlo Simulation approach. Significant inputs to the model include market price of risk, volatility, correlation and risk-free rate.

Subsequent to the Company’s acquisition of the 51% interest on January 14, 2021, the redeemable noncontrolling interest is measured at the greater of the amount that would be paid if settlement occurred as of the balance sheet date based on the contractually defined redemption value and its carrying amount adjusted for net income (loss) attributable to the noncontrolling interest. Adjustments to the carrying value of the redeemable noncontrolling interest resulting from changes in the redemption value are recorded through retained earnings in the Unaudited Condensed Consolidated Balance Sheet.

Revenue Recognition – Wholesale and Other Revenue and Inventory

The Company generates wholesale and other revenue primarily from revenue relating to the wholesale sale of automobiles, display advertising revenue from auto manufacturers and other auto-related brand advertisers and revenue from partnerships with financing services companies. CarOffer revenue is comprised entirely of wholesale revenue.

Wholesale revenue includes transaction fees earned by CarOffer from facilitating the purchase and sale of vehicles between dealers, where CarOffer collects fees from both the buyer and seller. CarOffer also sells vehicles to dealers that CarOffer acquires at other marketplaces or directly from consumers – in these instances, CarOffer collects a transaction fee from the buyer. CarOffer also charges the buyer fees to perform inspection and transportation services for all wholesale transactions.

For facilitating the purchase and sale of vehicles between dealers, CarOffer generally does not control the vehicle and therefore acts as an agent in the transaction. Revenue earned from the fees for facilitating these transactions is recognized at a point in time when the vehicle is sold and revenue is recognized on a net basis.

For vehicles sold to dealers that are acquired at other marketplaces, CarOffer generally does not control the vehicle and therefore acts as an agent in the transaction. Revenue earned from the fees for facilitating these transactions is recognized at a point in time when the vehicle is sold and revenue is typically recognized on a net basis. In these situations, the inventory is recorded on the balance sheet for the short period of time CarOffer possesses the vehicle title and is valued at the lower of cost or net realizable value.

For vehicles sold to dealers that are acquired directly from consumers, CarOffer is deemed to control the vehicle and therefore is deemed to be the principal in the transaction. Revenue earned from the fees for facilitating these transactions is recognized point in time when the vehicle is sold and revenue is recognized on a gross basis. In these situations, the inventory is recorded on the balance sheet and is valued at the lower of cost or net realizable value.

In certain circumstances, the vehicle may be arbitrated. For the majority of arbitrations, the vehicle is rematched to new buyers. In these situations, CarOffer is not deemed to control the vehicle and therefore is deemed to be an agent in the transaction. Revenue earned from the fees for facilitating these transactions is recognized at a point in time when the vehicle is sold and revenue is recognized on a net basis. In other limited situations, during an arbitration process, CarOffer acquires vehicles in transactions for which it is deemed to control the vehicle and therefore is deemed to be the principal in the transaction. Revenue earned from the fees for facilitating these transactions is recognized point in time and revenue is recognized on a gross basis.In these limited situations, the inventory is recorded on the balance sheet and is valued at the lower of cost or net realizable value.

For inspection and transportation services, CarOffer leverages a network of third-party inspection service providers and transportation carriers. CarOffer is deemed to control both inspection and transportation services as it is primarily responsible for fulfillment and therefore acts as a principal in the transaction. Revenue from fees for inspection services is recognized at the point in time when the inspection is performed and revenue from fees for transportation services is recognized over time as delivery is completed. Revenue from both inspection and transportation services is recognized on a gross basis. Unearned revenue related to unsatisfied performance obligations is recorded as deferred revenue.

Stock‑Based Compensation

For stock‑based awards granted under the Company’s stock‑based compensation plans, the fair value of each award is determined on the date of grant.

For restricted stock units (“RSUs”) granted subject to service-based vesting conditions, the fair value is determined based on the closing price of the Company’s Class A common stock, par value $0.001 per share (the “Class A common stock”), as reported on the Nasdaq Global Select Market on the date of grant. RSUs granted subject to service-based vesting conditions generally vest over a four-year requisite service period.

For RSUs granted subject to market-based vesting conditions, the fair value is determined using the Monte Carlo simulation lattice model. The determination of the fair value using this model is affected by the Company’s stock price performance relative to the companies listed on the S&P 500 as of December 31, 2020 and a number of assumptions including volatility, correlation coefficient, risk-free interest rate and expected dividends. RSUs granted subject to market-based vesting conditions vest upon achievement of specified levels of market conditions.

For stock options granted, the fair value is determined on the date of grant using the Black‑Scholes option‑pricing model. The determination of the fair value is affected by the Company’s stock price and a number of assumptions including volatility, term, risk-free interest rate and dividend yield. Stock options granted generally have a term of ten years from the date of grant and generally vest over a four-year requisite service period.

In connection with the Company’s acquisition of a 51% interest in CarOffer, the then-outstanding unvested incentive units (“CO Incentive Units”) of CarOffer and unvested Class CO CarOffer units (“the Subject Units”) remained outstanding and will vest over the requisite service periods as discussed below.

Grants of the CO Incentive Units are subject to the CarOffer 2020 Equity Incentive Plan, adopted effective November 24, 2020 (the “2020 CO Plan”), the applicable award agreement, and the CarOffer Operating Agreement. Following the Company’s acquisition of the 51% interest in CarOffer on January 14, 2021, remaining unvested incentive interests will vest over a period of three (3) years, one third each on the first, second, and third anniversaries of January 14, 2021, provided that a grantee’s continuous service to CarOffer has not terminated on the applicable vesting date. Under the terms of the grants, vesting of unvested incentive interests is accelerated in the event of (i) a change of control of CarOffer (which, for the avoidance of doubt, does not include the Company’s acquisition of the 51% interest on January 14, 2021), (ii) the death or disability of the grantee, (iii) termination of the grantee’s employment with CarOffer without cause, or (iv) termination of grantee’s employment by the grantee for good reason. Upon termination of a grantee’s continuous service to CarOffer voluntarily by the grantee (other than for good reason) or by CarOffer for cause, all of such grantee’s unvested incentive interests are forfeited. In addition, if a grantee’s continuous service terminates, then CarOffer has the option to repurchase any outstanding incentive interests from the grantee.

In addition to the 2020 CO Plan, on December 9, 2020 CarOffer entered into a Vesting Agreement (the “Vesting Agreement”) regarding the vesting of CarOffer equity interests beneficially owned by Bruce Thompson, the founder and CEO of CarOffer, and certain affiliated persons (the “T5 Holders”) in connection with the Company’s then-anticipated acquisition of a 51% interest in CarOffer. Pursuant to the Vesting Agreement, 432,592 Subject Units beneficially owned by the T5 Holders will vest in 3 (3) equal installments on the first, second, and third anniversary of the closing of the CarOffer Acquisition. As more particularly described in the Vesting Agreement, unvested Subject Units are subject to forfeiture in the event that Mr. Thompson’s relationship with CarOffer terminates other than in the event of a termination without cause (as defined in the Vesting Agreement) or due to Mr. Thompson’s death or disability. The Vesting Agreement also provides for acceleration of any unvested Subject Units in the event of the termination of Mr. Thompson’s employment with CarOffer without cause, Mr. Thompson’s death or disability, or the consummation of an eligible liquidity event (as defined in the Vesting Agreement).

In connection with the Closing of the Company’s acquisition of the 51% interest in CarOffer, CarOffer reserved 228,571 incentive units (the "2021 Incentive Units") for purposes of establishing an employee incentive equity plan. Thereafter, CarOffer formed CarOffer Incentive Equity, LLC (“CIE”), a Delaware manager-managed limited liability company managed by the Company, and established the CIE 2021 Equity Incentive Plan (the “2021 CO Plan). The 2021 CO Plan and related documentation, including the applicable award agreement, a vesting agreement between CarOffer and CIE, and the CarOffer Operating Agreement, provide for an incentive equity grant structure whereby 2021 Incentive Units will be granted to CIE and 2021 CO Plan grantees will receive an associated equity interest in CIE (the “CIE Interest”), with back-to-back vesting between the 2021 Incentive Units and the associated CIE Interest. Subject to any modifications as may be approved by the CarOffer Board of Managers in its discretion, grants under the 2021 CO Plan will vest over a period of three (3) years from the grant date, one third each on the first, second, and third anniversaries of the applicable grant date, provided that a grantee’s continuous service to CarOffer has not terminated on the applicable grant date. Upon termination of a grantee’s continuous service to CarOffer, all of such grantee’s unvested 2021 Incentive Units are forfeited. As of September 30, 2021 there had not been any grants of 2021 Incentive Units under the 2021 CO Plan.

CO Incentive Units, Subject Units and 2021 Incentive Units are liability-classified awards because the awards can be put to the Company at a formula price such that the holders do not bear the risks and rewards associated with equity ownership. For liability-classified awards, the fair value is determined on the date of issuance using a Least Square Monte Carlo simulation model. The determination of the fair value is affected by CarOffer’s equity value, EBITDA, Excess Parent Capital (as defined in the CarOffer Operating Agreement), and revenue forecasts that drive the exercise price of future call/put rights, as well as a number of assumptions including market price of risk, volatility, correlation, and risk-free interest rate. Liability-classified awards are remeasured to fair value each period until settlement.

The Company issues shares for RSUs and stock option exercises out of its shares available for issuance. The Company issues CO Incentive Units out of CarOffer’s units available for issuance. The Company accounts for forfeitures when they occur.

The Company recognizes compensation expense on a straight-line basis over the requisite service period for each separate vesting portion of the award, with the amount of compensation expense recognized at any date at least equaling the portion of the grant-date fair value of the award that is vested at that date.

The tax effect of differences between tax deductions related to stock compensation and the corresponding financial statement expense compensation are recorded to tax expense. Excess tax benefits recognized on stock‑based compensation expense are classified as an operating activity in the Unaudited Condensed Consolidated Statements of Cash Flows.

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.

Income Taxes

In December 2019, the FASB issued ASU 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes (“(“ASU 2019-12”). ASU 2019-12 simplifies the accounting for income taxes by removing several exceptions in the current standard and adding guidance to reduce complexity in certain areas, such as requiring that an entity reflect the effect of an enacted change in tax laws or rates in the annual effective tax rate computation in the interim period that includes the enactment date. The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The Company ~~is currently assessing~~adopted the guidance on January 1, 2021. The adoption did not have an impact ~~that adopting this guidance will have~~ on ~~its~~the Unaudited Condensed Consolidated Financial Statements.

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 September 30, 2021, there are no new accounting pronouncements that the Company is considering adopting.

The Company provides disaggregation of revenue based on the ~~United States~~marketplace subscription versus ~~International geographical region~~wholesale and other revenue classification and based on geographic region in the ~~marketplace subscription versus advertising and other revenue classification~~table above as it 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”) 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 September 30, ~~2020~~2021 was approximately ~~$15.6~~$12.2 million, which the Company expects to recognize over the next 12 months.

For contracts with an original expected duration of one year or less, the Company has applied the practical expedient available under Topic 606 to not disclose the amount of transaction price allocated to unsatisfied performance obligations as of September 30, ~~2020.~~2021. For performance obligations not satisfied as of September 30, ~~2020,~~2021, and to which this expedient applies, the nature of the performance obligations, the variable consideration and any consideration from contracts with customers not included in the transaction price ~~are~~is consistent with performance obligations satisfied as of September 30, ~~2020.~~2021.

Revenue recognized during the three months ended September 30, 2021 and 2020 and ~~2019 and~~the nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, from amounts included in deferred revenue at the beginning of the period, was approximately ~~$8,195, $8,479, $9,984~~$13,120, $8,195, $9,137 and ~~$8,811,~~$9,984, respectively.

In response to the COVID-19 pandemic, the Company reduced the subscription fees for paying dealers by at least ~~50%~~50% on all marketplace subscriptions for the April and May 2020 service periods, as well as provided a fee reduction on all June 2020 marketplace subscriptions of ~~20%~~20% for paying dealers in the United States and Canada and ~~50%~~50% for paying dealers in the United Kingdom. These fee reductions resulted in a modification to contracts with initial contractual periods greater than one month. For any contract modified, the Company calculated the remaining transaction price and allocated the consideration over the remaining performance obligations. The Company also waived subscription fees for paying dealers in the United Kingdom for the December 2020 and February 2021 service periods. These fee reductions ~~materially and adversely impacted revenue for~~are included in the ~~second quarter of 2020 and~~Company’s variable consideration assessment. The fee reductions had an immaterial impact on the Company’s revenues for the ~~third quarter of~~three and nine months ended September 30, 2021, as well as the three months ended September 30, 2020. The fee reductions had a material impact on the Company’s revenues for the nine months ended September 30, 2020.

$62,992 of revenue and $178 of net income attributable to CarOffer is included in our Unaudited Condensed Consolidated ~~Financial Statements~~Income Statement for the three months ended September 30, 2021. $135,847 of revenue and $8,912 of net loss attributable to CarOffer is ~~not material.~~included in our Unaudited Condensed Consolidated Income Statement from the Closing date of January 14, 2021 to September 30, 2021.

5. Fair Value of Financial Instruments Including Cash, Cash Equivalents, and Investments

~~Certificates of deposit at December 31, 2019 had maturity dates of one year or less.~~

The Company measures eligible assets and liabilities at fair value with changes in value recognized in earnings. There were 0 liabilities that were measured at fair value as of September 30, ~~2020~~2021 and December 31, ~~2019.~~2020. 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. The Company did not elect to remeasure any of its existing financial assets and did not elect the fair value option for any financial assets transacted during the nine months ended September 30, ~~2020~~2021 or the year ended December 31, ~~2019.~~2020.

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 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 one year or less 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.

Certificates of deposit at September 30, ~~2020.~~2021 and at December 31, 2020 had maturity dates of one year or less.

Depreciation and amortization expense, excluding amortization of intangible assets and internal-use software, was ~~$1,937, $1,951, $7,367,~~$2,755, $1,937, $7,068 and ~~$5,173~~$7,367 for the three months ended September 30, ~~2020~~2021 and ~~2019~~2020 and the nine months ended September 30, 2021 and 2020, respectively. Amortization expense related to internal-use software was $47and ~~2019, respectively. Capitalized website development costs increased $4,368 due~~$61 for the three and nine months ended September 30, 2021. There was 0 amortization expense related to ~~continued investment in our product offerings.~~internal-use software for the three and nine months ended September 30, 2020.

~~was recorded.~~ ~~For the nine months ended September 30, 2020, $844 and $175 of the write-off of capitalized website development costs and deferred contract costs from international marketplaces~~ ~~were recorded as cost of revenue and sales and marketing, respectively, within the Unaudited Condensed Consolidated Income Statement.~~ ~~For the nine months ended September 30, 2020, $844 of the write-off of capitalized website development costs from international marketplaces~~ ~~was recorded as depreciation and amortization within the~~ ~~Unaudited Condensed Consolidated Statements of Cash Flows~~.

In the ordinary course of business, the Company enters into agreements with its customers, partners and service providers that include commercial provisions with respect to licensing, infringement, indemnification, and other common provisions. The Company does not, in the ordinary course, agree to guaranty or indemnification obligations for the Company under its contracts with customers. Based on historical experience and information known at September 30, ~~2020~~2021 and December 31, ~~2019,~~ 2020, the Company has not incurred any costs for guarantees or indemnities.

The following potentially dilutive common stock equivalents have been excluded from the calculation of diluted weighted-average shares outstanding for the three and nine months ended September 30, ~~2020~~2021 and ~~2019,~~2020, as their effect would have been anti-dilutive for the periods presented:

In addition, shares of Class A common stock potentially issuable under market-based performance awards of approximately 282,921 were excluded from the calculation of weighted average shares used to compute Diluted EPS for both the three and nine months ended September 30, 2021 as the market-based vesting conditions had not been achieved as of the reporting period end date and as such there were zero contingently issuable shares.

During the three months ended September 30, 2021, the Company recorded an income tax provision of $10,952, representing an effective tax rate of 27.3%. The effective tax rate for the three months ended September 30, 2021 was higher than the statutory tax rate of 21% principally due to state and local income taxes, shortfalls on the taxable compensation of share-based awards and the Section 162(m) excess officer compensation limitation, which became applicable in May 2021 upon the expiration of the transition period permitted following the Company’s initial public offering (“IPO”), partially offset by federal and state research and development tax credits.

During the nine months ended September 30, 2021, the Company recorded an income tax provision of $28,556, representing an effective tax rate of 26.4%. The effective tax rate for the nine months ended September 30, 2021 was higher than the statutory tax rate of 21% principally due to state and local income taxes, shortfalls on the taxable compensation of share-based awards and the Section 162(m) excess officer compensation limitation, which became applicable in May 2021 upon the expiration of the transition period permitted following the IPO, partially offset by federal and state research and development tax credits.

During the three months ended September 30, 2020, the Company recorded an income tax provision of ~~$11,209,~~$11,209, representing an effective tax rate of ~~25.6%~~25.6%. The effective tax rate for the three months ended September 30, 2020 was higher than the statutory tax rate of ~~21%~~21% principally due to state and local income taxes, partially offset by federal and state research and development tax credits.

During the three months ended September 30, 2019, the Company recorded income tax provision of $330, representing an effective tax rate of 3.1%. The effective tax rate for the three months ended September 30, 2019 was lower than the statutory tax rate of 21% principally due to excess stock deductions from the taxable compensation of share-based awards and federal and state research and development tax credits, partially offset by state and local income taxes.

During the nine months ended September 30, 2020, the Company recorded an income tax provision of ~~$13,312~~$13,312, representing an effective tax rate of ~~20.3%~~20.3%. The effective tax rate for the nine months ended September 30, 2020 was lower than the statutory tax rate of ~~21%~~21% principally due to a discrete benefit recognized as a result of the enactment of the ~~CARES~~Coronavirus Aid, Relief, and Economic Security Act ~~(as defined below)~~, excess stock deductions from the taxable compensation of stock-based awards and federal and state research and development tax credits, partially offset by state and local income taxes.

~~During the nine months ended September 30, 2019, the Company recorded an income tax benefit of $4,783, representing an effective tax rate of~~(19.8)%. The effective tax rate for the nine months ended September 30, 2019 was lower than the statutory tax rate of 21% principally due to the excess stock deductions from the taxable compensation of stock-based awards and federal and state research and development tax credits, partially offset by state and local income taxes.

The Company and its subsidiaries are subject to various ~~United States~~U.S. federal, state, and foreign income ~~taxes.~~tax examinations. The Company is currently ~~open~~not subject to income tax examination ~~by the Internal Revenue Service (the “IRS”) and state jurisdictions~~ for the tax years of 2017 and ~~after.~~prior as a result of applicable statute of limitations of the Internal Revenue Service (“IRS”) and state jurisdictions. The Company is currently open to examination in its foreign jurisdictions for tax years ~~2017~~2018 and after. In 2019, the IRS commenced a

federal employment tax audit with respect to the ~~2016,~~2018, 2017 and ~~2018~~2016 calendar years ~~which is still open.~~ and expanded the audit to cover tax year 2019 as part of the audit settlement in July 2021. In ~~July~~ 2020, the ~~IRS commenced a corporate income tax audit with respect to the 2017 calendar year, which is still open.In August 2020,~~State of New York ~~State~~ commenced a sales ~~and use~~ tax audit ~~with respect to 2014 – 2020 sales and use taxes, which is still open.~~

~~On March 27, 2020,~~of the United States enacted the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Among other things, the CARES Act includes a net operating loss (“NOL”) carryback provision allowing for NOLs from the 2018, 2019 and 2020 tax years to be used to offset taxable incomeCompany for the tax years ~~from 2013~~2014 to ~~2017. The Company filed a carryback claim, from~~2020, which it received a refund of $3,863 during the three months ended September 30, 2020, and will reduce its current gross NOL balance by approximately $18,723 and increase its deferred federal research and development credit by approximately $2,645. The Company does not expect this election to negatively impact its analysis on the valuation allowance for its NOLs or deferred federal research and development credit.

The CARES Act also updates the Tax Cuts and Jobs Act of 2017, allowing for the depreciation of leasehold improvements over 15 years, rather than 39 years, and eligibility for bonus depreciation, rather than non-eligibility for bonus depreciation. The Company has made an estimate for the impact as it relates to the 2019 tax year and will file its 2019 return in accordance with the updated guidance in the CARES Act.

The CARES Act includes other provisions that may be utilized if the Company meets the eligibility requirements. Although the Company continues to review and evaluate the potential impact and benefit of the CARES Act on its entire business, the Company has primarily focused its review on two provisions that affect both income taxes and non-income taxes. First, the CARES Act temporarily removes the 80% limitation on NOLs to offset taxable income for tax years prior to 2021. Second, the CARES Act allows for the deferral of the employer portion of the Social Security Tax for up to two years, with half due by December 31, 2021 and the remainder due by December 31, 2022.closed without adjustment.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

You should read the following discussion and analysis of our financial condition and results of operations together with our Unaudited Condensed Consolidated Financial Statements, and the related notes thereto, appearing elsewhere in this Quarterly Report on Form 10-Q, or Quarterly Report,, and our consolidated financial statements and the related notes and other financial information included in our Annual Report on Form 10-K for the year ended December 31, ~~2019,~~2020, filed with the Securities and Exchange Commission, or SEC, on February ~~14, 2020,~~12, 2021, or our Annual ~~Report~~.Report. Some of the information contained in this discussion and analysis or elsewhere in this Quarterly Report,, including information with respect to our plans and strategy for our business and our performance and future success, includes forward-looking statements that involve risks and uncertainties. See “Special Note Regarding Forward-Looking Statements.” You should review the “Risk Factors” section of this 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 SEC rules. These rules regarding non-GAAP financial measures require supplemental explanation and reconciliation, which are included elsewhere in this Quarterly ~~Report~~.Report. Investors should not consider non-GAAP financial measures in isolation from or in substitution for, financial information presented in compliance with United States generally accepted accounting principles, or GAAP.

CarGurus 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 online wholesale platform. The CarGurus marketplace gives consumers the confidence to purchase or sell a vehicle either online or in-person; and ~~used cars. Using~~gives dealerships the power to accurately price, effectively market, instantly acquire and quickly sell vehicles, all with a nationwide reach. We use our 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~~CarOffer digital wholesale marketplace, in which we have 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% 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, we also operate as an independent brand the PistonHeads online marketplace, which we wholly own. We also operated online marketplaces in Germany, Italy, and Spain until we ceased the operations of each of these marketplaces in the second quarter of 2020.~~In the United States and the United Kingdom, we also operate the Autolist and PistonHeads online marketplaces, respectively, as independent brands.~~

We have subsidiaries in the United States, Canada, Ireland, and the United Kingdom. Additionally, we have two reportable segments, United States and International. See Note 1413 of ~~our~~the Unaudited Condensed Consolidated Financial Statements included elsewhere in this Quarterly Report.

We generate marketplace subscription revenue from dealers primarily through Listings and Dealer Display ~~subscriptions, and advertising~~subscriptions. We generate wholesale and other revenue primarily from ~~automobile~~revenue relating to the wholesale sale of automobiles, display advertising revenue from auto manufacturers and other auto-related brand advertisers ~~as well as~~and revenue from partnerships with financing services companies. ~~We generated~~

Our revenue ~~of $147.5 million in~~for the three months ended September 30, ~~2020,~~2021 was $222.9 million, a ~~2% decrease~~51% increase from ~~$150.5~~$147.5 million of revenue in the three months ended September 30, ~~2019.~~ 2020. For the three months ended September 30, 2021, we generated consolidated net income of $29.3 million and Adjusted EBITDA of $62.5 million, compared to consolidated net income of $32.6 million and Adjusted EBITDA of $57.0 million for the three months ended September 30, 2020.

Our revenue for the nine months ended September 30, ~~2020~~2021 was ~~$399.9~~$612.0 million, a ~~7% decrease~~53% increase from ~~$430.8~~$399.9 million of revenue in the nine months ended September 30, ~~2019.~~

~~For the three months ended September 30, 2020, we generated net income of $32.6 million and our Adjusted EBITDA was $57.0 million, compared to net income of~~ 2020. ~~$10.4~~ ~~million and Adjusted EBITDA of $20.6 million, for the three months ended September 30, 2019.~~ For the nine months ended September 30, ~~2020,~~2021, we generated consolidated net income of $76.2 million and Adjusted EBITDA of $179.5 million, compared to consolidated net income of $52.4 million and ~~our Adjusted EBITDA was $112.2 million, compared to net income of $29.0 million and~~ Adjusted EBITDA of ~~$51.9~~$112.2 million for the nine months ended September 30, ~~2019.~~ 2020.

See “Adjusted EBITDA” 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.

~~In December 2019, a novel strain of coronavirus, now referred to as~~The COVID-19 ~~surfaced in Wuhan, China. The virus was declared a pandemic by the World Health Organization and has spread globally. This~~ pandemic has caused an international health crisis and resulted in significant disruptions to the global economy as well as businesses and capital markets around the world.

~~The~~ Our operations have been materially adversely affected by a range of factors related to the COVID-19 ~~pandemic and its adverse effects have become widespread in the locations where~~pandemic. In March 2020, we ~~and our customers, suppliers and third-party business partners conduct business and as a result, we have experienced disruptions in our operations. For example, in March, we~~temporarily closed all of our offices ~~(including our corporate headquarters)~~ and began requiring our employees to work remotely (subject to limited exceptions) until further ~~notice.~~notice, which has disrupted how we operate our business. In addition, in an effort to limit the spread of COVID-19, many countries, as well as states and localities in the United States, implemented or mandated ~~and continue to implement or mandate~~ significant restrictions on travel and commerce, shelter-in-place or stay-at-home orders, and business closures. Fluctuation in infection rates in the regions in which we operate has resulted in periodic changes in restrictions that vary from region to region and may require rapid response to new or reinstated orders. Many of these orders resulted in 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 ~~the agencies that process the registration of automotive titles. While~~ certain jurisdictions, including many within the United States, have implemented or are implementing policies with the goal of re-opening these markets, restrictions may be re-imposed in these markets due to increases

~~in COVID-19 cases.~~service providers upon which dealerships rely. In addition, these restrictions and ~~concerns~~continued concern about the spread of the disease have impacted car shopping by consumers and disrupted the operations of car dealerships, which has adversely affected the market for automobile purchases. ~~While consumer demand has improved since the initial impact of~~The automotive industry is also facing inventory supply problems, including for reasons attributable to the COVID-19 pandemic and other macroeconomic issues, such as the ~~automotive industry is experiencing, and may continue to experience, inventory supply problems, especially resulting from wholesale used-car auction closures and escalating auction prices,~~global semiconductor chip shortage, which have adversely affected the ~~level~~amount of ~~used-car~~ inventory ~~held by our paying dealers and displayed~~ on our websites.

As a result of the travel and commerce restrictions and the impact on their businesses, a number of our dealer customers temporarily closed or are operating on a reduced capacity, and many dealerships are facing significant financial challenges.Such closures and circumstances led some paying dealers to cancel their subscriptions and/or reduce their spending with us, which has had ~~and may continue to have~~ a material adverse effect on our revenues and onour business.

Further, because of the significant financial challenges that dealerships have faced, we took measures to help our paying dealers maintain their business health during the COVID-19 pandemic, including by proactively reducing the subscription fees for paying dealers for certain service periods. As a result, the level of fees we received from paying dealers materially decreased during the year ended December 31, 2020, resulting in a material decline in our revenue and a material adverse effect to our business. In addition, despite our proactive fee reductions during the second quarter of 2020, we experienced increased customer cancellation rates and slowed paying dealer additions, which materially and adversely affected our business ~~financial condition and results of operations.~~for the year ended December 31, 2020. We have also experienced ~~an increase in~~increased account delinquencies from dealer customers challenged by the COVID-19 pandemic that failed to pay us on time or at all.

~~Further, because~~ However, since the second quarter of ~~the significant financial challenges that dealerships have faced and continue to face as a result of the COVID-19 pandemic, we took measures to help our~~2020, cancellations by paying dealers ~~maintain their business health during~~have begun to stabilize, which we believe resulted from the ~~COVID-19 pandemic. We proactively reduced the subscription fees for paying dealers by at least 50% on all marketplace subscriptions for the April and May 2020 service periods,~~resumption of consumer activity as well as the fee reductions that we provided ~~a fee reduction on all June 2020 marketplace subscriptions of 20%~~to our customers. Additionally, while we suspended charging subscription fees for paying dealers in the United ~~States~~Kingdom for the February 2021 service period, during the three and ~~Canada and 50% for paying dealers~~nine months ended September 30, 2021, we returned to normal contractual billings in all other markets. Although the ~~United Kingdom~~. ~~These~~ fee reductions ~~resulted in~~had a modification to contracts with initial contractual periods greater than one month. For any contract modified, we calculated the remaining transaction price and allocated the consideration over the remaining performance obligations. ~~These fee reductions materially and adversely impacted~~material adverse effect on our revenue for the ~~second quarter of~~year ended December 31, 2020, they did not have a material adverse impact on the three and ~~had an immaterial impact for the third quarter of 2020.~~nine months ended September 30, 2021.

These effects from the COVID-19 pandemic on our revenue caused us to implement certain cost-savings measures across our ~~business.~~business, which disrupted our business and operations during the year ended December 31, 2020. For example, during the second quarter of 2020, we initiated a cost-savings initiative, or the Expense Reduction Plan, that included a reduction in our workforce, ~~of approximately 13%, restricted future hiring, and limited~~a limitation in discretionary spend across our business, ~~including by eliminating, reducing or pausing certain vendor relationships~~ and our ceasing certain international operations and expansion efforts. In particular, we ceased marketplace operations in Germany, Italy, and Spain, and halted any new international expansion efforts, which we believe will allow us to focus our financial and human capital resources on our more established international markets in Canada and the United Kingdom. We also reduced consumer marketing across both algorithmic traffic acquisition and brand spend during the ~~second and third quarters of~~year ended December 31, 2020 in comparison to the ~~second and third quarters of~~year ended December 31, 2019 in an effort to reduce expenses and as a result of suppressed dealer inventory and the resulting reduced demand for leads by ~~dealers~~.

~~In May, cancellations by paying dealers began to stabilize, which~~dealers. However, since the second quarter of 2020, we ~~believe resulted from the resumption~~have increased our consumer marketing expenses, though remaining short of ~~consumer activity as well as the fee reductions that we provided to our customers. In July, we returned to normal contractual billings in all markets. Additionally,~~pre-pandemic levels, as consumer activity increased and governments ~~began to implement phased~~implemented re-opening ~~policies, we sequentially increased our consumer marketing expenses each month during the second and third quarters of 2020.~~policies.

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. The International segment derives revenues from marketplace subscriptions ~~advertising services,~~ and other revenues from customers outside of the United States. International markets perform differently from the United States market due to a variety of factors, including our operating history in each market, our rate of investment, market size, market maturity, competition and other dynamics unique to each country. The metrics presented below exclude CarOffer as we believe such metrics are either not applicable for the CarOffer business or do not provide a meaningful way to evaluate the CarOffer business.

For each of our websites, we define a monthly unique user as an individual who has visited 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 ~~one~~any of our websites during a calendar month. If an individual accesses 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 or map directions to the dealership.

We define monthly sessions as the number of distinct visits to our websites 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 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 U.K. websites, and (iv) Central European Time (or Central European Summer Time when daylight savings is observed) for our Germany, Italy, and Spain websites, which ceased operations in the second quarter of 2020.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, 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.

We define a paying dealer as a dealer account with an active, paid marketplace subscription at the end of a defined period. The number of paying dealers we have is important to us and we believe it provides valuable information to investors because it is indicative of the value proposition of our marketplace products, as well as our sales and marketing success and opportunity, including our ability to retain paying dealers and develop new dealer relationships.

We define QARSD, which is measured at the end of a fiscal quarter, as the marketplace subscription revenue during that trailing quarter divided by the average number of paying dealers in that marketplace during the quarter. We calculate the average number of paying dealers for a period by adding the number of paying dealers at the end of such period and the end of the prior period and dividing by two. This information is important to us, and we believe it provides useful information to investors, because we believe that our ability to grow QARSD is an indicator of the value proposition of our products and the return on investment, or ROI, that our paying dealers realize from our products. In addition, increases in QARSD, which we believe reflect the value of exposure to our engaged audience in relation to subscription cost, are driven in part by our ability to grow the volume of connections to our users and the quality of those connections, which result in increased opportunity to upsell package levels and cross-sell additional products to our paying dealers.

To provide investors with additional information regarding our financial results, we monitor and have presented within this Quarterly Report, Adjusted EBITDA, which is a non‑GAAP financial measure. This non‑GAAP financial measure is not based on any standardized methodology prescribed by United States generally accepted accounting principles, or GAAP, and is not necessarily comparable to similarly titled measures presented by other companies.

We define Adjusted EBITDA as consolidated net income, adjusted to exclude: depreciation and amortization, stock‑based compensation expense, acquisition-related expenses, restructuring expenses, other income, net, ~~and the~~ provision for ~~(benefit from)~~ income ~~taxes.~~taxes, and net income attributable to the minority interest in acquired entities. We have presented Adjusted EBITDA within this Quarterly Report, because it is a key measure 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 Adjusted EBITDA can produce a useful measure for period‑to‑period comparisons of our business.

We use Adjusted EBITDA to evaluate our operating performance and trends and make planning decisions. We believe Adjusted EBITDA helps identify underlying trends in our business that could otherwise be masked by the effect of the expenses that we exclude. Accordingly, we believe that Adjusted EBITDA provides 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. In addition, we evaluate our Adjusted EBITDA in relation to our revenue. We refer to this as Adjusted EBITDA margin and define it as Adjusted EBITDA divided by total revenue.

Our Adjusted EBITDA is 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 Adjusted EBITDA rather than consolidated net income, which is the most directly comparable GAAP equivalent. Some of these limitations are:

Because of these limitations, we consider, and you should consider, Adjusted EBITDA together with other operating and financial performance measures presented in accordance with GAAP.

The following table presents a reconciliation of Adjusted ~~EBITDA~~EBITDA to consolidated net income, the most directly comparable measure calculated in accordance with GAAP, for each of the periods presented.

Three Months Ended
September 30,

Nine Months Ended
September 30,

2020

2019⁽¹⁾

2020

2019⁽¹⁾

Reconciliation of Adjusted EBITDA:

(in thousands)

(in thousands)

Net income

$
32,563

$
10,384

$
52,390

$
28,975

Depreciation and amortization

2,432

2,118

8,779

5,659

Stock-based compensation expense

11,030

8,761

34,634

25,390

Acquisition-related expenses

—

34

968

125

Restructuring expenses⁽²⁾

—

—

3,514

—

Other income, net

(205
)

(1,010
)

(1,407
)

(3,505
)
Provision for (benefit from) income taxes

11,209

330

13,312

(4,783
)
Adjusted EBITDA

$
57,029

$
20,617

$
112,190

$
51,861

(1)

Excludes stock-based compensation expense of $753 for the nine months ended September 30, 2020 related to the Expense Reduction Plan, as the amount is already included within the stock-based compensation line item in the Reconciliation of Adjusted EBITDA.

~~(1)~~

In December 2019, we revised our definition of Adjusted EBITDA to exclude the impact of acquisition-related expenses. This revised definition more accurately reflects management’s view of our business and financial performance. Adjusted EBITDA for the three and nine months ended September 30, 2019 has been restated for comparison purposes.

~~(2)~~

Excludes stock-based compensation expense of $753 for the nine months ended September 30, 2020 related to the expense reduction plan approved by our Board of Directors on April 13, 2020 to address the impact of the COVID-19 pandemic on our business, or the Expense Reduction Plan, as the amount is already included within the stock-based compensation line item in the Reconciliation of Adjusted EBITDA.

Components of Unaudited Condensed Consolidated Income Statements

We derive revenue from two ~~primary~~ sources: (1) marketplace subscription revenue, which consists primarily of Listings and Dealer Display subscriptions, and (2) ~~advertising~~wholesale and other revenue, which consists primarily of revenue relating to the wholesale sale of automobiles, display advertising revenue from auto manufacturers and other auto‑related brand advertisers ~~as well as~~and revenue from partnerships with financing services companies.

Marketplace Subscription Revenue

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

Our subscriptions for customers generally auto-renew on a monthly basis and are cancellable by dealers with 30 days’ advance notice at the end of the committed term, although during the second quarter of 2020 we did not require ~~dealers to provide~~ 30 days’ advance notice of termination ~~for~~from dealers who cancelled as a result of the COVID-19 pandemic. Subscription pricing is determined based on a dealer’s inventory size, region, and our assessment of the connections and ROI the platform will provide them and is subject to discounts and/or fee reductions that we may offer from time to time. We also offer all dealers on our platform access to our Dealer Dashboard, which includes a performance summary, Dealer Insights tool, and user review management platform. Only dealers subscribing to a paid Listings package ~~also~~ have access to the Pricing Tool, ~~and~~ Market Analysis tool and our IMV Scan tool.

In addition to displaying inventory in our marketplace and providing access to the Dealer Dashboard, we offer dealers subscribing to certain of our Listings packages other subscription advertising and customer acquisition products and enhancements, including ~~those~~Dealer Display, which is marketed under our Real-time Performance Marketing ~~suite, such as Dealer Display.~~suite. With Dealer Display, dealers can buy display advertising that appears in our marketplace, on other sites on the internet and/ and/or on Facebook, a highly converting social platform. Such advertisements can be targeted by the user’s geography, search history, CarGurus website activity (including showing a ~~user~~consumer relevant vehicles from a dealer’s inventory that the ~~user~~consumer has not yet discovered on our marketplace), 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 paid Listings packages for the Autolist website and paid Listings and display products for the PistonHeads website.

~~As a result of the COVID-19 pandemic, we experienced a material adverse impact on our marketplace revenue as paying dealers~~ ~~cancelled their subscriptions with us (including, in some cases, with our permission prior to the end of the applicable contract term and notice period) and~~ due to the fee reductions provided to customers in April, May and June in response to the COVID-19 pandemic, which resulted in reductions in the overall transaction price that were spread over the remaining contract term. In May, cancellations by paying dealers began to stabilize, which we believe resulted from the resumption of consumer activity as well as the fee reductions that we provided to our customers. In July 2020, we returned to normal contractual billings in all markets.

~~Advertising~~Wholesale and Other Revenue

~~Advertising~~Wholesale and other revenue consists ~~primarily~~of revenue relating to the wholesale sale of automobiles, which includes transaction fees earned by CarOffer from facilitating the purchase and sale of vehicles between dealers, where CarOffer collects fees from both the buyer and seller. CarOffer also sells vehicles to dealers that CarOffer acquires at other marketplaces or directly from consumers – in these instances, CarOffer collects a transaction fee from the buyer. CarOffer also charges the buyer fees to perform inspection and transportation services for all wholesale transactions.

Wholesale and other revenue also consists of non-dealer display advertising revenue from auto manufacturers and other auto-related brand advertisers sold on a 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. 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.

~~Advertising~~Wholesale and other revenue also includes revenue from partnerships with certain financing services companies pursuant to which we enable eligible consumers on our ~~United States~~CarGurus U.S. website to pre-qualify for financing on cars from dealerships that offer financing through such companies. ~~Our revenues~~We primarily generate revenue from these ~~financing~~ partnerships ~~are~~ based on ~~a funded-loan basis.~~the number of funded loans from consumers who pre-qualify with our lending partners through our site.

We also offer non-dealer display products for the Autolist and PistonHeads websites.

As a result of the COVID-19 pandemic, we experienced a material adverse impact on our advertising revenue as some advertisers cancelled or reduced their advertising with us (including, in certain cases, with our permission prior to the end of the applicable contract term). In May, cancellations by advertising customers began to stabilize, which we believe resulted from the resumption of ~~consumer activity.~~

~~In addition, a reduction in consumer visits to our sites during the COVID-19 pandemic resulted in the delivery of fewer impressions~~ ~~for our advertising customers than anticipated, which caused an adverse impact on our advertising revenue.~~ This impact was partially offset by the increase in consumer visits over the course of the second and third quarters to our sites as we increased our consumer marketing expenses in response to the recovery in ~~consumer and car shopping activity.~~

R~~evenue from partnerships with financing services companies was not adversely impacted by the COVID-19 pandemic.~~For a description of our revenue accounting policies, see “— Critical Accounting Policies and Significant Estimates.”

Cost of Revenue

Cost of revenue ~~primarily consists~~includes expenses incurred to support revenue relating to the wholesale sale of ~~costs~~automobiles. These expense include the expenses to facilitate the purchase and sale of vehicles between dealers and from fulfilling buy orders from dealers through the acquisition of vehicles at other marketplaces and directly from consumers. The primary expenses incurred for wholesale transactions include the expenses to transport and inspect vehicles, certain salaries, benefits, incentive compensation and stock-based compensation for employees directly involved in the fulfillment and support of transactions, allocated overhead expenses and other third-party expenses. In limited circumstances, typically during an arbitration process, CarOffer acquires vehicles in transactions for which it is deemed to control the vehicle and recognizes the cost of the vehicle through cost of revenue when the vehicle is sold.

Cost of revenue also includes expenses related to supporting and hosting our digital product offerings. These ~~costs~~expenses include salaries, benefits, incentive compensation, and stock-based compensation for our customer support team and third-party service provider ~~costs~~expenses such as advertising, data center and networking expenses, allocated overhead ~~costs,~~expense, depreciation expense associated with our property and equipment, and amortization of capitalized website development costs. 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. ~~Despite our implementation of several cost saving initiatives associated with the COVID-19 pandemic, we~~We expect these expenses to increase as we continue to scale our business and introduce new products.

Operating Expenses

Sales and Marketing

Sales and marketing expenses consist primarily of personnel and related expenses for our sales and marketing team, including salaries, benefits, incentive compensation, commissions, stock-based compensation, and travel ~~costs; costs~~expenses; 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; amortization of internal-use software; and allocated overhead ~~costs.~~expenses. A portion of our commissions that are related to obtaining a new contract is capitalized and amortized over the estimated benefit period of customer relationships. All other sales and marketing ~~costs~~expenses are expensed as incurred. We expect sales and marketing expenses to fluctuate from quarter to quarter as we respond to the COVID-19 pandemic and changes in the macroeconomic and competitive ~~landscape around~~landscapes affecting our existing dealers, consumer audience and ~~our~~ 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,~~expenses, consist primarily of personnel and related expenses for our development team, including salaries, benefits, incentive compensation, stock-based compensation and allocated overhead ~~costs.~~expense. Other than website development and internal-use software ~~costs~~expenses as well as other costs that qualify for capitalization, research and development ~~costs~~expenses are expensed as incurred. ~~Despite our implementation of several cost saving initiatives associated with the COVID-19 pandemic, we~~We expect product, technology, and development expenses to increase as we invest in additional engineering resourcing to develop new solutions and make improvements to our existing platform.

General and Administrative

General and administrative expenses consist primarily of personnel and related expenses for our executive, finance, legal, ~~human resources,~~people & talent, and administrative teams, including salaries, benefits, incentive compensation, and stock-based compensation, in addition to the ~~costs~~expenses associated with professional fees for external legal, accounting and other consulting services, insurance premiums, payment processing and billing ~~costs,~~expenses, and allocated overhead ~~costs.~~expenses. General and administrative ~~costs~~expenses are expensed as incurred. ~~Despite our implementation of several cost saving initiatives associated with the COVID-19 pandemic, we~~We expect general and administrative expenses to increase as we continue to scale our business.

Depreciation and Amortization

Depreciation and amortization expenses consist of depreciation on property and equipment and amortization of intangible assets.

Other Income, Net

Other income, net consists primarily of transition service agreement income, interest income earned on our cash, cash equivalents, and investments, sublease income and net foreign exchange gains and losses.

Provision for ~~(Benefit from)~~ 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 ~~recognized~~recorded a provision for income taxes for the three months ended September 30, 2021 and 2020 and ~~2019. We have recognized~~ a provision for income taxes for the nine months ended September 30, ~~2020~~2021 and ~~a benefit from income taxes for the nine months ended September 30, 2019.~~2020. 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. We regularly assess the need to record 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. Our valuation ~~allowance~~allowances against our net deferred tax assets as of September 30, ~~2020~~2021 and December 31, ~~2019 was~~2020 were both immaterial.

Results of Operations

The following table sets forth our selected consolidated income statements ~~of operations~~ data 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,					Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019			2021		2020		2021			2020
	(dollars in thousands)				(dollars in thousands)					(dollars in thousands)				(dollars in thousands)
Revenue:
Marketplace subscription	$	129,953	$	135,542	$	351,772	$	385,481		$	144,589	$	129,953	$	428,394		$	351,772
Advertising and other		17,519		14,920		48,126		45,282
Wholesale and other revenue											78,326		17,519		183,637			48,126
Total revenue		147,472		150,462		399,898		430,763			222,915		147,472		612,031			399,898
Cost of revenue		9,762		9,392		31,252		25,740			60,033		9,762		134,408			31,252
Gross profit		137,710		141,070		368,646		405,023			162,882		137,710		477,623			368,646
Operating expenses:
Sales and marketing		57,618		100,133		189,796		293,238			66,626		57,618		200,935			189,796
Product, technology, and development		20,758		17,745		65,729		51,063			26,539		20,758		79,333			65,729
General and administrative		14,279		12,322		44,297		36,622			20,414		14,279		67,095			44,297
Depreciation and amortization		1,488		1,166		4,529		3,413			9,227		1,488		25,916			4,529
Total operating expenses		94,143		131,366		304,351		384,336			122,806		94,143		373,279			304,351
Income from operations		43,567		9,704		64,295		20,687			40,076		43,567		104,344			64,295
Other income, net:
Interest income		174		759		1,053		2,247
Other income, net		31		251		354		1,258			143		205		426			1,407
Total other income, net		205		1,010		1,407		3,505
Income before income taxes		43,772		10,714		65,702		24,192			40,219		43,772		104,770			65,702
Provision for (benefit from) income taxes		11,209		330		13,312		(4,783	)
Net income	$	32,563	$	10,384	$	52,390	$	28,975
Provision for income taxes											10,952		11,209		28,556			13,312
Consolidated net income											29,267		32,563		76,214			52,390
Net income (loss) attributable to redeemable noncontrolling interest											68		—		(3,398	)		—
Net income attributable to common stockholders										$	29,199	$	32,563	$	79,612		$	52,390


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019			2021			2020			2021			2020
	(dollars in thousands)						(dollars in thousands)						(dollars in thousands)						(dollars in thousands)
Additional Financial Data:
Revenue
United States	$	138,412		$	141,637		$	376,164		$	407,050		$	211,554		$	138,412		$	581,149		$	376,164
International		9,060			8,825			23,734			23,713			11,361			9,060			30,882			23,734
Total	$	147,472		$	150,462		$	399,898		$	430,763		$	222,915		$	147,472		$	612,031		$	399,898
Income (Loss) from Operations
United States	$	46,462		$	19,956		$	82,061		$	51,456		$	41,931		$	46,462		$	111,515		$	82,061
International		(2,895	)		(10,252	)		(17,766	)		(30,769	)		(1,855	)		(2,895	)		(7,171	)		(17,766	)
Total	$	43,567		$	9,704		$	64,295		$	20,687		$	40,076		$	43,567		$	104,344		$	64,295

The following table sets forth our selected consolidated income statements ~~of operations~~ data as a percentage of revenue for each of the periods indicated. Amounts in tables below may not sum due to rounding.


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019			2021			2020			2021			2020
Revenue:
Marketplace subscription		88	%		90	%		88	%		89	%		65	%		88	%		70	%		88	%
Advertising and other		12			10			12			11
Wholesale and other revenue														35			12			30			12
Total revenue		100	%		100	%		100	%		100	%		100			100			100			100
Cost of revenue		7			6			8			6			27			7			22			8
Gross profit		93			94			92			94			73			93			78			92
Operating expenses:
Sales and marketing		38			67			48			67			30			39			33			47
Product, technology, and development		14			12			16			12			12			14			13			16
General and administrative		10			8			11			9			9			10			11			11
Depreciation and amortization		1			1			1			1			4			1			4			1
Total operating expenses		63			88			76			89			55			64			61			76
Income from operations		30			6			16			5			18			30			17			16
Other income, net:
Interest income		0			1			0			1
Other income, net		0			0			0			0			0			0			0			0
Total other income, net		0			1			0			1
Income before income taxes		30			7			16			6			18			30			17			16
Provision for (benefit from) income taxes		8			0			3			(1	)
Net income		22	%		7	%		13	%		7	%
Provision for income taxes														5			8			5			3
Consolidated net income														13			22			12			13
Net income (loss) attributable to redeemable noncontrolling interest														0			—			(1	)		—
Net income attributable to common stockholders														13	%		22	%		13	%		13	%


	Three Months Ended September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2020			2019			2021			2020			2021			2020
Additional Financial Data:
Revenue
United States		94	%		94	%		94	%		94	%		95	%		94	%		95	%		94	%
International		6			6			6			6			5			6			5			6
Total		100	%		100	%		100	%		100	%		100	%		100	%		100	%		100	%
Income (Loss) from Operations
United States		32	%		13	%		20	%		12	%		19	%		32	%		18	%		21	%
International		(2	)		(7	)		(4	)		(7	)		(1	)		(2	)		(1	)		(4	)
Total		30	%		6	%		16	%		5	%		18	%		30	%		17	%		16	%

For the three months ended September 30, 2021 and 2020

Revenue

Revenue by Source


	Three Months Ended September 30,						Change
	2021			2020			Amount		%
	(dollars in thousands)
Revenue
Marketplace subscription	$	144,589		$	129,953		$	14,636		11	%
Wholesale and other revenue		78,326			17,519			60,807		347
Total	$	222,915		$	147,472		$	75,443		51	%
Percentage of total revenue:
Marketplace subscription		65	%		88	%
Wholesale and other revenue		35			12
Total		100	%		100	%

Overall revenue increased by $75.4 million, or 51%, in the three months ended September 30, 2021 compared to the three months ended September 30, 2020. Wholesale and other revenue increased by 347% and marketplace subscription revenue increased by 11%.

Marketplace subscription revenue increased by $14.6 million in the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and ~~2019~~

~~Revenue~~

~~Revenue by Source~~

Three Months Ended
September 30,

Change

2020

2019

Amount

%

(dollars in thousands)

Revenue

Marketplace subscription

$
129,953

$
135,542

$
(5,589
)

(4
)%
Advertising and other

17,519

14,920

2,599

17

Total

$
147,472

$
150,462

$
(2,990
)

(2
)%
Percentage of total revenue:

Marketplace subscription

88
%

90
%

Advertising and other

12

10

Total

100
%

100
%

~~Overall~~represented 65% of total revenue ~~decreased by $3.0 million, or 2%, in~~for the three months ended September 30, ~~2020 compared to the three months ended September 30, 2019. Marketplace subscription revenue decreased by 4%, while advertising~~2021 and ~~other revenue increased by 17%.~~

~~Marketplace subscription revenue decreased by $5.6 million in the three months ended September 30, 2020 compared to the three months ended September 30, 2019 and represented~~ 88% of total revenue for the three months ended September 30, 2020. The increase in marketplace subscription revenue was due primarily to a 9% growth in our QARSD for paying dealers to $4,704 at September 30, 2021 from $4,302 at September 30, 2020. The increase in QARSD was due primarily to expansion across our dealer base. The expansion was driven by rate increases since the third quarter of 2020 and ~~90%~~product upgrades for existing dealers and signing on new dealers with higher average monthly recurring revenue.

Wholesale and other revenue increased by $60.8 million in the three months ended September 30, 2021 compared to the three months ended September 30, 2020 and represented 35% of total revenue for the three months ended September 30, ~~2019.~~ ~~The decrease was due primarily to a 9% decrease in the number of paying dealers to 30,162 at September 30, 2020 from 33,086 at September 30, 2019~~ ~~as paying dealers cancelled their subscriptions with us as a result of the impact of the COVID-19 pandemic.~~

~~Advertising~~2021 and ~~other revenue increased by $2.6 million in the three months ended September 30, 2020 compared to the three months ended September 30, 2019 and represented~~ 12% of total revenue for the three months ended September 30, ~~2020 and 10% of total revenue for the three months ended September 30, 2019.~~ 2020.The increase was due primarily to a ~~$2.9~~$63.0 million increase in ~~other~~wholesale revenue ~~primarily~~ due to ~~revenue from partnerships with financing services companies. The increase~~our acquisition of a 51% interest in ~~advertising~~CarOffer and ~~other revenue~~ was offset in part by a ~~$0.3~~$2.0 million decrease in advertising ~~revenue as some advertisers cancelled or reduced their advertising with us~~ ~~as a result of the impact of the COVID-19 pandemic. The increase for the three months ended September 30, 2020 is inclusive of advertising~~ and ~~other revenue associated with Autolist of $1.3 million.~~consumer financing revenue.

Revenue by Segment


	Three Months Ended September 30,						Change						Three Months Ended September 30,						Change
	2020			2019			Amount			%			2021			2020			Amount		%
	(dollars in thousands)												(dollars in thousands)
Revenue
United States	$	138,412		$	141,637		$	(3,225	)		(2	)%	$	211,554		$	138,412		$	73,142		53	%
International		9,060			8,825			235			3			11,361			9,060			2,301		25
Total	$	147,472		$	150,462		$	(2,990	)		(2	)%	$	222,915		$	147,472		$	75,443		51	%
Percentage of total revenue:
United States		94	%		94	%								95	%		94	%
International		6			6									5			6
Total		100	%		100	%								100	%		100	%

United States revenue ~~decreased $3.2~~increased $73.1 million, or 2%53%, ~~in the~~ ~~three months ended September 30, 2020~~ ~~compared to the~~ ~~three months ended September 30, 2019~~,~~due primarily to a 10% decrease in United States paying dealers~~ ~~as paying dealers cancelled their subscriptions with us as a result of the impact of the COVID-19 pandemic.~~

~~International revenue stayed relatively consistent~~ in the three months ended September 30, ~~2020~~2021 compared to the three months ended September 30, ~~2019.~~

2020. The increase was due primarily~~Cost~~ to a $63.0 million increase in wholesale revenue due to our acquisition of ~~Revenue~~ a 51% interest in CarOffer. The increase in United States revenue was also due in part to a 9% growth in our QARSD for United States dealers to $5,602 at September 30, 2021 from $5,133 at September 30, 2020. The increase in QARSD was due primarily to expansion across our dealer base. The expansion was driven by rate increases and product upgrades for existing dealers and signing on new dealers with higher average monthly recurring revenue.

Three Months Ended
September 30,

Change

2020

2019

Amount

%

(dollars in thousands)

Cost of revenue

$
9,762

$
9,392

$
370

4
%
Percentage of total revenue

7
%

6
%

~~Cost of~~International revenue increased ~~$0.4~~$2.3 million, or 4%25%, in the three months ended September 30, ~~2020~~2021 compared to the three months ended September 30, ~~2019~~.2020. T ~~The~~he increase was due primarily to a ~~$0.9~~21% growth in our QARSD for international dealers to $1,524 at September 30, 2021 from $1,256 at September 30, 2020. The increase in QARSD was due primarily to expansion across our dealer base. The expansion was driven by rate increases and product upgrades for existing dealers and signing on new dealers with higher average monthly recurring revenue.

Cost of Revenue


	Three Months Ended September 30,						Change
	2021			2020			Amount		%
	(dollars in thousands)
Cost of revenue	$	60,033		$	9,762		$	50,271		515	%
Percentage of total revenue		27	%		7	%

Cost of revenue increased $50.3 million, or 515%, in the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase was due primarily to $48.3 million in cost of revenue attributable to our wholesale offerings from CarOffer. The increase was also due in part to a $1.0 million increase in fees related to provisioning advertising campaigns on our websites and a $0.5 million increase in ~~data center and hosting costs.~~ ~~These increases were offset~~amortization expense included in ~~part by a $0.7 million decrease in salaries and employee-related costs due to a 47% decrease in headcount primarily in connection with the Expense Reduction Plan~~ ~~and a $0.3 million decrease in costs for content on our websites due to ceasing operations in certain international markets. The increase for the three months ended September 30, 2020 is inclusive of~~ cost of ~~revenue associated with Autolist of $0.3 million.~~revenue.

Operating Expenses

Sales and Marketing Expenses


	Three Months Ended September 30,						Change						Three Months Ended September 30,						Change
	2020			2019			Amount			%			2021			2020			Amount		%
	(dollars in thousands)												(dollars in thousands)
Sales and marketing	$	57,618		$	100,133		$	(42,515	)		(42	)%	$	66,626		$	57,618		$	9,008		16	%
Percentage of total revenue		38	%		67	%								30	%		39	%

Sales and marketing expenses ~~decreased $42.5 million, or 42%, in the three months ended September 30, 2020 compared to the~~ ~~three months ended September 30, 2019~~. The decrease was due primarily to a $40.8 million decrease in advertising costs, a $0.7 million decrease in travel expenses and a $0.6 million decrease in consulting expenses, as a result of cost-savings efforts we implemented in response to the COVID-19 pandemic.

~~Product, Technology, and Development Expenses~~

Three Months Ended
September 30,

Change

2020

2019

Amount

%

(dollars in thousands)

Product, technology, and development

$
20,758

$
17,745

$
3,013

17
%
Percentage of total revenue

14
%

12
%

~~Product, technology, and development expenses~~ increased ~~$3.0 million, or 17%, in the three months ended September 30, 2020 compared to the~~ ~~three months ended September 30, 2019~~. The increase was due primarily to a $2.8 million increase in salaries and employee-related costs, exclusive of stock-based compensation expense, which increased $1.2 million. The increase in salaries and employee-related costs and stock-based compensation expense was due primarily to a 9% increase in headcount to support our growth plans and product innovations as well as an increase in promotions. The increase in salaries and employee-related costs was also due to merit increases. The increase in product, technology, and development expenses was also due in part to a $0.5 million increase in rent costs due to additional office space at 55 Cambridge Parkway, in Cambridge, Massachusetts. These increases were offset in part by a $0.3 million decrease in consulting and recruiting expenses and a decrease in other product, technology, and development expenses as a result of cost-savings efforts we implemented in response to the COVID-19 pandemic. The increase for the three months ended September 30, 2020 is inclusive of product, technology, and development expenses associated with the integration and development of Autolist technology of $1.3 million.

~~General and Administrative Expenses~~

Three Months Ended
September 30,

Change

2020

2019

Amount

%

(dollars in thousands)

General and administrative

$
14,279

$
12,322

$
1,957

16
%
Percentage of total revenue

10
%

8
%

~~General and administrative expenses increased $2.0~~$9.0 million, or 16%, in the three months ended September 30, ~~2020~~2021 compared to the three months ended September 30, ~~2019~~2020. . The increase was due primarily to a ~~$0.8~~$7.3 million increase in salaries and employee-related expense. The increase in salaries and employee-related expense was primarily driven by an increase in commissions expense, resulting from a 20% increase in headcount due to our acquisition of CarOffer, marketplace sales growth and a decrease of capitalizable costs to obtain contracts and an increase of non-capitalizable costs to obtain contracts. The increase in sales and marketing expenses was also due in part to a $1.3 million increase in marketing expense relative to marketing expense in the third quarter of 2020, which was impacted by the Expense Reduction Plan. The increase for the three months ended September 30, 2021 is inclusive of a $4.7 million increase in sales and marketing expenses associated with CarOffer.

Product, Technology, and Development Expenses


	Three Months Ended September 30,						Change
	2021			2020			Amount		%
	(dollars in thousands)
Product, technology, and development	$	26,539		$	20,758		$	5,781		28	%
Percentage of total revenue		12	%		14	%

Product, technology, and development expenses increased $5.8 million, or 28%, in the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase was due primarily to a $3.7 million increase in salaries and employee-related expense. The increase in salaries and employee-related expense was due primarily to a 39% increase in headcount. The increase in product, technology and development expenses was also due to a $0.9 million increase in expense due to write off of certain capitalized development projects for which the Company has decided to cease investment in, net of incremental additions, and a $0.8 million increase in rent and onboarding expenses driven by higher expense allocations resulting from increased headcount.

General and Administrative Expenses


	Three Months Ended September 30,						Change
	2021			2020			Amount		%
	(dollars in thousands)
General and administrative	$	20,414		$	14,279		$	6,135		43	%
Percentage of total revenue		9	%		10	%

General and administrative expenses increased $6.1 million, or 43%, in the three months ended September 30, 2021 compared to the three months ended September 30, 2020. The increase was due primarily to a $1.1 million increase in salaries and employee-related expense, exclusive of stock-based compensation expense, which increased ~~$1.2~~$3.5 million. The increase in salaries and employee-related ~~costs and~~expense was due primarily to a 31% increase in headcount due primarily to our acquisition of CarOffer. The increase in stock-based compensation expense was due primarily to annual retention grants and the ~~transfer~~revaluation of certain ~~personnel between departments and an increase in promotions.~~liability-based stock awards. The increase in ~~salaries~~general and ~~employee-related costs~~administrative expenses was also due in part to ~~merit increases.~~a $0.4 million increase in consulting expense, a $0.3 million increase in insurance expense and a $0.3 million increase in bad debt expense. The increase for the three months ended September 30, 2021 is inclusive of a $2.1 million increase in general and administrative expenses associated with CarOffer.

Depreciation and Amortization Expenses


	Three Months Ended September 30,						Change					Three Months Ended September 30,						Change
	2020			2019			Amount		%			2021			2020			Amount		%
	(dollars in thousands)											(dollars in thousands)
Depreciation and amortization	$	1,488		$	1,166		$	322		28	%	$	9,227		$	1,488		$	7,739		520	%
Percentage of total revenue		1	%		1	%							4	%		1	%

Depreciation and amortization expenses increased ~~$0.3~~$7.7 million, or ~~28%~~520%, in the three months ended September 30, 2021 compared to the three months ended September 30, 2020, ~~compared to the~~ ~~three months ended September 30, 2019~~, due primarily to an increase in amortization of intangible assets related to the acquired intangible assets from ~~Autolist.~~CarOffer.

Other Income, Net

Three Months Ended
September 30,

Change

2020

2019

Amount

%

(dollars in thousands)

Other income, net

Interest income

$
174

$
759

$
(585
)

(77
)%
Other income, net

31

251

(220
)

(88
)
Total other income, net

$
205

$
1,010

$
(805
)

(80
)%
Percentage of total revenue:

Interest income

0
%

1
%

Other income, net

0

0

Total other income, net

0
%

1
%


	Three Months Ended September 30,						Change
	2021			2020			Amount			%
	(dollars in thousands)
Other income, net	$	143		$	205		$	(62	)		(30	)%
Percentage of total revenue		0	%		0	%

Total other income, net decreased ~~$0.8~~$0.1 million, or ~~80%~~30%, in the three months ended September 30, ~~2020~~2021 compared to the three months ended September 30, ~~2019~~2020~~. The $0.6 million~~, due primarily to a decrease in interest income ~~was due primarily to lower~~as a result of a decline in interest rates associated with our investments in certificates of deposit during the three months ended September 30, ~~2020 as all investments matured during the quarter.~~2021.

Provision for Income Taxes


	Three Months Ended September 30,						Change			Three Months Ended September 30,						Change
	2020			2019			Amount		%	2021			2020			Amount			%
	(dollars in thousands)									(dollars in thousands)
Provision for income taxes	$	11,209		$	330		$	10,879	NM	$	10,952		$	11,209		$	(257	)		(2	)%
Percentage of total revenue		8	%		0	%					5	%		8	%

~~NM — Not Meaningful~~

The provision for income taxes recorded ~~increased $10.9 million~~ during the three months ended September 30, ~~2020~~2021, as compared to the provision for income taxes recorded during the three months ended September 30, ~~2019. This increase~~2020 was principally due to increased profitability ~~year-over-year. Additionally, there was $0.2 million~~in excess of tax ~~expense related~~attributes available to ~~shortfalls on the taxable compensation of share-based awards recorded during~~offset.

Income (Loss) from Operations by Segment


	Three Months Ended September 30,						Change
	2021			2020			Amount			%
	(dollars in thousands)
United States	$	41,931		$	46,462		$	(4,531	)		(10	)%
International		(1,855	)		(2,895	)		1,040			36
Total	$	40,076		$	43,567		$	(3,491	)		(8	)%
Percentage of segment revenue:
United States		20	%		34	%
International		(16	)%		(32	)%

United States income from operations decreased $4.5 million, or 10%, in the three months ended September 30, ~~2020, compared to $1.9 million of tax benefit related to excess stock-based compensation deductions recorded during the three months ended September 30, 2019.~~

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

Three Months Ended
September 30,

Change

2020

2019

Amount

%

(dollars in thousands)

United States

$
46,462

$
19,956

$
26,506

133
%
International

(2,895
)

(10,252
)

7,357

72

Total

$
43,567

$
9,704

$
33,863

349
%
Percentage of segment revenue:

United States

34
%

14
%

International

(32)%

(116)%

~~United States~~ ~~income from operations increased $26.5 million, or 133%, in the~~ ~~three months ended September 30, 2020~~ ~~compared to the~~ ~~three months ended September 30, 2019~~. This increase was due to decreases in operating expenses of $30.7 million related to cost savings efforts in connection with the COVID-19 pandemic, offset by decreases in revenue of $3.2 million and increases in cost of revenue of $1.0 million.

~~International loss from operations decreased $7.4 million, or 72%, in the~~ ~~three months ended September 30, 2020~~2021 compared to the three months ended September 30, ~~2019.~~ 2020.The decrease was due to ~~decreases~~increases in operating expenses of ~~$6.5~~$27.3 million ~~due to ceasing of operations in certain markets~~ and cost ~~savings efforts~~of revenue of $50.3 million, offset in ~~connection with~~part by an increase in revenue by $73.1 million.

International loss from operations decreased $1.0 million, or 36%, in the ~~COVID-19 pandemic, as well as~~three months ended September 30, 2021 compared to the three months ended September 30, 2020. The decrease was due to an increase in revenue of ~~$0.2~~$2.3 million, ~~and a decrease~~offset in ~~cost~~part by an increase in operating expenses of ~~revenue of $0.7~~$1.3 million.

For the nine months ended September 30, 2021 and 2020

Revenue

Revenue by Source


	Nine Months Ended September 30,						Change
	2021			2020			Amount		%
	(dollars in thousands)
Revenue:
Marketplace subscription	$	428,394		$	351,772		$	76,622		22	%
Wholesale and other revenue		183,637			48,126			135,511		282
Total	$	612,031		$	399,898		$	212,133		53	%
Percentage of total revenue:
Marketplace subscription		70	%		88	%
Wholesale and other revenue		30			12
Total		100	%		100	%

Overall revenue increased by $212.1 million, or 53%, in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. Wholesale and other revenue increased by 282% and marketplace subscription revenue increased by 22%.

Marketplace subscription revenue increased by $76.6 million in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 and ~~2019~~

~~Revenue~~

~~Revenue by Source~~

Nine Months Ended
September 30,

Change

2020

2019

Amount

%

(dollars in thousands)

Revenue

Marketplace subscription

$
351,772

$
385,481

$
(33,709
)

(9
)%
Advertising and other

48,126

45,282

2,844

6

Total

$
399,898

$
430,763

$
(30,865
)

(7
)%
Percentage of total revenue:

Marketplace subscription

88
%

89
%

Advertising and other

12

11

Total

100
%

100
%

~~Overall~~represented 70% of total revenue ~~decreased by $30.9 million, or 7%, in~~for the nine months ended September 30, ~~2020 compared to the nine months ended September 30, 2019. Marketplace subscription revenue decreased by 9%, while advertising~~2021 and ~~other revenue increased by 6%.~~

~~Marketplace subscription revenue decreased by $33.7 million in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 and represented~~ 88% of total revenue for the nine months ended September 30, 2020. The increase was due primarily to the approximately $50 million impact of fee reductions that we provided to our paying dealers during the second quarter of 2020 in response to the COVID-19 pandemic, of which approximately $47 million resulted in revenue reductions during such quarter, with the remaining impact spread over the life of the contract term. The increase in marketplace subscription revenue was also due in part to a 9% growth in our QARSD for paying dealers to $4,704 at September 30, 2021 from $4,302 at September 30, 2020. The increase in QARSD was due primarily to expansion across our dealer base. The expansion was driven by rate increases since the third quarter of 2020 and ~~89%~~product upgrades for existing dealers and signing on new dealers with higher average monthly recurring revenue.

Wholesale and other revenue increased by $135.5 million in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020 and represented 30% of total revenue for the nine months ended September 30, ~~2019.~~ ~~The decrease was due primarily to a 9% decrease in the number of paying dealers to 30,162 at September 30, 2020 from 33,086 at September 30, 2019~~ ~~as paying dealers cancelled their subscriptions with us (including, in some cases, with our permission prior to the end of the applicable contract term~~2021 and ~~notice period) as a result of~~

the impact of the COVID-19 pandemic, and due to the fee reductions provided to customers in April, May and June in response to the COVID-19 pandemic, which resulted in reductions in the overall transaction price that were spread over the remaining contract term.

~~Advertising and other revenue increased by $2.8 million in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019 and represented~~ 12% of total revenue for the nine months ended September 30, ~~2020 and 11%~~2020.The increase was due primarily to a $135.8 million increase in wholesale revenue due to our acquisition of ~~total~~a 51% interest in CarOffer.

Revenue by Segment


	Nine Months Ended September 30,						Change
	2021			2020			Amount		%
	(dollars in thousands)
Revenue:
United States	$	581,149		$	376,164		$	204,985		54	%
International		30,882			23,734			7,148		30
Total	$	612,031		$	399,898		$	212,133		53	%
Percentage of total revenue:
United States		95	%		94	%
International		5			6
Total		100	%		100	%

United States revenue ~~for~~increased $205.0 million, or 54%, in the nine months ended September 30, ~~2019.~~ 2021 compared to the nine months ended September 30, 2020. The increase was due primarily to a $135.8 million increase in wholesale revenue due to our acquisition of a 51% interest in CarOffer. Additionally, the increase was due to approximately $44 million in revenue reductions during the second quarter of 2020 as a result of the impact of fee reductions that we provided to our United States paying dealers during such quarter in response to the COVID-19 pandemic. The increase in United States revenue was also due in part to a 9% growth in our QARSD for United States dealers to $5,602 at September 30, 2021 from $5,133 at September 30, 2020. The increase in QARSD was due primarily to expansion across our dealer base. The expansion was driven by rate increases and product upgrades for existing dealers and signing on new dealers with higher average monthly recurring revenue.

International revenue increased $7.1 million, or 30%, in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was due primarily to approximately $3 million in revenue reductions during the second quarter of 2020 as a result of the impact of fee reductions that we provided to our international paying dealers during such quarter in response to the COVID-19 pandemic. The increase in international revenue was also due in part to a 21% growth in our QARSD for international dealers to $1,524 at September 30, 2021 from $1,256 at September 30, 2020. The increase in QARSD was due primarily to expansion across our dealer base. The expansion was driven by rate increases and product upgrades for existing dealers and signing on new dealers with higher average monthly recurring revenue.

Cost of Revenue


	Nine Months Ended September 30,						Change
	2021			2020			Amount		%
	(dollars in thousands)
Cost of revenue	$	134,408		$	31,252		$	103,156		330	%
Percentage of total revenue		22	%		8	%

Cost of revenue increased $103.2 million, or 330%, in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was due primarily to $100.4 million in cost of revenue attributable to our wholesale offerings from CarOffer. The increase was also due in part to a $4.4 million increase in expense related to provisioning advertising campaigns on our websites, offset in part by a $1.1 million decrease in salaries and employee-related expense, driven by a 35% decrease in the average CarGurus headcount.

Operating Expenses

Sales and Marketing Expenses


	Nine Months Ended September 30,						Change
	2021			2020			Amount		%
	(dollars in thousands)
Sales and marketing	$	200,935		$	189,796		$	11,139		6	%
Percentage of total revenue		33	%		47	%

Sales and marketing expenses increased $11.1 million, or 6%, in the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020. The increase was due primarily to a ~~$6.8~~$11.9 million increase in ~~other revenue primarily due to revenue from partnerships with financing services companies.~~salaries and employee-related expense. The increase in ~~advertising~~salaries and ~~other revenue~~employee-related expense was primarily driven by an increase in commissions expense, resulting from a 20% increase in headcount due to our acquisition of CarOffer, marketplace sales growth and a decrease of capitalizable costs to obtain contracts and an increase of non-capitalizable costs to obtain contracts. The increase in sales and marketing expenses was also due in part to a $1.5 million increase in software subscription expense. These increases in sales and marketing expenses were offset in part by a ~~$4.0~~$2.4 million decrease in advertising ~~revenue as some advertisers cancelled or reduced their advertising with us (including,~~and marketing expenses due to a gain in ~~some cases, with our permission prior to the end~~efficiency of ~~the applicable contract term)~~algorithmic traffic acquisition and a deliberate reduction in spend as a result of macroeconomic conditions such as strong consumer demand for cars, and automotive inventory supply issues due to the ~~impact~~global semiconductor chip shortage. The decrease in advertising and marketing expenses is net of an increase in marketing expense relative to marketing expense in the ~~COVID-19 pandemic.~~nine months ended September 30, 2020, which was impacted by the Expense Reduction Plan. The increase for the nine months ended September 30, ~~2020~~2021 is inclusive of ~~advertising~~a $9.8 million increase in sales and ~~other revenue~~marketing expenses associated with ~~Autolist of $3.4 million.~~CarOffer.

~~Revenue by Segment~~37

Nine Months Ended
September 30,

Change

2020

2019

Amount

%

(dollars in thousands)

Revenue

United States

$
376,164

$
407,050

$
(30,886
)

(8
)%
International

23,734

23,713

21

0

Total

$
399,898

$
430,763

$
(30,865
)

(7
)%
Percentage of total revenue:

United States

94
%

94
%

International

6

6

Total

100
%

100
%

~~United States~~ ~~revenue decreased $30.9 million, or 8%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019,~~ ~~due primarily to a 10% decrease in United States paying dealers~~ as paying dealers cancelled their subscriptions with us (including, in certain cases, with our permission prior to the end of the applicable contract term and notice period) as a result of the impact of the COVID-19 pandemic, and due to the fee reductions provided to customers in April, May and June in response to the COVID-19 pandemic which resulted in reductions in the overall transaction price that were spread over the remaining contract term.

~~International revenue stayed relatively consistent in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.~~

~~Cost of Revenue~~

Nine Months Ended
September 30,

Change

2020

2019

Amount

%

(dollars in thousands)

Cost of revenue

$
31,252

$
25,740

$
5,512

21
%
Percentage of total revenue

8
%

6
%

Product, Technology, and Development Expenses

~~Cost of revenue~~


	Nine Months Ended September 30,						Change
	2021			2020			Amount		%
	(dollars in thousands)
Product, technology, and development	$	79,333		$	65,729		$	13,604		21	%
Percentage of total revenue		13	%		16	%

Product, technology, and development expenses increased ~~$5.5~~$13.6 million, or 21%, in the nine months ended September 30, ~~2020~~2021 compared to the nine months ended September 30, ~~2019.~~2020. The increase was due primarily to a $~~2.2~~$9.1 million increase ~~in fees related to provisioning advertising campaigns on our websites,~~ ~~a $1.6 million increase in amortization due to the write-off of international websites in connection with the Expense Reduction Plan and amortization of website development costs, a $1.5~~ ~~million increase in data center and hosting costs and a $1.2 million~~ ~~increase in costs primarily related to a reduction of vendor rebates.~~ ~~These increases were offset in part by a $1.0 million decrease~~ in salaries and employee-related ~~costs~~expense, exclusive of stock-based compensation expense, which increased $1.8 million. The increase in salaries and employee-related expense was due primarily to a ~~47% decrease~~39% increase in headcount ~~primarily~~and an increase in ~~connection with the Expense Reduction Plan~~.

~~Operating Expenses~~

~~Sales and Marketing Expenses~~

Nine Months Ended
September 30,

Change

2020

2019

Amount

%

(dollars in thousands)

Sales and marketing

$
189,796

$
293,238

$
(103,442
)

(35
)%
Percentage of total revenue

48
%

67
%

~~Sales and marketing expenses decreased $103.4 million, or 35%,~~expected bonus attainment in comparison to the nine months ended September 30, 2020 ~~compared~~due to improved performance since the ~~nine months ended September 30, 2019.~~ ~~The decrease was due primarily to a $101.1~~ ~~million decrease in advertising costs, a $1.6 million decrease in travel related expenses, a $1.5~~ ~~million decrease in consulting and recruiting expenses, a $1.2~~ ~~million decrease in marketing costs related to events and research expenses, and a decrease in other sales and marketing expense as a result~~outset of ~~cost-savings efforts we implemented in response to~~ the COVID-19 pandemic. ~~These decreases were offset in part by an increase of $0.9~~ ~~million in salaries and employee-related costs, exclusive of employee severance and related benefits expense and stock-based compensation expense, which increased $1.5~~ ~~million and $0.8 million, respectively.~~ The increase in ~~salaries and employee-related costs and~~ stock-based compensation expense was due to anthe increase in ~~promotions.~~headcount and revaluation of certain liability-based stock awards. The increase in ~~salaries and employee-related costs was also due to merit increases. The increase in employee severance and related benefits expense was related to the Expense Reduction Plan.~~p

~~Product, Technology, and Development Expenses~~

Nine Months Ended
September 30,

Change

2020

2019

Amount

%

(dollars in thousands)

Product, technology, and development

$
65,729

$
51,063

$
14,666

29
%
Percentage of total revenue

16
%

12
%

~~Product,~~roduct, technology, and development expenses ~~increased $14.7 million, or 29%, in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.The increase was due primarily to a $10.4~~ ~~million increase in salaries and employee-related costs, exclusive of stock-based compensation expense, which increased $4.7~~ ~~million. The increase in salaries and employee-related costs and stock-based compensation expense was due primarily to a~~ 9~~% increase in headcount to support our growth plans and product innovations as well as an increase in promotions. The increase in salaries and employee-related costs was also due to merit increases.~~ ~~The increase in product, technology, and development expenses for the~~ ~~nine months ended September 30, 2020~~ was also due in part to a $~~1.7~~$1.8 million increase in consulting expense and a $0.8 million increase in rent ~~costs due to~~ ~~additional office space at 55 Cambridge Parkway, in Cambridge, Massachusetts.~~ ~~These increases were offset in part~~expense driven by a $0.8 million decrease in consulting and recruiting expenses and a decrease in other product, technology, and development expenses as a result of cost-savings efforts we implemented in response to the COVID-19 pandemic.higher expense allocations resulting from increased headcount. The increase for the nine months ended September 30, ~~2020~~2021 is inclusive of a $3.0 million increase in product, technology, and development expenses associated with ~~the integration and development of Autolist technology of $4.1 million.~~CarOffer.

General and Administrative Expenses


	Nine Months Ended September 30,						Change					Nine Months Ended September 30,						Change
	2020			2019			Amount		%			2021			2020			Amount		%
	(dollars in thousands)											(dollars in thousands)
General and administrative	$	44,297		$	36,622		$	7,675		21	%	$	67,095		$	44,297		$	22,798		51	%
Percentage of total revenue		11	%		9	%							11	%		11	%

General and administrative expenses increased ~~$7.7~~$22.8 million, or ~~21%~~51%, in the nine months ended September 30, ~~2020~~2021 compared to the nine months ended September 30, ~~2019.~~ 2020.The increase was due primarily to a $~~2.4~~$3.3 million increase in salaries and employee-related ~~costs,~~expense, exclusive of stock-based compensation expense, which increased $~~3.7~~ ~~million~~.$15.9 million. The increase in salaries and employee-related ~~costs~~expense was due primarily to a 31% increase in headcount, due primarily to our acquisition of CarOffer, and an increase in expected bonus attainment in comparison to the nine months ended September 30, 2020 due to improved performance since the outset of the COVID-19 pandemic. The increase in stock-based compensation expense was due primarily to annual retention grants and the ~~transfer~~revaluation of certain ~~personnel between departments and an increase in promotions. The increase in salaries and employee-related costs was also due to merit increases.~~ liability-based stock awards. The increase in general and administrative expenses was also due in part to a ~~$1.0~~$1.3 million increase in ~~bad debt~~consulting expense, a $1.2 million increase in insurance expense, and a $1.0 million increase in expense related to payment processing and billing due to increased customer transactions as a result of ~~increasing our allowance for doubtful accounts as a result of the COVID-19 pandemic and~~ $~~0.7 million increase in taxes.~~ increased revenue. The increase for the nine months ended September 30, ~~2020 was offset~~2021 is inclusive of a $11.3 million increase in ~~part by a decrease in various~~ general and administrative expenses ~~as a result of cost-savings efforts we implemented in response to the COVID-19 pandemic.~~associated with CarOffer.

Depreciation and Amortization Expenses


	Nine Months Ended September 30,						Change					Nine Months Ended September 30,						Change
	2020			2019			Amount		%			2021			2020			Amount		%
	(dollars in thousands)											(dollars in thousands)
Depreciation and amortization	$	4,529		$	3,413		$	1,116		33	%	$	25,916		$	4,529		$	21,387		472	%
Percentage of total revenue		1	%		1	%							4	%		1	%

Depreciation and amortization expenses increased ~~$1.1~~$21.4 million, or ~~33%~~472%, in the nine months ended September 30, ~~2020~~2021 compared to the nine months ended September 30, ~~2019,~~2020, due primarily to an increase in amortization of intangible assets related to the acquired intangible assets from ~~Autolist and an increase~~ ~~in depreciation related to the leasehold improvements associated with additional office~~ ~~space leased at 55 Cambridge Parkway in Cambridge, Massachusetts.~~CarOffer.

Other Income, Net

Nine Months Ended
September 30,

Change

2020

2019

Amount

%

(dollars in thousands)
Other income, net

Interest income

$
1,053

$
2,247

$
(1,194
)

(53)%
Other income, net

354

1,258

(904
)

(72)
Total other income, net

$
1,407

$
3,505

$
(2,098
)

(60)%
Percentage of total revenue:

Interest income

0
%

1
%

Other income, net

0

0

Total other income, net

0
%

1
%


	Nine Months Ended September 30,						Change
	2021			2020			Amount			%
	(dollars in thousands)
Other income, net	$	426		$	1,407		$	(981	)		(70	)%
Percentage of total revenue		0	%		0	%

Total other income, net decreased ~~$2.1~~$1.0 million, or ~~60%~~70%, in the nine months ended September 30, ~~2020~~2021 compared to the nine months ended September 30, ~~2019. The $1.2~~2020, due primarily to a $1.0 million decrease in interest income ~~was due primarily to lower~~as a result of a decline in interest rates associated with our investments in certificates of deposit during the nine months ended September 30, ~~2020 as all investments matured during the quarter. The $0.9~~ million decrease in other income, net was primarily due to a $0.8 million decrease in unrealized gain. In the nine months ended September 30, 2019, we had an unrealized gain associated with an intercompany receivable related to the acquisition of PistonHeads.2021.

Provision for ~~(Benefit from)~~ Income Taxes

	Nine Months Ended September 30,						Change
	2020			2019			Amount		%	Nine Months Ended September 30,						Change
	(dollars in thousands)									2021			2020			Amount		%
Provision for (benefit from) income taxes	$	13,312		$	(4,783	)	$	18,095	NM
										(dollars in thousands)
Provision for income taxes										$	28,556		$	13,312		$	15,244		115	%
Percentage of total revenue		3	%		(1	)%					5	%		3	%

~~NM — Not Meaningful~~

The provision for income taxes recorded during the nine months ended September 30, ~~2020~~2021, as compared to the ~~benefit from~~provision for income taxes recorded during the nine months ended September 30, ~~2019~~2020 was principally due to increased profitability ~~year-over-year.~~in excess of tax attributes available to offset. Additionally, there was ~~a $0.3~~$1.0 million tax ~~benefit~~expense related to excess stock-based compensation deductions recorded during the nine months ended September 30, ~~2020,~~2021, compared to ~~$9.6~~$0.3 million tax benefit recorded during the nine months ended September 30, ~~2019, partially offset by~~2020. Furthermore, a $0.5 million tax expense was recorded during the ~~benefit recognized as a result~~nine months ended September 30, 2021 in connection with the Section 162(m) excess officer compensation limitation, which became applicable in May 2021 upon the expiration of the ~~CARES Act.~~transition period permitted following our IPO.

Income (Loss) from Operations by Segment


	Nine Months Ended September 30,						Change					Nine Months Ended September 30,						Change
	2020			2019			Amount		%			2021			2020			Amount		%
	(dollars in thousands)											(dollars in thousands)
United States	$	82,061		$	51,456		$	30,605		59	%	$	111,515		$	82,061		$	29,454		36	%
International		(17,766	)		(30,769	)		13,003		42			(7,171	)		(17,766	)		10,595		60
Total	$	64,295		$	20,687		$	43,608		211	%	$	104,344		$	64,295		$	40,049		62	%
Percentage of segment revenue:
United States		22	%		13	%							19	%		22	%
International	(75)%			(130)%									(23	)%		(75	)%

United States income from operations increased ~~$30.6~~$29.5 million, or ~~59%~~36%, in the nine months ended September 30, ~~2020~~2021 compared to the nine months ended September 30, ~~2019.~~2020. This increase was due to ~~decreases in operating expenses of $66.7 million related to cost savings efforts in connection with the COVID-19 pandemic, offset by decreases~~increases in revenue of ~~$30.9~~$205.0 million, ~~and~~offset in part by increases in cost of revenue of $~~5.2~~$105.0 million and increases in operating expenses of $70.5 million.

International loss from operations decreased ~~$13.0~~$10.6 million, or ~~42%~~60%, in the nine months ended September 30, ~~2020~~2021 compared to the nine months ended September 30, ~~2019.~~ 2020. The decrease was due to increases in revenue of $7.1 million, decreases in cost of revenue of $1.9 million and decreases in operating expenses of $~~13.3~~ ~~million due to ceasing of operations in certain markets and cost savings efforts in connection with the COVID-19 pandemic, offset in part by an increase in cost of revenue of $0.3~~$1.6 million.

Liquidity and Capital Resources

Cash, Cash Equivalents and Investments

At September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, our principal sources of liquidity were cash and cash equivalents of ~~$245.9~~$231.1 million and ~~$59.9~~$190.3 million, respectively, and investments in certificates of deposit with terms of greater than 90 days but less than one year of ~~$111.7~~$90.0 million ~~at December 31, 2019. There were no investments in certificates of deposit at September 30, 2020.~~and $100.0 million, respectively.

Sources and Uses of Cash

Our cash flows from operating, investing, and financing activities, as reflected in the Unaudited Condensed Consolidated Statements of Cash Flows, are summarized in the following table:


	Nine Months Ended September 30,						Nine Months Ended September 30,
	2020			2019			2021			2020
Net cash provided by operating activities	$	108,806		$	49,551		$	135,063		$	108,806
Net cash provided by (used in) investing activities		84,859			(43,986	)
Net cash (used in) provided by investing activities								(63,353	)		84,859
Net cash used in financing activities		(7,741	)		(11,348	)		(25,056	)		(7,741	)
Impact of foreign currency on cash		171			(97	)		(359	)		171
Net increase (decrease) in cash, cash equivalents, and restricted cash	$	186,095		$	(5,880	)
Net increase in cash, cash equivalents, and restricted cash							$	46,295		$	186,095

Our operations have been financed primarily from operating ~~activities and our~~ ~~initial public offering~~.activities. We generated cash from operating activities of $135.1 million during the nine months ended September 30, 2021, and $108.8 million during the nine months ended September 30, ~~2020, and $49.6 million during the nine months ended September 30, 2019.~~2020.

We believe that our existing sources of liquidity will be sufficient to fund our operations for at least the next 12 months from the date of the filing of this Quarterly Report. During the second quarter of 2020 in connection with the COVID-19 pandemic, we implemented the Expense Reduction Plan, pursuant to which we reduced our workforce, ceased operation of certain international marketplaces, halted expansion efforts in any new international markets, and implemented targeted reductions in sales and marketing expenses, including across both algorithmic traffic acquisition and brand spend, and discretionary operating expenses. Our future capital requirements will depend on many factors, including the further impact of the COVID-19 pandemic,, our revenue, ~~costs~~expenses associated with our sales and marketing activities and the support of our product, technology, and development efforts, our investments in international markets, ~~and~~ the ~~timing and~~ extent of our cost savings related to the Expense Reduction Plan. and the potential exercise of call rights in the second of half of 2022 related to acquiring additional equity interests in CarOffer. Cash from operations could also be affected by various risks and uncertainties, including, but not limited to, the effects of the COVID-19 pandemic and other risks detailed in the “Risk Factors” section of this Quarterly Report.

To the extent that existing cash, cash equivalents, and investments and cash from operations 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, including~~ all.

Operating Activities

Cash provided by operating activities of $135.1 million during the nine months ended September 30, 2021 was due primarily to ~~increased volatility in the capital markets~~consolidated net income of $76.2 million, adjusted for $42.5 million of stock-based compensation expense for equity classified awards, $29.5 million of depreciation and amortization, $9.6 million of amortization of deferred contract costs, $5.8 million of deferred taxes, $2.4 million of impairment of website development costs, and $0.7 million of provision for doubtful accounts. Cash provided by operating activities was also attributable to ~~the COVID-19~~ ~~pandemic~~a $24.5 million increase in accounts payable, a $4.8 million increase in accrued expenses, accrued income taxes, and other liabilities, a $3.4 million increase in deferred revenue, and a $0.8 million increase in lease obligations. The increases in cash flow from operations were partially offset by a $51.6 million increase in accounts receivable, a $6.5 million increase in deferred contract costs, a $4.1 million increase in inventory, and a $3.0 million increase in prepaid expenses, prepaid income taxes, and other assets..

~~Operating Activities~~

Cash provided by operating activities of $108.8 million during the nine months ended September 30, 2020 was due primarily to net income of $52.4 million, adjusted for $34.4 million of stock-based compensation expense for equity classified awards, $14.8 million of deferred taxes, $8.8 million of depreciation and amortization, $8.6 million of amortization of deferred contract costs, and $1.7 million of provision for doubtful accounts. Cash provided by operating activities was also attributable to a $7.1 decrease in prepaid expenses, prepaid income taxes, and other assets, $6.0 million decrease in accounts receivable, and a ~~$2.2~~$1.7 million increase in accrued expenses, accrued income taxes, and other ~~non-current~~ liabilities. The increases in cash flow from operations were partially offset by a $19.7 million decrease in accounts payable, and a $6.9 million increase in deferred contract ~~costs, and a $0.5 million decrease~~costs.

Investing Activities

Cash used in ~~accrued expenses, accrued income taxes, and other current liabilities.~~

~~Cash provided by operating~~investing activities of ~~$49.6~~$63.4 million during the nine months ended September 30, ~~2019~~2021 was due ~~primarily~~ to ~~net income of $29.0~~ ~~million, adjusted for $25.4~~$64.3 million of ~~stock-based compensation expense, $5.8~~cash paid for acquisitions, net of cash acquired, $4.9 million of ~~amortization~~purchases of ~~deferred contract~~property and equipment and $4.1 million related to the capitalization of website development costs, ~~and $5.7~~offset in part by $100.0 million of ~~depreciation and amortization, partially offset by $5.0 million~~maturities of ~~deferred taxes. Cash provided by operating activities was also attributable to a $10.7 million increase~~certificates of deposit, net of investments in accounts payable, partially offset by an $11.4 million increase in deferred contract costs, a $5.0 million increase in accounts receivable, a $2.0 million decrease in accrued expenses, accrued income taxes, and other current liabilities, a $1.9 million decrease in lease obligations, and a $1.0 million decrease in deferred revenue.certificates of deposit of $90.0 million.

~~Investing Activities~~

Cash provided by investing activities of $84.9 million during the nine months ended September 30, 2020 was due to maturities of certificates of deposit of $111.7 million, offset in part by $21.1 million of cash paid for an acquisition, net of cash acquired, $3.0 million related to the capitalization of website development costs, and $2.7 million of purchases of property and equipment.

Financing Activities

Cash used in ~~investing~~financing activities of ~~$44.0~~$25.1 million during the nine months ended September 30, ~~2019~~2021 was due primarily to ~~$134.8~~CarOffer’s repayment of a line of credit of $14.3 million and our payment of ~~investments in certificates~~withholding taxes on net share settlements of ~~deposit, net~~restricted stock units of ~~maturities of certificates of deposit of $122.8~~$11.3 million, ~~$19.1 million of cash paid for acquisition, $10.8 million of purchases of property and equipment and $2.1~~partially offset by $0.5 million related to the ~~capitalization~~proceeds from the issuance of ~~website development costs.~~common stock related to the exercise of vested stock options.

~~Financing Activities~~

Cash used in financing activities of $7.7 million during the nine months ended September 30, 2020 was due primarily to the payment of withholding taxes on net share settlements of restricted stock units of $8.7 million, partially offset by $1.0 million related to the proceeds from the issuance of common stock related to the exercise of vested stock options.

Cash used in financing activities of $11.3 million during the nine months ended September 30, 2019 was due primarily to the payment of withholding taxes and option costs on net share settlements of restricted stock units and stock options of $12.8 million, partially offset by $1.5 million related to the proceeds from the issuance of common stock related to the exercise of vested stock options.

Contractual Obligations and Known Future Cash Requirements

As of September 30, ~~2020,~~2021, there were no material changes in our contractual obligations and commitments from those disclosed in our Annual Report, other than those appearing in the notes to the Unaudited Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly Report, which are hereby incorporated by reference.

Off-Balance Sheet Arrangements

As of September 30, ~~2020~~2021 and December 31, ~~2019,~~2020, we did not have any off-balance sheet arrangements, ~~other than~~or leases that are less than twelve months in duration, other than leases signed but not commenced, that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital ~~resources~~resources..

Critical Accounting Policies and Significant Estimates

The preparation of the Unaudited Condensed Consolidated Financial Statements in conformity with GAAP requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period.

~~Significant estimates relied upon in preparing the Unaudited~~ ~~Condensed Consolidated Financial Statements~~include revenue recognition, allowance for doubtful accounts and sales allowances, variable consideration, the recoverability of long-lived assets, the valuation and recoverability of goodwill and intangible assets, the expensing and capitalization of product, technology, and development costs for website development and internal-use software, and the recoverability of our net deferred tax assets and related valuation allowance~~. Accordingly, we consider these to be our critical accounting policies.~~

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 our 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 recorded in the period in which they become known.

Significant estimates relied upon in preparing the Unaudited Condensed Consolidated Financial Statements include the determination of sales allowance and variable consideration in our revenue recognition, allowance for doubtful accounts, the valuation of redeemable noncontrolling interest, valuation of equity and liability-classified compensation awards under ASC 718, the expensing and capitalization of product, technology, and development costs for website development and internal-use software, the valuation and recoverability of goodwill, intangible assets and other long-lived assets, and the recoverability of our net deferred tax assets and related valuation allowance. Accordingly, we consider these to be our critical accounting policies.

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 Annual Report.

Recently Issued Accounting Pronouncements

Information concerning recently issued accounting pronouncements may be found in Note 2 to our Unaudited Condensed Consolidated Financial Statements appearing elsewhere in this Quarterly 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 as described below.

Interest Rate Risk

We did not have any long-term borrowings at September 30, ~~2020~~2021 or at December 31, ~~2019.~~2020.

~~We had cash and cash equivalents of $245.9 million at~~ ~~September 30, 2020, which consisted of bank deposits and money market funds.~~ We had cash, cash equivalents, and investments of ~~$171.6~~$321.1 million and $290.3 million at September 30, 2021 and December 31, ~~2019,~~2020, respectively, which consisted of bank deposits, money market funds and certificates of deposit with maturity dates ranging from six to nine months.

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 lower returns from our investments for the foreseeable future. To date, fluctuations in interest income have not been 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 30, ~~2020~~2021 and December 31, ~~2019,~~2020, we had foreign currency exposures in the British pound, the Euro and the Canadian dollar, although such exposure is not significant.

Our foreign subsidiaries have intercompany accounts that are eliminated upon consolidation, and these accounts expose us to foreign currency exchange rate fluctuations. Exchange rate fluctuations on short-term intercompany accounts are recorded in our Unaudited Condensed Consolidated Income Statements under the heading, other income, net. ~~Long-term~~Exchange rate fluctuations on long-term intercompany accounts are recorded ~~at their historical rates.~~in our Unaudited Condensed Consolidated Balance Sheets under the heading accumulated other comprehensive income.

As we seek to grow our international operations 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. Based on such evaluation, our principal executive officer and principal financial officer have concluded that as of such date, our disclosure controls and procedures were effective.

Changes in Internal Control 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 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, together with all of the other information contained in this Quarterly Report, including “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our unaudited condensed consolidated financial statements and related notes, 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.”

Risks Related to Our Business and Industry

Our business ~~financial condition and results of operations have~~has been, and we expect ~~them~~it to continue to be, adversely affected by the ~~ongoing novel coronavirus disease 2019, or~~ COVID-19 ~~outbreak.~~pandemic.

Our operations have been materially adversely affected by a range of factors related to the COVID-19 pandemic. In March 2020, we temporarily closed all of our offices ~~(including our corporate headquarters)~~ and began requiring our employees to work remotely (subject to limited exceptions) until further notice, which has disrupted and may continue to disrupt how we operate our business. In addition, in an effort to limit the spread of COVID-19, many countries, as well as states and localities in the United States, implemented or mandated, and some continue to implement or mandate, significant restrictions on travel and commerce, shelter-in-place or stay-at-home orders, and business closures. Fluctuation in infection rates in the regions in which we operate has resulted in periodic changes in restrictions that vary from region to region and may require rapid response to new or reinstated orders. Many of these orders resulted in, and may continue to result in, 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 ~~the agencies that process the registration of automotive titles. While~~ certain jurisdictions, including many within the United States, have implemented or are implementing policies with the goal of re-opening these markets, restrictions may be re-imposed in these markets due to increases in COVID-19 cases.service providers upon which dealerships rely. In addition, these restrictions and ~~concerns~~continued concern about the spread of the disease have impacted car shopping by consumers and disrupted the operations of car dealerships, which has adversely affected and may continue to adversely affect the market for automobile purchases.

~~While consumer demand has improved since the initial impact of the COVID-19 pandemic, the~~The automotive industry is also facing, ~~inventory supply problems, especially for used vehicles. The industry has experienced,~~ and may continue to ~~experience, a decline in used-car~~face, inventory supply problems, including for ~~a number of~~ reasons attributable to the COVID-19 pandemic ~~including: (i) fewer trade-ins from diminished~~and other macroeconomic issues, such as the global semiconductor chip shortage. This decline in vehicle sales; (ii) lease extensions on vehicles that consumers would have otherwise returned to the dealership; and (iii) the closure of or restrictions on the operations of wholesale auctions limiting dealers’ ability to source stock and/or replenish inventory. Further, these auction closures and the limited supply of inventory has led to an increase in bids per vehicle at auction and corresponding increases to wholesale auction prices. As the price of ~~restocking~~replenishing inventory through wholesale auctions ~~increases,~~has increased, dealers have increased, and may continue to increase, the prices they charge consumers. A high volume of price increases on vehicle sales at a rapid rate could impact our proprietary Instant Market Values, or IMV, and distribution of Deal Ratings. In addition, if our paying dealers continue to operate at reduced inventory levels or with increased costs, they may reduce or be unwilling to increase their advertising spend with us and/or may terminate their subscriptions at the conclusion of the committed ~~term. It may also impede our~~term. Our ability to add new paying dealers or increase our fees with dealers may be impeded if dealers perceive they have less of a need for our products and services because of their limited inventory. Inventory challenges in the automotive industry have adversely impacted, and could continue to adversely impact, the amount of inventory on our websites and have contributed to higher prices and reduced lease options for new vehicles, which in turn has reduced, and may continue to reduce, consumer demand, which could contribute to a decline in the number of consumer visits to our ~~site~~websites and/or the number of connections between consumers and dealers through our marketplaces. These inventory-related issues resulting from the COVID-19 pandemic and other macroeconomic issues may materially and adversely impact our business, financial condition and results of operations.

As a result of the travel and commerce restrictions and the impact on their businesses, a number of our dealer customers temporarily closed or are operating on a reduced capacity, and many dealerships are facing significant financial challenges. Such closures and circumstances led some paying dealers to cancel their subscriptions and/or reduce their spending with us, which has had and may continue to have a material adverse effect on our revenues and on our ~~business, financial condition and results of operations.~~business. Additionally, in response to the increasing cancelations and the drop in consumer demand at the beginning of the COVID-19

pandemic, we reduced our spending on brand advertising and traffic acquisition, which ~~resulted in~~contributed to fewer consumers using our platform during the ~~second quarter of~~year ended December 31, 2020 and ~~have since restored only a portion of that historical consumer spend,~~for the three and nine month periods ended September 30, 2021 compared to the same periods for the prior year, which in turn has, and may continue to, materially and adversely affect our business. While we have since restored a portion of that historical consumer spend, we may not

in the future fully restore prior spending levels if we elect to redirect our investments elsewhere, including in favor of new product development. If such a strategy were not to result in the benefits that we expect, our business ~~financial condition and results of operations.~~could be harmed. Our business relies on the ability of consumers to borrow funds to acquire automobiles and banks and other financing companies may limit or restrict lending to consumers as a result of the economic impacts of the COVID-19 pandemic, which may also materially and adversely affect our business.

Further, because of the significant financial challenges that dealerships have faced and continue to face as a result of the COVID-19 pandemic, we took measures to help our paying dealers maintain their business health during the COVID-19 ~~pandemic. We~~pandemic, including by proactively ~~reduced~~reducing the subscription fees for paying dealers ~~by at least 50% on all marketplace subscriptions~~ for ~~the April and May 2020~~certain service ~~periods, as well as provided~~ ~~a fee reduction on all June 2020 marketplace subscriptions of 20% for paying dealers in the United States and Canada and 50% for paying dealers in the United Kingdom~~.periods. As a result, the level of fees we received from paying dealers materially decreased during ~~this period,~~the year ended December 31, 2020, resulting in a material decline in our revenue and a material adverse effect to our ~~business, financial condition and results of operations.~~business. In addition, despite our proactive fee reductions during the second quarter of 2020, we experienced increased customer cancellation rates and slowed paying dealer additions, ~~during such period,~~ which materially and adversely affected our business ~~financial condition and results of operations. While we returned to normal contractual billings in all markets~~ for the ~~July 2020 service period, we have continued to, and~~year ended December 31, 2020. We may again in the future experience increased cancellations and/or slowed paying dealer additions and as a result may decide to re-institute further billings relief ~~in the future~~ as we continue to assess the effects of the COVID-19 pandemic on our paying dealers and business operations. During the COVID-19 pandemic, we have also experienced, and may continue to experience, increased account delinquencies from dealer customers challenged by the COVID-19 pandemic that failed to pay us on time or at all.

These effects from the COVID-19 pandemic on our revenue caused us to implement certain cost-savings measures across our business, which ~~have~~ disrupted ~~and may continue to disrupt,~~ our business and ~~operations.~~operations during the year ended December 31, 2020. For example, during the second quarter of 2020, we initiated a cost-savings initiative that included a reduction in our workforce, ~~of approximately 13%, restricted future hiring, and limited~~a limitation in discretionary spend across our business ~~including by eliminating, reducing or pausing certain vendor relationships~~ and our ceasing of certain international operations and expansion efforts. We also reduced consumer marketing across both algorithmic traffic acquisition and brand spend during the ~~second and third quarters of~~year ended December 31, 2020 in comparison to the ~~second and third quarters of 2019~~prior year in an effort to reduce expenses and as a result of suppressed dealer inventory and resulting reduced demand for leads from dealers. Despite these measures, we may not achieve the costs savings or attract consumer visits at the levels we expect, which would adversely impact our cash flows and financial condition. These expense reduction activities, and any future cost savings actions that we may take, may yield unintended consequences, ~~and costs,~~ such as loss of key employees, undesired attrition,, and the risk that we may not achieve the anticipated cost savings at the levels we expect, any of which may have a material adverse effect on our results of operations and/or financial condition. If ~~our cash flows fail to stabilize as a result of the effects from~~ the COVID-19 pandemic ormaterially impacts our revenues ~~fail to increase~~,in the future, we may also decide that additional disruptive measures are necessary to reduce our operating expenses.

The global nature of the COVID-19 pandemic has also had, and will continue to have, a significant impact on our international businesses. ~~The~~Due to the crisis, ~~has halted our growth in existing markets and our expansion into additional markets. In particular,~~ we ceased marketplace operations in Germany, Italy, and Spain, and halted any new international expansion efforts, which we believe will allow us to focus our financial and human capital resources on our more established international markets in Canada and the United Kingdom. Failure by us to succeed in these two markets, however, would materially and adversely affect our business and potential growth.

We continue to monitor and assess the effects of the COVID-19 pandemic on our commercial operations, including the impact on our ~~revenue in 2020.~~revenue. However, we cannot at this time accurately predict what effects these conditions will ultimately have on our operations due to uncertainties relating to the duration of the pandemic, the extent and effectiveness of governmental responses and other preventative, treatment and containment actions or developments, including the distribution and acceptance of vaccines, shifts in behavior going forward, and the length or severity of the travel and commerce restrictions imposed ~~on federal and state levels, as well as~~ by ~~the governments of impacted countries.~~relevant governmental authorities. Nor can we predict the adverse impact on the global economies and financial markets in which we operate, which may have a significant negative impact on our business, financial condition and results of operations.

Our business is substantially dependent on our relationships with dealers. If a significant number of dealers terminate their subscription agreements with us, our business and financial results would be materially and adversely affected.

Our primary source of revenue consists of subscription fees paid to us by dealers for access to enhanced features on our automotive marketplaces. Our subscription agreements with dealers generally may be terminated by us with 30 days’ notice and by dealers with 30 days’ notice at the end of the committed term. The majority of our contracts with dealers currently provide for one-month committed terms and do not contain contractual obligations requiring a dealer to maintain its relationship with us beyond the committed term. Accordingly, these dealers may cancel their subscriptions with us in accordance with the terms of their subscription agreements. A dealer’s decision to cancel its subscription with us may be influenced by several factors, 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 us, this

belief could become shared by dealers and we may lose a number of our paying dealers. If a significant number of our paying dealers terminate their subscriptions with us, our business and financial results 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 materially and adversely affected.

As a result of the COVID-19 pandemic, many paying dealers cancelled their subscriptions with us (including, in some cases, with our permission prior to the end of the applicable contract term and notice period), which ~~has~~ caused a material adverse impact on our revenues during the year ended December 31, 2020, and it is possible that additional dealers will cancel their subscriptions in the future for a variety of reasons, including as ~~they continue to experience~~a result of the effects of the COVID-19 pandemic. 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 at the conclusion of the committed term. If we fail to maintain or 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 in CarGurus marketplaces for free; however, we impose certain limitations on such free listings, such as capping the number of leads that non-paying dealers in the U.S. may receive, ~~within a 30-day period,~~ not displaying non-paying dealer identity and contact information, and prohibiting access to the paid features of our marketplaces. We continue to adapt our free listings product, Restricted Listings, in our CarGurus marketplaces and 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 Restricted Listings product may result in less inventory being displayed to consumers, which may impair our efforts to ~~retain~~attract consumers, and cause paying and non-paying dealers to receive fewer leads and connections, which may make it more difficult for us to convert ~~such~~non-paying dealers to paying dealers or maintain or expand our base of paying dealers. If dealers do not subscribe to our paid offerings at the rates we expect, our business and financial results would be materially and adversely affected.

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

A significant amount of ~~our~~ revenue is derived from advertising revenues generated primarily through advertising sales, including display advertising and audience targeting services, 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:~~ including our ability toto: increase the number of consumers using our marketplaces; ~~our ability to~~ compete effectively for advertising spending with other online automotive marketplaces; ~~our ability to~~ continue to develop our advertising products; ~~our ability to~~ keep pace with changes in technology and the practices and offerings of our competitors; and ~~our ability to~~ offer an attractive ROI to our advertisers for their advertising spend with us.

Our agreements with dealers for display advertising generally include 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 at the end of the committed term. The contracts do not contain contractual obligations requiring an advertiser to maintain its relationship with us beyond the committed term. Certain of our other advertising contracts, including those with auto manufacturers, typically do not have ongoing commitments to advertise in our marketplaces beyond a committed term. As a result of the COVID-19 pandemic, some advertisers have cancelled or reduced their advertising with us, which has caused a material adverse impact on our revenues during the year ended December 31, 2020 compared to the prior period, and it is possible that advertising customers will ~~continue to~~ cancel or reduce their advertising with us in the future for a variety of reasons, including as ~~they continue to experience~~a result of the effects of the COVID-19 pandemic. In addition, a reduction in consumer visits to our sites ~~during~~as a result of the COVID-19 pandemic resulted in the delivery of fewer impressions for our advertising customers than anticipated during the year ended December 31, 2020 and the three and nine months ended September 30, 2021 compared to the same periods for the prior year, which has caused, and may continue to cause, an adverse impact on our advertising revenues. 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 ~~services~~offerings as compared to alternative channels. If current advertisers reduce ~~or end~~ their advertising spending with us and we are unable to ~~attract new advertisers,~~replace such reduced advertising spending, our advertising revenue and business and financial results would be harmed.

If we fail to fully realize anticipated transaction synergies from our acquisition of a 51% interest in CarOffer, or if the CarOffer business fails to grow at the rate we expect, our revenue and business would be harmed.

In January 2021 we completed our acquisition of a 51% interest in CarOffer, which adds wholesale vehicle acquisition and selling capabilities to our portfolio of dealer offerings. Achievement of our anticipated transaction synergies and our ability to grow the CarOffer business depends on a number of factors, including, but not limited to, our ability to: expand the number of dealers engaging on the CarOffer platform; retain existing customers and increase the share of wholesale transactions which 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. If our anticipated transaction synergies do not fully materialize and/or the CarOffer business fails to grow at the rate we expect, our revenue and business would be harmed.

Industry conditions such as a significant change in vehicle retail 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 rather than selling them on the CarOffer platform, which could adversely impact the volume of vehicles offered for sale on the CarOffer platform and the demand for those used vehicles. Inventory challenges in the automotive industry, including for reasons attributable to the COVID-19 pandemic, could also 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. 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 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 marketplaces 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 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 attract a large consumer audience, which may cause other dealers to pause or cancel their use of our marketplaces. This reduction in the number of dealers using our marketplaces would likely materially and adversely affect our marketplaces and our business and financial results. As consumers increasingly use their mobile devices to access the internet and our marketplaces, our success depends, 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 desktop computers and

through mobile devices, is subject to a number of factors, ~~including:~~ including our ability toto: maintain attractive marketplaces for consumers and ~~dealers, including on mobile platforms; our ability to~~dealers; continue to innovate and introduce products for our ~~marketplaces on mobile platforms; our ability to~~marketplaces; launch new products that are effective and have a high degree of consumer engagement; ~~our ability to~~ display a wide variety of automobile inventory to attract more consumers to our websites; ~~our ability to~~ provide mobile applications that engage consumers; ~~our ability to~~ 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 ~~our ability to~~ access and analyze a sufficient amount of data to enable us to provide relevant information to consumers, including pricing information and accurate vehicle details.

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 ~~depend,~~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 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, if our efforts to improve our search engine optimization are unsuccessful or ifless successful than our competitors’ internet search engine optimization efforts, ~~are more successful than ours,~~ our ability to attract a large consumer audience could diminish and traffic to our ~~traffic~~marketplaces 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. 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 could harm our business and operating results.

Any inability by us to develop new products, 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. WeFor example, as we transition to a more digitally-initiated environment, we recently launched CarGurus Instant Max Cash Offer, a new offering that allows consumers in certain states to sell their vehicles to dealers entirely online. In addition to introducing new offerings within our existing products, we anticipate that over time we may reach a point when investments in our current products are less productive and the growth of our revenue will require more focus on developing new products for consumers and dealers. 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 in order to improve the attractiveness and comprehensiveness of our marketplaces and their related products and effectively incorporate new internet and mobile technologies into them. Our ability to engage in these activities may decline as a result of the impact of the COVID-19 pandemic and our cost-savings initiatives on our business. These product, technology, and development expenses may include costs of hiring additional personnel,

engaging third-party service providers and conducting other research and development activities. There can be no assurance that innovations to our products like CarGurus Instant Max Cash Offer, or the development of future products, will increase consumer or dealer engagement, achieve market acceptance, create additional revenue or become profitable. 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 ~~become dissatisfied~~reduce or cease the use of our marketplaces and ~~instead use our competitors’ websites and mobile applications.~~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 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 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 large amount of inventory and vehicle information available in our marketplaces is critical to the value we provide for consumers. 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, increased fees we may be charged by data providers and the effects of the COVID-19 pandemic. 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, as a result of suppressed dealer inventory and resulting reduced demand for leads by dealers since the onset of the COVID-19 pandemic, we reduced our brand spend ~~and~~during the year ended December 31, 2020 in comparison to the year ended December 31, 2019. While we have since increased our consumer marketing expenses, we may decide ~~to continue~~ to suppress our brand spend in the future depending on the continued impact of the COVID-19 ~~pandemic.~~pandemic or other macro-economic effects. 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, 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.

Portions of our platform enable consumers and dealers using our marketplaces to communicate with one another and other persons seeking information or advice on the internet. Claims of defamation or other injury could be made against us for content posted on our websites. In addition, negative publicity and user sentiment generated as a result of fraudulent or deceptive conduct by users of our marketplaces could damage our reputation, reduce our ability to attract new users or retain our current users, and diminish the value of our brands.

Our past growth is not indicative of our future growth, and our ability to grow our revenue in the future is uncertain due to the impact of the COVID-19 pandemic.

Our revenue ~~increased~~decreased to $551.5 million for the year ended December 31, 2020 from $588.9 million for the year ended December 31, 2019, ~~from $454.1~~representing a 6% decrease between such periods – which we primarily attribute to the approximately $50 million impact of fee reductions that we provided to our paying dealers during the second quarter of 2020 in response to the COVID-19 pandemic – and increased to $612.0 million for the ~~year~~nine months ended ~~December 31, 2018, representing a 30% increase between such periods, and decreased to~~September 30, 2021 from $399.9 million for the nine months ended September

30, 2020, ~~from $430.8 million~~representing a 53% increase between such periods. Our revenue for the ~~nine months ended September 30, 2019, representing a 7% decrease between such periods, primarily due~~remainder of 2021 and beyond may continue to ~~COVID-19-related effects. We expect further year-over-year revenue declines in 2020 as a result of~~be impacted by the COVID-19 ~~pandemic, and the continued impact of the COVID-19 pandemic also makes our future revenue beyond 2020 uncertain.~~pandemic. 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; maintain and expand the number of dealers that subscribe to our marketplaces and maintain and increase the fees that they are paying; attract and retain advertisers placing advertisements in our marketplaces; further improve the quality of our marketplaces and 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 ~~further~~ 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 the COVID-19 pandemic, 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. However, additional funds may not be available when we need them on terms that are acceptable to us or at all. Volatility in the credit markets, particularly as a result of the COVID-19 pandemic, may also have an adverse effect on our ability to obtain debt financing.

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.

~~If we fail to grow effectively in our existing markets, our revenue, business, and financial results will be harmed.~~

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

While we ceased operations of our marketplaces in Germany, Italy and Spain and stopped development of emerging marketplaces, we continue to 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 expect ~~as we have in the past,~~to continue to incur ~~significant~~ losses in the United Kingdom and Canada, and face various other challenges such as obtaining and maintaining access to data, competition for consumers and dealers using our products, new and different competitors, monetizing dealers and other customers, other regulatory environments and laws, and different consumer behavior than we are familiar with. Our operation of several marketplaces requires significant resources and management attention. Furthermore, operations in ~~international markets may not yield results similar to~~ those ~~we have achieved~~jurisdictions.

For example, 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.~~

In the United Kingdom and Canada, we were not the first market 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’ websites and providing inventory feeds for dealers, which would make it difficult to attract dealers to our marketplaces. Dealers may also be parties to agreements with other dealers and syndicates that prevent them from being able to access our marketplaces. Any of these barriers could impede our operations in our international markets, which could affect our business and potential growth.

In addition to English, we have made portions of our marketplaces available in French and Spanish. We may have difficulty in modifying our technology and content for use in non-English-speaking market segments or gaining acceptance by users in non-English-speaking market segments. 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 business in an environment of multiple languages, cultures, customs, legal and 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: recruiting, managing and retaining qualified multilingual employees, including sales personnel; adapting our websites and mobile applications to conform to local consumer behavior; increased competition from local websites and mobile applications 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 and 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 United Kingdom Bribery Act; currency exchange rate fluctuations; ~~political and economic instability in some countries;~~ adverse changes in trade relationships among foreign countries and/or between the United States and such ~~countries;~~countries, including as related to the United Kingdom’s exit from the European Union, or the EU, commonly referred to as “Brexit”; 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.

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

In the past, the number of United States dealers has declined due to dealership closures and consolidations as a result of factors such as global economic downturns ~~and we expect this has occurred and will continue to occur as a result of the COVID-19 pandemic.~~or other 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, financial position and results of operations could be materially and adversely affected.

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 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,~~During the COVID-19 pandemic, we have encountered increased rates of turnover of our employee base and 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 become less competitive in attracting and retaining employees as a result of our ~~recent~~ expense reduction efforts due to the COVID-19 pandemic. In addition, ~~the loss of~~any unplanned turnover 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.

In January 2021, we announced the promotion of Jason Trevisan from Chief Financial Officer and President, International to the role of Chief Executive Officer, and the transition of Langley Steinert from Chief Executive Officer to Executive Chairman. Additionally, Scot Fredo, our former Senior Vice President, Financial Planning & Analysis, was appointed to succeed Jason Trevisan in the role of Chief Financial Officer. Furthermore, effective July 1, 2021, Kyle Lomeli separated from the Company in his role as Chief Technology Officer. We may face risks related to these and other transitions in our leadership team, including the disruption of our operations and the depletion of our institutional knowledge base.

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

We provide consumers using our CarGurus marketplaces with our proprietary IMV, Deal Ratings, and Dealer Ratings, as well as other features to help them evaluate vehicle listings, including price guidance for new car listings, or New Car Price Guidance. Our valuation models depend on the inventory listed on our sites as well as public information regarding automotive sales. If the inventory on our site declines significantly, or if the number of automotive sales declines significantly or used car sales prices become volatile, whether as a result of the COVID-19 pandemic or otherwise, our valuation models ~~many~~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 other industry participants may question or disagree with our IMV, Deal Rating, Dealer Rating or 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’ use of our 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 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 marketplaces and related products and services.

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

The advertising and sale of new and used motor vehicles is highly regulated by the jurisdictions in which we do business. Although we do not sell motor vehicles, and although we believe that vehicle listings on our sites are not themselves advertisements, 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 advertising laws and regulations are frequently subject to multiple interpretations and are not uniform from jurisdiction to jurisdiction, sometimes imposing inconsistent requirements with respect to new or used motor vehicles. If our 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 marketplaces and related products and services in certain 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.

If regulators or other third parties take the position that our marketplaces or related products violate applicable 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 marketplaces and related products in certain jurisdictions, or could require us to make adjustments to our marketplaces and related products or the manner in which we derive revenue from dealers using our platform, any or all of which could result in substantial adverse publicity, termination of subscriptions by dealers, decreased revenues, 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 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, increased expenses, and decreased profitability.

Our platforms enable us, dealers, and users to send and receive text messages and other mobile phone 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, 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. 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 applicable laws or their interpretations that further restricts the way consumers and dealers interact through our 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.

Antitrust and Other Laws

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 such 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, and cash flows.

~~Other~~

Claims could be made against us under both United States and foreign laws, including claims for defamation, libel, invasion of privacy, false advertising, intellectual property infringement, or claims based on other theories related to the nature and content of the materials disseminated by our marketplaces and on portions of our websites. 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 transmitted in our 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. 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, 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 subscribing dealers, lost revenues, 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 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 marketplaces and related products and services.

Our business is subject to risks related to the larger automotive industry ecosystem, including consumer demand, global supply chain challenges, trade relations between the United States and other countries and other macroeconomic issues, including the ongoing effects of the COVID-19 pandemic, 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 and we expect that we have entered such a period as a result of the COVID-19 pandemic.~~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 effects of the COVID-19 pandemic, the cost of energy and gasoline; the availability and cost of credit; rising interest rates; 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 ~~including those arising as a result of the COVID-19 pandemic~~ 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 has been and may continue to be negatively affected by challenges to the larger automotive industry ecosystem, including global supply chain challenges, 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 ongoing effects of the COVID-19 pandemic. These factors could have a material adverse effect on our business, revenue, results of operations, and financial condition.

~~The consequences we may face from the exit of the United Kingdom from the European Union could have a material adverse effect on our business, revenue, results of operations, and financial condition.~~

The United Kingdom’s exit from the European Union, or the EU, commonly referred to as “Brexit”, could adversely affect European and global economic or market conditions, contribute to instability in global financial markets~~, create uncertainty in the wider commercial, legal, and regulatory environment, and cause disruptions to our business and operations in the United Kingdom and between our corporate entities~~, including with respect to our employees, customers, suppliers, and consumers in the United Kingdom. As a result of this economic uncertainty, our dealer customers in particular may be unwilling to subscribe to our websites or renew or increase their existing subscriptions, as applicable. We may also face new regulatory costs and challenges that could have an adverse effect on our operations. Brexit has created economic uncertainty and its consequences ~~could have a material adverse effect on our business, revenue, results of operations, and financial condition.~~

Making decisions that we believe are in the best interests of our marketplaces may cause us to forgo short-term gains in pursuit of potential but uncertain long-term growth.

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 long-term best interests of our marketplaces, even if such decisions negatively impact our results of operations in the short term. For example, during select monthly service periods in 2020 and 2021, we ~~recently~~ provided paying dealers with ~~reduced~~ marketplace subscriptions ~~for the April, May and June 2020 service periods~~at no cost or at a discount in an effort to help our paying dealers maintain their business health during the COVID-19 pandemic. However, such strategies 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.

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

Our 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, interruptions with our systems. Interruptions in these systems, whether due to system failures, computer viruses, ransomware, or physical or electronic break-ins, or otherwise, could affect the security or availability of our marketplaces on our websites and mobile applications, and prevent or inhibit the ability of dealers and consumers to access our 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 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 platforms is located in the United States near each of Boston, Massachusetts and Dallas, Texas, and internationally near each of London, ~~England.~~England and Dublin, Ireland. Although we ~~have~~can host our U.S. CarGurus’ marketplace from two alternative locations in the United States and we believe our systems are redundant, there may be exceptions for certain hardware or software. In addition, we do not own or control the operation of these facilities. We also use 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 may cause us to experience an extended period of system unavailability, which could negatively impact our relationship with consumers, customers and advertisers. We are planning a migration of our European data center to a different provider. We do not maintain redundant systems or facilities for some of the services hosted in our current environment. In the event the migration results in disruption to one or more of these systems, we may experience an extended period of system unavailability, which could negatively impact our relationship with consumers, customers and advertisers. Our systems and operations are vulnerable to damage or interruption from fire, flood, power loss, telecommunications failure, terrorist attacks, acts of war, electronic and 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 consumers have while using our marketplaces. 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 whose services they use, which may be exacerbated as a result of the COVID-19 pandemic, 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 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 marketplaces as well as delays and additional expense in arranging new facilities and services and could harm our reputation, business, operating results, and financial condition. Although we carry 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 collect, process, store, transfer, share, disclose, and use consumer information and other data, and our actual or perceived failure to protect such information and data or respect users’ privacy could damage our reputation and brands and harm our business and operating results.

Some functions of our marketplaces involve the storage and transmission of consumers’ information, such as IP addresses, contact information of users who connect with dealers 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. Some of this information may be private, and security breaches 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 other personal information. We rely on encryption and authentication technology licensed from third parties to effect secure transmission of such information. Like all information systems and technology, our websites, mobile applications, and information systems are subject to computer viruses, break-ins, phishing attacks, attempts to overload the systems with denial-of-service or other attacks, ransomware, and similar incidents or disruptions from unauthorized use of our computer systems, any of which could lead to interruptions, delays, or website shutdowns, and could cause loss of critical data and the unauthorized disclosure, access, acquisition, alteration, and use of personal or other confidential information. If we experience compromises to our security that result in website or mobile application performance or availability problems, the complete shutdown of our websites or mobile applications, or the loss or unauthorized disclosure, access, acquisition, alteration, or use of confidential information, consumers, customers, advertisers, partners, vendors, and employees may lose trust and confidence in us, and consumers may decrease the use of our websites or stop using our websites entirely, dealers may stop or decrease their subscriptions with us, and advertisers may decrease or stop advertising on our websites.

Further, outside parties 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’, dealers’, advertisers’, and employees’ information. As cyber-attacks increase in frequency and sophistication, our cyber-security and business continuity 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 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 or stop use of our 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.

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, storage, sharing, disclosure, use, cross-border transfer, and protection of personal information and other data. These laws and regulations are evolving, are subject to differing interpretations, may be costly to comply with, may result in regulatory fines or penalties, may subject us to third-party lawsuits, may be inconsistent between countries and jurisdictions, and may conflict with other 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, as well as all applicable laws and regulations relating to privacy and data 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 and 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, including the General Data Protection Regulation in the EU, or the GDPR, which went into effect on May 25, 2018, ~~and~~ the California Consumer Privacy Act, or the CCPA, which went into effect on January 1, ~~2020.~~2020, and the California Privacy Rights Act, or the CPRA, and the Virginia Consumer Data Protection Act, or the VCDPA, each of which goes into effect on January 1, 2023. The GDPR and CCPA in particular have already required, and along with the CPRA and VCDPA, 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 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 GDPR, CCPA, CPRA or ~~CCPA~~VCDPA 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, customers, employees and other third parties, or any compromise of security that results in the unauthorized release or transfer of sensitive information, which could include 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 party that we share information with experiences a security breach or fails to comply with its privacy-related legal obligations or commitments to us, such matters may 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 ~~for~~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, ~~imposed by advertising partners, web browsers or other software,~~ 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 including GDPR, CCPA, CPRA and ~~CCPA;~~VCDPA; 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 again be, subject to intellectual property disputes, which are costly to defend and could harm our business and operating results.

We have been, and expect in the future to be, subject to claims and litigation alleging that we 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. We may also learn of possible infringement to our trademarks, copyrights, patents, and other intellectual property. In addition, we could be subject to lawsuits where consumers and dealers posting content on our websites disseminate materials that infringe the intellectual property rights of third parties.

Patent and other intellectual property litigation may be protracted and expensive, and the results are difficult to predict and may 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 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 marketplaces and features while we develop non-infringing substitutes, which could require significant effort and expense and may 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 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 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 platform’s features, software, and functionality or obtain and use information that we consider proprietary.

Competitors may adopt 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 by owners of other registered trademarks, or trademarks that incorporate variations of our trademarks. ~~While we~~We have registered the CARGURUS and CG logos, ~~in the U.S. Canada, the EUand the United Kingdom,~~ as well as the word-mark CARGURUS, in the U.S., Canada and the United ~~Kingdom and, for a subset of services, Ireland, we were not able to register the word-mark CARGURUS in the EU as the mark was deemed to be non-distinctive, and thus not registerable.~~ Kingdom.

We currently hold the “CarGurus.com” internet domain name and various other related domain 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 names of our brands. In addition, third parties have created and may in the future create copycat or squatter domains to deceive consumers, which could harm our brands, interfere with our ability to register domain names, and 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 with data from other sources. In addition, copycat websites may misappropriate data in our marketplaces and attempt to imitate our brands or the functionality of our websites. If we become aware of such activities, we intend to employ technological or legal measures in an attempt to halt their operations. However, we may be unable to detect and remedy all such activities in a timely manner. In some cases, our available remedies may not be adequate to protect us against the impact of such operations. Regardless of whether we can successfully enforce our rights against these 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, and financial condition. In addition, to the extent that such activity creates confusion among consumers or advertisers, our brands and business could be harmed.

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

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, and our consumer-marketing spend generally fluctuates accordingly. ~~As consumer automotive purchases slow in the fourth quarter, our rate of marketing spend typically also slows.~~ This seasonality has not been immediately apparent historically due to the overall growth of other operating expenses. In addition, reduction of our marketing spend in response to COVID-19-related expense management and shifts in demand from dealers and consumers could impact the efficiency of our marketing spend. ~~For example, a larger portion of our advertising may run during peak holiday seasonality for retail advertisers, inflating our media costs.~~ As our growth rates moderate or cease, the impact of these seasonality trends and other influences on our results of operations could become more pronounced. In addition, the volume of wholesale vehicle sales fluctuates from quarter to quarter and as a result of macroeconomic issues, such as the global semiconductor chip shortage, which may have a corresponding impact on our results of operations. This variability is caused by several factors including the timing of used vehicles available for sale from selling customers, the seasonality of the retail market for used vehicles and/or inventory challenges in the automotive industry, which affect the demand side of the wholesale industry.

Failure to deal effectively with fraud or other illegal activity could lead to potential legal liability, harm our business, cause us to lose paying dealer customers and adversely affect our reputation, financial performance and prospects for growth.

Based on the nature of our 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 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 such fraudulent and illegal activity in our marketplaces may not always be effective or account for all types of fraudulent or other illegal activity. Further, the measures that we use to detect and limit the occurrence of fraudulent and illegal activity must be dynamic, as technologies and ways to commit fraud and illegal activity are continually evolving. Failure to limit the impact of fraudulent and illegal activity on our websites could lead to potential legal liability, harm our business, cause us to lose paying dealer customers and adversely affect our reputation, financial performance and prospects for growth.

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 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 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 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 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 Mr. Steinert, by any Family Member of Mr. Steinert, and by any Permitted Entity of Mr. Steinert (as such terms are defined in our 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, is less than 9,091,484 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 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 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. Our founder and certain of his affiliates hold a substantial number of the outstanding shares of our Class B common stock and 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 the ability of our other stockholders to influence corporate matters for the foreseeable future.

Transfers by holders of Class B common stock will generally result in those 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 such shares. If, for example, Mr. Steinert retains a significant portion of his holdings of Class B common stock, he could continue to control a majority of the combined voting power of our outstanding capital stock.

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: changes in the 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 securities analysts that cover us; 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 issuances of earnings guidance or other public announcements and filing; real or perceived inaccuracies in our key metrics; actions of an activist stockholder; actual or anticipated changes in our operating results or fluctuations in our operating results or developments in our business, our competitors’ businesses, or the competitive landscape generally; litigation involving us or investigations by regulators into our operations or those of our competitors; developments or disputes concerning our 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, or guidelines; any significant change in our management; changes in the automobile industry; and general economic conditions, including as related to the COVID-19 pandemic.

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. 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~~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 less attractive to some investors or otherwise harm our stock price.

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~~ include: online automotive marketplaces and ~~websites,~~websites; internet search ~~engines, digital marketing providers, peer to peer marketplaces,~~engines; peer-to-peer marketplaces; social media marketplaces; sites operated by automobile ~~dealers,~~dealers; online dealerships; and ~~online dealerships~~.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 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 ~~industry~~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, 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.

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 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 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 payment processor, our data center hosts, our information technology providers and our data providers for inventory and vehicle information. 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 the COVID-19 pandemic or otherwise, we could suffer increased costs and we may be unable to provide consumers with content or provide similar services until an equivalent provider could be found or we could develop replacement technology or operations. In addition, 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 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 maintain proper functionality. Issues with these integrations, our failure to properly update third-party platforms or any interruptions to our internal enterprise systems could harm our business by causing delays in our ability to quote, activate service and bill new and existing customers on our platform.

We must maintain proper and effective internal ~~controls~~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 result, the value of our Class A common ~~stock could decline.~~stock.

We are required, pursuant to Section 404 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. During the

evaluation and testing process, if we identify and fail to remediate one or more material weaknesses in our internal control over financial reporting, we will be unable to assert that our internal controls are effective.

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 any future material weaknesses, 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 accounting firm is unable to express an opinion on the effectiveness of our internal control over financial reporting when it is required to issue such opinion, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our Class A common stock could decline, and we could be subject to sanctions or investigations by Nasdaq, the SEC or other regulatory authorities.

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 a variety of factors, some of which are outside of our control, including the effects of the COVID-19 pandemic. Our results may vary as a result of fluctuations in the number of dealers subscribing to our marketplaces and the size and seasonal variability of our advertisers’ marketing budgets. As a result of the potential variations in our revenue and results of operations, period-to-period comparisons may not be meaningful and the 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 the trading price of our Class A common stock.

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

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 the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc., which could precipitate reactions by legislators, regulators and courts that could adversely increase our 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. For example, we are currently under audit by the Internal Revenue Service with respect to our 2016, 2017 and 2018 federal employment taxes and our 2017 corporate income taxes as well as by New York State for our 2014 – 2020 sales and use taxes. Any adverse development or outcome in connection with ~~these~~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.

Confidentiality agreements ~~with employees and others~~ may not adequately prevent disclosure of our 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. 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. In addition, any changes in, or unexpected interpretations of, intellectual property laws may compromise our ability to enforce our trade secret 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.

Item 6. Exhibits.

The exhibits listed below are filed or incorporated by reference into this Quarterly Report.

Incorporated by Reference

Exhibit

Number

Exhibit Description

Form

File

Number

Filing

Date

Exhibit

Number

Filed

Herewith

~~10.1~~ 31.1

~~Third Amendment to Lease, dated as of July 1, 2020, between 55 Cambridge Parkway, LLC and the Registrant.~~

~~10.2~~

~~First Amendment to Lease, dated as of October 27, 2015, between BCSP Cambridge Two Property, LLC and the Registrant.~~

~~10.3~~

~~Second Amendment to Lease, dated as of September 28, 2020, between Two Canal Park Massachusetts, LLC, as successor-in-interest to BCSP Cambridge Two Property, LLC, and the Registrant.~~

~~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.

31.2

~~31.2~~

Certification of Principal Financial ~~Officer and Principal Accounting~~ 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.

32.2*

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

101.INS

~~101.INS~~

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

~~101.SCH~~

Inline XBRL Taxonomy Extension Schema Document.

101.CAL

~~101.CAL~~

Inline XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF

~~101.DEF~~

Inline XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB

~~101.LAB~~

Inline XBRL Taxonomy Extension Label Linkbase Document.

101.PRE

~~101.PRE~~

Inline XBRL Taxonomy Extension Presentation Linkbase Document.

104

~~104~~

The cover page from the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, ~~2020,~~2021, formatted in Inline XBRL.

The certifications furnished in Exhibit 32.1 and Exhibit 32.2 hereto are deemed to accompany this Quarterly Report 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~~

* The certifications furnished in Exhibit 32.1 and Exhibit 32.2 hereto are deemed to accompany this Quarterly Report 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

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 ~~5, 2020~~9, 2021	By:	/s/ ~~Langley Steinert~~Jason Trevisan
		~~Langley Steinert~~Jason Trevisan
		Chief Executive Officer (Principal Executive Officer)

Date: November ~~5, 2020~~9, 2021	By:	/s/ ~~Jason Trevisan~~Scot Fredo
		~~Jason Trevisan~~Scot Fredo
		Chief Financial Officer ~~and President, International~~ (Principal Financial ~~Officer and Principal Accounting~~ Officer)

5660


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)


	At September 30, 2020		At December 31, 2019			At September 30, 2021		At December 31, 2020
Assets
Current assets
Cash and cash equivalents	$	245,941	$	59,920		$	231,091	$	190,299
Investments		—		111,692			90,000		100,000
Accounts receivable, net of allowance for doubtful accounts of $610 and $240, respectively		16,322		22,124
Prepaid expenses and prepaid income taxes		7,325		10,452
Accounts receivable, net of allowance for doubtful accounts of $602 and $616, respectively							85,182		18,235
Inventory							6,395		—
Prepaid expenses, prepaid income taxes and other current assets							13,183		12,385
Deferred contract costs		9,950		9,544			9,905		10,807
Other current assets		1,634		4,972
Restricted cash		250		250			5,753		250
Total current assets		281,422		218,954			441,509		331,976
Property and equipment, net		27,276		27,950			29,569		27,483
Intangible assets		10,262		3,920
Intangible assets, net							92,421		10,862
Goodwill		28,357		15,207			155,707		29,129
Operating lease right-of-use assets		63,525		59,986			63,841		60,835
Restricted cash		10,627		10,553			10,377		10,377
Deferred tax assets		27,267		42,713			13,741		19,774
Deferred contract costs, net of current portion		8,501		10,514			6,866		9,189
Other non-current assets		3,314		3,826			5,886		2,673
Total assets	$	460,551	$	393,623		$	819,917	$	502,298
Liabilities and stockholders’ equity
Liabilities, redeemable noncontrolling interest and stockholders’ equity
Current liabilities
Accounts payable	$	16,839	$	36,731		$	55,340	$	21,563
Accrued expenses, accrued income taxes and other current liabilities		17,878		18,262			21,922		24,751
Deferred revenue		9,678		9,984			12,517		9,137
Operating lease liabilities		11,472		8,781			12,671		11,085
Total current liabilities		55,867		73,758			102,450		66,536
Operating lease liabilities		62,016		60,818			61,013		58,810
Deferred tax liabilities		304		284			19		291
Other non–current liabilities		4,105		1,908			12,546		3,075
Total liabilities		122,292		136,768			176,028		128,712
Commitments and contingencies (Note 10)
Commitments and contingencies (Note 9)
Redeemable noncontrolling interest							54,633		—
Stockholders’ equity:
Preferred stock, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding		—		—
Class A common stock, $0.001 par value per share; 500,000,000 shares authorized; 94,016,568 and 91,819,649 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively		94		92
Class B common stock, $0.001 par value per share; 100,000,000 shares authorized; 19,076,500 and 20,314,644 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively		19		20
Preferred stock, $0.001 par value; 10,000,000 shares authorized; 0 shares issued and outstanding							—		—
Class A common stock, $0.001 par value per share; 500,000,000 shares authorized; 101,003,874 and 94,310,309 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively							101		94
Class B common stock, $0.001 par value per share; 100,000,000 shares authorized; 16,470,842 and 19,076,500 shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively							16		19
Additional paid-in capital		233,246		205,234			379,808		242,181
Retained earnings		104,249		51,859			209,024		129,412
Accumulated other comprehensive income (loss)		651		(350	)
Accumulated other comprehensive income							307		1,880
Total stockholders’ equity		338,259		256,855			589,256		373,586
Total liabilities and stockholders’ equity	$	460,551	$	393,623
Total liabilities, redeemable noncontrolling interest and stockholders’ equity						$	819,917	$	502,298


	Consideration Transferred
Cash paid, net of cash acquired	$	64,273
Cash acquired		5,237
Cash consideration		69,510
Stock consideration		103,645
Total consideration transferred	$	173,155


	Adjusted Fair Value at Date of Acquisition
Cash and cash equivalents	$	5,237
Accounts receivable		16,119
Inventory		2,338
Prepaid expenses, prepaid income taxes and other current assets		95
Property and equipment, net		198
Intangible assets (1)		104,100
Goodwill (2)		127,500
Operating lease right-of-use assets		709
Accounts payable		(8,888	)
Accrued expenses, accrued income taxes, and other current liabilities		(15,513	)
Operating lease liabilities - current		(230	)
Operating lease liabilities - non-current		(479	)
Redeemable noncontrolling interest (3)		(58,031	)
Total consideration transferred	$	173,155

	Adjusted Fair Value at Date of Acquisition ⁽⁴⁾
Cash and cash equivalents	$	50
Restricted cash		220
Accounts receivable		1,862
Intangible assets ⁽¹⁾		7,600
Goodwill ⁽²⁾		12,477
Operating lease right-of-use assets		2,169
Other assets, net		162
Accounts payable and accrued expenses		(358	)
Operating lease liabilities - current		(446	)
Operating lease liabilities - non-current		(1,723	)
Deferred tax liabilities ⁽³⁾		(687	)
Total purchase price	$	21,326


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


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


Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Small reporting company	☐
		Emerging growth company	☐


		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	5
	Notes to Unaudited Condensed Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2024
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3842
Item 4.	Controls and Procedures	3943

PART II.	OTHER INFORMATION	4044
Item 1.	Legal Proceedings	4044
Item 1A.	Risk Factors	4044
Item 6.	Exhibits	5559
Signatures		5660


	Three Months Ended September 30,				Nine Months Ended September 30,
	2021		2020		2021		2020
Revenue	$	222,915	$	147,472	$	614,970	$	409,007
Consolidated net income (1)	$	29,267	$	26,487	$	75,897	$	20,965


	At September 30, 2021
	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:
Money market funds	$	167,521	$	—	$	—	$	167,521
Investments:
Certificates of deposit		—		90,000		—		90,000
Total	$	167,521	$	90,000	$	—	$	257,521


	At December 31, 2020
	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:
Money market funds	$	112,431	$	—	$	—	$	112,431
Investments:
Certificates of deposit		—		100,000		—		100,000
Total	$	112,431	$	100,000	$	—	$	212,431

	At September 30, 2020
	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:
Money market funds	$	172,427	$	—	$	—	$	172,427
Total	$	172,427	$	—	$	—	$	172,427

	At December 31, 2019
	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:
Money market funds	$	29,196	$	—	$	—	$	29,196
Investments:
Certificates of deposit		—		111,692		—		111,692
Total	$	29,196	$	111,692	$	—	$	140,888


	At September 30, 2021
	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
Investments:
Certificates of deposit due in one year or less	$	90,000	$	—	$	—	$	90,000
Total	$	90,000	$	—	$	—	$	90,000


Balance at December 31, 2020	$	29,129
CarOffer acquisition (1)		127,500
Foreign currency translation adjustment		(922	)
Balance at September 30, 2021	$	155,707

Balance at December 31, 2019	$	15,207
Autolist acquisition⁽¹⁾		12,477
Foreign currency translation adjustment		673
Balance at September 30, 2020	$	28,357


	At September 30, 2020								At September 30, 2021
	Weighted Average Remaining Useful Life (years)		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Remaining Useful Life (years)		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Brand		8.7	$	9,257	$	995	$	8,262		9.6	$	32,338	$	3,444	$	28,894
Customer relationships		1.8		1,866		782		1,084		2.2		19,871		5,660		14,211
Developed technology		2.3		1,200		284		916		2.3		65,212		15,896		49,316
Total			$	12,323	$	2,061	$	10,262			$	117,421	$	25,000	$	92,421

	At December 31, 2019								At December 31, 2020
	Weighted Average Remaining Useful Life (years)		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount		Weighted Average Remaining Useful Life (years)		Gross Carrying Amount		Accumulated Amortization		Net Carrying Amount
Brand		10.0	$	3,524	$	313	$	3,211		8.4	$	9,405	$	1,235	$	8,170
Customer relationships		2.0		1,045		336		709		1.6		1,886		938		948
Developed technology										1.0		2,213		469		1,744
Total			$	4,569	$	649	$	3,920			$	13,504	$	2,642	$	10,862


Year Ending December 31,	Amortization Expense
Remainder of 2021	$	7,874
2022		31,078
2023		30,350
2024		4,144
2025		3,052
2026		3,052
Thereafter		12,871
Total	$	92,421

Year Ending December 31,	Amortization Expense
Remainder of 2020	$	484
2021		1,938
2022		1,704
2023		971
2024		953
2025		953
Thereafter		3,259
Total	$	10,262

	At September 30, 2020		At December 31, 2019
Accrued bonus	$	8,841	$	8,637
Accrued commissions		2,824		3,153
Other accrued expenses, accrued income taxes and other current liabilities		6,213		6,472
Total	$	17,878	$	18,262

	~~Employee~~ ~~Severance and~~ ~~Related Benefits~~
~~Balance at December 31, 2019~~	$	—
~~Charges~~		~~3,248~~
~~Cash disbursements~~		~~(2,581~~	)
~~Noncash settlements~~		~~(667~~	)
~~Balance at September 30, 2020~~	$	—


	Three Months Ended September 30,					Three Months Ended September 30,
Average Monthly Unique Users	2020			2019		2021		2020
	(in thousands)					(in thousands)
United States		38,655	⁽¹⁾		38,062		28,818		38,655
International		7,784			10,187		7,461		7,784
Total		46,439			48,249		36,279		46,439


	Three Months Ended September 30,					Three Months Ended September 30,
Average Monthly Sessions	2020			2019		2021		2020
	(in thousands)					(in thousands)
United States		94,288	⁽¹⁾		103,461		71,184		94,288
International		18,274			26,168		17,119		18,274
Total		112,562			129,629		88,303		112,562


	At September 30,					At September 30
Number of Paying Dealers	2020			2019⁽¹⁾		2021		2020
United States		23,659	⁽²⁾		26,163		23,979		23,659
International		6,503			6,923		6,775		6,503
Total		30,162			33,086		30,754		30,162


	At September 30,			At September 30
Quarterly Average Revenue per Subscribing Dealer (QARSD)	2020		2019⁽¹⁾	2021		2020
United States	$	5,133	n/a	$	5,602	$	5,133
International	$	1,256	n/a	$	1,524	$	1,256
Consolidated	$	4,302	n/a	$	4,704	$	4,302