CARG - NASDAQ

Good day, and welcome to the CarGurus Earnings Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Kirndeep Singh, Vice President and Head of Investor Relations. Please go ahead.

Thank you, operator. Good afternoon. I'm delighted to welcome you to CarGurus' fourth quarter and full year 2024 earnings call. With me on the call today are Jason Trevisan, Chief Executive Officer; Sam

Thank you, Kirndeep, and thanks to all of you for joining us today. As I shared at the beginning of last year, the theme of Intelligent Acceleration was our North Star for 2024, and I'm pleased to report that we achieved exceptional results in the past year. We delivered successfully on our business priorities, and our progress across the four drivers of value creation, was fueled by outstanding execution resulting in key wins, across the business in 2024. Our full year marketplace revenue, was up 14% year-over-year and revenue growth accelerated progressively throughout the year. The sustained expansion of our business, was fueled by key product innovations. The growing adoption of value added products and services that deliver competitive intelligence, and analytical insights paired with a consultative approach has deepened our partnership with dealers, which resulted in higher engagement, improved retention and an increased rate of longer term contracts. Our platform has been rated the best ROI, by dealers in the industry, and this has allowed us to capture a larger share of dealer spend. Our international business also saw significant acceleration with annual revenue up 23% year-over-year and meaningful operating profit expansion. Strong operational and commercial execution, coupled with disciplined investment in growth drove further margin expansion. We believe, we will be able to replicate our domestic success, and will continue to invest in these regions, introducing differentiated products such as Digital Deal and Dealer Data Insights. Last our OEM advertising business, also returned to double-digit year-over-year expansion after several years of contraction. This reflects the ongoing replenishment of new car supply, and our large consumer audience as well as our ability to monetize demand, through better consumer targeting. As a result, we achieved strong OEM renewal rates, renewing all existing customers' year-over-year, and winning business from new customers reentering the market after a multiyear hiatus. While 2024, was a year of growth and investment in new and existing products, our strong execution and disciplined approach to capital allocation, enabled us to simultaneously achieve significant operating leverage, and robust cash flow generation. Our annual consolidated adjusted EBITDA grew 26% year-over-year, or $51 million in the year, with margins expanding over 600 basis points year-over-year to nearly 28%. As previously highlighted, our marketplace business delivered exceptional results, reporting an annual consolidated adjusted EBITDA of $266 million up 35% year-over-year. In contrast, our Digital Wholesale segment ended the year, with an $18 million adjusted EBITDA loss, reflecting declines in transaction volume. As noted in prior earnings calls, we are actively working to rebuild this segment, optimizing unit economics, and driving operational efficiencies, with the ultimate aim of returning the business to profitability. We believe our success and ongoing investment in growth and innovation, position us strongly for 2025. Moving forward, we will focus on further enhancing our value proposition, as we plan to continue to introduce new products and services, and integrate our offering more seamlessly into dealers daily workflows, strengthening our market leadership, and deepening our reach across the dealer ecosystem. Now, similar to prior quarters, I will highlight the progress we have made across our four drivers of value creation. One, provide more value to dealers. We are dedicated to enhancing the way our dealer partners operate. Our intelligence driven platform empowers dealers to source, price market and sell vehicles more effectively, with the aim of maximizing profitability, across their workflow. Our relentless focus on innovation, and providing the highest ROI has led to greater dealer engagement, and retention on our platform. In Q4 we concentrated our efforts on two key priorities one, leveraging our industry leading data assets and AI to integrate value added actionable insights throughout the dealer workflow, enabling more informed decision making. And two, enhancing our account management function, to help dealers extract even more value from our platform. These initiatives delivered significant value resulting in continued migration to premium subscription tiers up 23% year-over-year in the fourth quarter. Our Dealer Data Insights reports achieved exceptional adoption. In just over a year, Next Best Deal Rating expanded to over 14,000 dealers in the U.S. with over 1,000 more in the U.K. and Canada. In Q4 alone, we recorded nearly 1 million price changes to the inventory we recommended a change on, up 33% from Q3, which drove faster turn times and significantly boosted dealers' ability, to maximize their profit. Additionally, we saw strong growth across our other Dealer Data Insights report. Of dealers who leveraged our acquisition insights report, 69% of them acquired the vehicles we recommended, and 65% of the acquired vehicles sold within the estimated turn time. Our suite of data-driven, predictive analytics and actionable insights, presents a compelling value proposition for our dealers, and we will continue to release new insights across the dealers' workflows. As part of our commitment to deepening our partnerships with dealers, we continue to invest in our account management function. Our in-person dealership-level training team has already demonstrated significant success, and we plan to expand this nascent initiative further in 2025. This team works directly with dealers, to implement best practices for lead handling, improving appointment and close rates, and enhancing overall spend ROI. Early adopters have seen compelling results, including a 70% increase in digital deal close rates. Though small, our team plays a crucial role, especially with new product introductions like Top Dealer Offers. As our business becomes further integrated into dealer workflows, we believe the benefit of closer support, will continue to grow. The adoption of value-added products has risen steadily across our growing dealer network, which has led to higher engagement and stronger retention. Long-term contracts signed in Q4 accounted for over 40% of our new contract base, highlighting stronger durable partnerships with our dealers. Two, build a better consumer experience. In 2024, we focused on delivering a more personalized and seamless experience for our shoppers, ensuring each interaction was tailored to their unique needs. We also harnessed the power of AI to deliver smarter recommendations, and more intuitive engagement, transforming how consumers interact with our platform. In the second half of 2024, we enabled consumers to revisit vehicles they've previously explored, and started providing tailored recommendations based on their search history. This personalization has resulted in a 10% increase in lead conversion, for recommendations during our testing phase, highlighting the value of offering more relevant vehicle options. With a 14% increase in direct traffic year-over-year, and 30% of our leads coming from our app, it's essential that we continuously improve the experience across our owned channels. To support this, we introduced cross-platform syncing, allowing consumer activity to seamlessly transition between desktop, mobile web, and the app. We believe this integration, coupled with other improvements have boosted shopper satisfaction throughout their journey, driving lead volume growth. Last, leveraging AI, we've launched over 30,000 personalized car comparison pages, facilitating consumers' decision-making process based on individual needs. The impact has been significant, with users who engage with the new comparison page, being twice as likely to visit the vehicle description page, versus the prior experience. This powerful tool has proven highly effective, and we plan on refining and scaling it further. In summary, these changes have driven growth in direct traffic, and boosted lead conversion, widening the traffic and lead quality moat that, has enabled us to deliver one of the largest most engaged audiences to our dealer partners. Three, enable digital transactions. The shift toward online car buying and selling continues to gain momentum, as consumer preferences keep evolving. Our 2024 Consumer Insights Report revealed that 80% of consumers surveyed, prefer to complete more of the vehicle purchasing process from home. However, in-person interactions remain essential. 88% of buyers surveyed saw the vehicle they purchased in person before buying, and 69% preferred an in-person test drive. We believe this validates the market demand for Digital Deal, which seamlessly integrates online and offline engagement. Digital Deal remains our fastest-growing product in the U.S. Its penetration further increased 13% quarter-over-quarter and 105% year-over-year to 9,570 dealers. Digital Deal with geographic expansion, which enables our dealers to extend their reach beyond local markets, grew 10% quarter-over-quarter and nearly 30% year-over-year. We have recently launched a new pilot in the U.S. within Digital Deal that, enables dealers to receive full shopper credit applications, directly in their finance management system, providing full visibility into a shopper's financing eligibility, and ability to activate hardcore financing. Furthermore, in November, we rolled out Digital Deal in Canada, where early adoption has been strong, with hundreds of dealers leveraging the platform to engage with higher-quality leads, driving faster and more efficient sales. Shifting to sourcing. Just over a year ago, we launched Top Dealer Offers, a subscription-based product that enables dealers, to source vehicles directly from consumers in their area. This is an important part of the dealer value chain, and one of the largest drivers of unit economics. As we highlighted last quarter, our priority is to deliver an exceptional experience, to both consumers and dealers to establish a solid foundation, for scalable long-term expansion. To support this, we are onboarding dealers in a more strategic, and intentional manner. Top Dealer Offers continued to experience strong consumer engagement, with approximately 0.5 million visitors to our Sell My Car page each month, 40% of whom were also actively looking to purchase a new car. As we enter 2025, our focus remains on product innovation, and exceptional customer experience, as we are committed to equipping our partners with the tools they need to transact seamlessly in a rapidly evolving digital landscape. Four, rebuild and integrate Digital Wholesale. In 2024, we focused on three strategic pillars to rebuild our wholesale platform, improving operations, refining our product market fit, and reigniting our commercial engine. Improving operations. In the fourth quarter, we saw improvement in dealer-to-dealer transportation margin, while upholding our high-quality inspection process, resulting in smoother and more reliable operations. These advancements have ensured consistent vehicle quality, as evidenced by an uptick in our NPS scores, related to vehicle condition, inspections and timeliness. Refining product market fit. We recognize the need in a volatile price and demand environment, to offer dealers a higher degree of confidence, to drive more predictable and profitable purchasing decisions. With this in mind, we have prioritized updates that leverage real-time market insights, to drive better outcomes. In January, we transitioned our insights-driven functionality from a pilot phase to full availability for all dealers, and early adopters have been engaging in transacting at higher rates. Reenergizing our go-to-market motion. We leveraged AI and insights, to simplify the customer onboarding process, reducing the time needed to update dealers' parameters, from 60 minutes to just 10 minutes. Our 24-hour service, which enables dealers to view images and condition reports before purchasing vehicles has also undergone significant improvements, offering dealers valuable data points through predictive analytics that increase their ability to transact confidently. While we've made substantial progress across all these dimensions, this segment continues to incur losses. We will continue to work toward our goal of restoring profitability, which will involve continued cost optimization, and a disciplined reinvestment in our products. To conclude, in 2024, our marketplace business delivered exceptional financial performance, marked by strong growth and significant margin expansion. We made notable progress on our four drivers of value creation. We enhanced our platform's products, features, and data insights while leveraging synergies between our Retail and Wholesale operations. At the same time, we continued to grow both the quantity and quality of leads, further expanding our market share. We're pleased with our 2024 achievements and look forward to building on this momentum in 2025. As we look ahead, we will remain focused on strategic investments in growth and innovation, embedding our products deeper into the dealer workflow, further solidifying our leadership position across the consumer, and dealer ecosystem, and setting the stage for durable growth in the coming years. Now, let me turn the call over to Elisa to discuss our financial results.

Thank you, Jason, and thank you all for joining us today. Similar to prior quarters, my commentary will cover a detailed overview of our fourth quarter performance, followed by our guidance for the first quarter of 2025. Fourth quarter consolidated revenue was $229 million, up 2% year-over-year, driven by double-digit expansion of our Marketplace business, partly offset by lower wholesale and product volumes. Marketplace revenue was $210 million for the fourth quarter, up 15% year-over-year, and in line with the midpoint of our guidance range. The sustained acceleration of our Marketplace business, was driven by ongoing strength in subscription-based listings revenue, which grew $25 million year-over-year, reflecting new and existing dealers subscribing at Marketplace, upgrades to higher subscription tiers, and better adoption of value-added products and services. Our global accounts grew to 32,010 dealers, up 326 dealers sequentially as we have continued to gain market, and wallet share both in the U.S. and international. The ongoing expansion of our active dealer base, reflects our customer-centric approach, which has resulted in higher engagement and improved retention, and has cultivated long-term deeper relationship with our dealer partners. The impressive growth in our international business continued in the fourth quarter, with revenue up 26% year-over-year, driven by expansion of our dealer base and car seat growth, which were up about 11% year-over-year, and 17% year-over-year, respectively. We believe there is a significant opportunity to expand in our international markets. And we plan to invest resources in 2025 that, we believe will drive compelling returns across several years. Wholesale revenue was $10 million for the fourth quarter, down 55% year-over-year and down 19% sequentially, driven by a decline in dealer-to-dealer transaction volume, as we have continued to prioritize unit economics. Lastly, product revenue was $8 million for the fourth quarter, down 55% year-over-year and down 44% sequentially. This is in line with the commentary we provided last quarter, and reflects the fact that conditions across our origination channel, reverted to normal. I will now discuss our profitability and expenses on a non-GAAP basis. Fourth quarter non-GAAP consolidated gross profit was $199 million, up approximately 14% year-over-year. Non-GAAP gross margin was 87%, up approximately 860 basis points year-over-year, and up about 400 basis points sequentially. The meaningful margin expansion in both comparison periods, was primarily due to the ongoing revenue mix shift, towards our high-margin marketplace business. Marketplace non-GAAP gross profit was up 17% year-over-year, and non-GAAP gross margin expanded by about 120 basis points year-over-year to 93%, driven by a favorable product mix. In our Digital Wholesale business, sequential non-GAAP gross margin improvement reflects lower amortization costs, primarily related to the discontinuation of the CG Buy Online pilot, and other fully amortized projects. Consolidated adjusted EBITDA was $76.4 million, up 25% year-over-year. Consolidated adjusted EBITDA margin was 33%, up approximately 600 basis points year-over-year and up approximately 540 basis points sequentially, reflecting primarily the favorable mix shift to high-margin marketplace revenue. Marketplace adjusted EBITDA, was 27% year-over-year to $79.3 million, with margins up approximately 360 basis points year-over-year, and approximately 330 basis points sequentially. The sequential uptick in margin was driven by seasonally lower media spend in the fourth quarter. Digital Wholesale adjusted EBITDA loss was approximately $2.9 million, a $2.4 million sequential improvement. The quarter-on-quarter improvement was driven by a reduction in operating expenses, reflecting the reallocation of CG Buy Online-related resources to Marketplace, as well as CarOffer year-end expense accrual reversal. Excluding these items, Digital Wholesale adjusted EBITDA would have been approximately flat sequentially in dollar terms, despite a further reduction in transaction volume, underscoring our focus on limiting losses, and restoring profitability in this segment. Moving to OpEx, our fourth quarter consolidated non-GAAP operating expenses totaled $129 million, up about 8% year-over-year and down about 2% sequentially, primarily reflecting the seasonally lower sales and marketing expenses I just mentioned, consistent with our expectations. Non-GAAP diluted earnings per share attributable to common shareholders was $0.55 for the fourth quarter, up $0.20 or 57% year-over-year, reflecting primarily the increase in consolidated adjusted EBITDA, and lower diluted share count. We ended the fourth quarter, with $304 million in cash and cash equivalents, an increase of $57 million from the end of the third quarter. The higher cash balance was primarily driven by $76 million in consolidated adjusted EBITDA, partly offset by $14 million CapEx and capitalized website development costs, and $5 million in other net cash outflows. Throughout the year, we repurchased a total of $146 million worth of shares. As a reminder, the $200 million 2025 share repurchase program, we announced in November became effective in January. Last, we are pleased to report that as of December 31, 2024, we have remediated the material weakness at CarOffer. I will now close my prepared remarks, with our guidance and outlook for the first quarter of 2025. We expect our first quarter consolidated revenue, to be in the range of $216 million to $236 million, flat to up 9% year-over-year, respectively. We expect our first quarter Marketplace revenue to be in the range of $209 million to $214 million, up between 12% and 14% year-over-year. We anticipate revenue, to be slightly up sequentially at the midpoint, as we expect strong bookings to be offset by seasonal fluctuations in OEM advertising revenue, as OEMs typically ramp their ad spend in the fourth quarter, and dial it down in Q1, and unfavorable currency impact quarter-to-date. Moving to Digital Wholesale, we expect first quarter volumes, to decrease sequentially as we have introduced a number of changes in our offering, and we're currently validating product market fit. We remain focused on cost efficiency and unit economics, with the aim of returning the business to profitability. We expect our first quarter non-GAAP consolidated adjusted EBITDA, to be in the range of $60 million to $68 million. In the Marketplace segment, we expect margins to be up year-over-year, but down sequentially as we ramp our media spend in the first quarter due to the launch of our new brand campaign called Big Deal. Going forward, we expect operating expenses, to increase modestly for the third quarter, as we continue to invest in new products and innovation, and expand our international business, but to progressively decline as a percentage of revenue throughout the year. For Digital Wholesale, we expect segment EBITDA losses, to increase sequentially as we expect lower transaction volume, to be in part offset by lower operating expenses. Finally, we expect first quarter non-GAAP earnings per share, to be in the range of $0.41 to $0.47, and diluted weighted average common shares outstanding to be approximately $107 million. With that, let's open the call for Q&A.

Thank you. [Operator Instructions] The first question comes from the line of John Colantuoni from Jefferies. Please go ahead.

Hi James, it's Vincent Kardos on for John today. Thanks for taking my questions. One on Digital Deal. Maybe just digging a bit deeper, on what the new financing functionality you're piloting add for dealers, and any early observations on uplift to lead conversion, and how performance is compared to your expectations, for the feature thus far? And then one on the macro. Just if you consider a scenario in, which tariffs wind up posing a material headwind, to the affordability of new cars for consumers. Just help us think about the potential secondary, and tertiary impacts for the various components of your business, please? Thank you.

Thanks. It's Sam

Sure. I mean, on tariffs, so obviously, a lot still to unfold and see how it impacts midterm. We think there will certainly be a shift among new car brands based on the percent that is manufactured in the affected countries. But it's also about parts two. And so it will probably have an effect on nearly every car that's manufactured. And so, there will be a shift among new, and we do think there will be a shift to used from new as well. And so as the shift in demand goes to used, the key question then is, how quickly do those prices rise? If the prices rise significantly enough among dealers such that turn times go down - I'm sorry, such that turn times go up, then that tends to help our bookings in our subscription business, as it's harder for dealers to move cars, if prices don't adjust quickly enough, and the demand is there and turn times improve. Then we don't think we'll see that tailwind that, we otherwise would. So a lot of factors at play, and we are in a wait-and-see mode, but we continue to serve dealers in good times and bad times, with a very ROI-focused sales model, as you know.

John, does that answer your questions?

Yes. Appreciate the answers. Thank you, guys

Thank you. [Operator Instructions] We take the next question from the line of Ralph Schackart from William Blair. Please go ahead.

Good evening. Thanks for taking the question. You had a really strong quarter in net dealer additions both in the U.S. and international. Maybe you can just give us a little bit more color on sort of the drivers there in the quarter. And then just maybe more broadly, as we think about Marketplace revenue growth in 2025, you're facing tougher comps. Obviously, the business is doing well. But maybe help us think about the drivers there and thoughts on sort of overall growth profile in 2025? Thank you.

Thanks, Ralph. It's Sam

Yes. Thanks, Sam, and thanks, Ralph, for the question. So we are continuing to experience sustained, and positive momentum in our Marketplace business, and we anticipate growth to continue to be strong in 2025. For the first quarter, we guided for growth to be between 12% and 14% year-over-year. That is a sustained pace of expansion against a much tougher comp. For the rest of the year, we expect growth to taper down modestly, as comps get increasingly more demanding, particularly in the back half of the year.

Great. Thanks, Sam. Thanks, Lisa.

Thank you. The next question comes from the line of Rajat Gupta from JPMorgan. Please go ahead.

Great. Thanks for taking the question. Jason I think, I noticed in your press release that you had a comment that, dealers are consolidating spend towards high-yielding marketplaces. I was curious, if you could shine any stats around that. What percentage of your dealers today have like two marketplaces, versus maybe three before? Anything you can share on that front that - to help us understand like how this has evolved, over the last few years? And how your value proposition, is evolved with those specific dealers? And I have a quick follow-up.

Sure. Thanks, Rajat. So I don't have data on it. I would say there's a couple of things happening. One is there's two levels of consolidation. One is there's just consolidation - continued consolidation among dealers. And so, just here based in Boston, there's recent news of a large regional acquisition by Asbury, and that's just one example of many right now. It is a pretty active M&A market in dealer land right now. And we view that as positive, because the more sophisticated the dealer group, the better they can understand, how to get the most out of our platform, and the better they typically tend to understand ROI, and we shine, we think, in both those dimensions. So there's that consolidation. And then at a given dealer group, from a spend and channel perspective, I think there's just a theme, and this is related to sophistication. But there's a theme of focusing, as you said, on the high-yield areas and on simplification. Again, you'll hear dealers to a person talk about the hundreds of opportunities that, they are pitched on from a software and marketing perspective. And it's just overwhelming. And I think coming out of COVID, a lot of them have said, we want to consolidate to a smaller set of channels. A smaller set of partners and service providers, and invest more deeply in them. And so as the market leader from an audience perspective, and then as Sam mentioned, we're adding more and more tools, we're getting dealers to use our products, and our insights on a daily basis, instead of just accepting the leads into their CRM, and their understanding and appreciating the ROI better. So, I would say anecdotally, we're hearing and we're seeing dealers say in U.S. and increasingly in Canada, and we're starting to hear in the U.K., too, for the first time, look, we have gotten comfortable that, we can drop other partners and focus exclusively within CarGurus.

Got it, got it. That's helpful. And maybe just a follow-up on Digital Deal, and you brought up Asbury. It came to my mind, like Asbury, for example, they're switching to DMS to a new partner, you might know. I'm curious like with some of these changes are happening in the industry, is there any thought around you integrating CarGurus' platform, including Digital Deal, more closely with like the DMS systems, and also maybe like some of these new and upcoming DMS providers? Is that an added solution that you could provide over time, just to make the product more, I would just say just more - embed that more into the dealer network? Thanks.

Sure, I can take that as well. So you've heard us, I'm sure, talk about the fact that we are becoming a broader product portfolio to dealers. And you've also heard us talk about, how we're orienting around the dealer workflow. And so, the key stages or steps of that workflow, where dealers need to source cars, price them, manage the inventory, market them and sell cars. And so, as we think about that workflow, we are now providing, at a minimum, insights to them on each of those steps, and at a maximum, functionality in each of those steps in some cases. And so, incumbent on doing that, is integrating with other systems that they have. That might be another pricing tool, or an inventory management system. It's certainly a CRM. Sam gave the example in Digital Deal. It's our financing platform. Occasionally, it is to DMS as well. And so integration, as we expand our product portfolio, integration is a growing component of what we're doing. We know that dealerships are unique in how they operate, but they're reliant on a core set of CRM, and IMS and DMS. And in order to be part of their daily workflow, which we're now becoming, which we need to not be, we do need to be integrated into those.

Got it. Makes sense. Thanks for taking the questions and good luck.

Thank you. The next question comes from the line of Marvin Fong from BTIG. Please go ahead.

Great. Good evening. Thanks for taking my questions. Just sort of to build on the earlier question about the macro, I'd just like to focus on the dealer side of that. Are you - you had a great quarter in terms of dealer adds. But as we sort of moved into January and February, are dealers at all pausing or being hesitant, in terms of the volatility in the headlines? I know Jason, you just mentioned that, this could actually turn out to CarGurus' benefit, but just curious if it's making any of the sales discussions, changing that dynamic at all. And then second question, just on CarOffer, I know the turnaround effort continues, and you continue to build that out. I guess just maybe in very simple terms, what inning would you say we are in terms of the time, or bringing that platform to the point, where you feel ready that you can sort of, unleash that in a full body way? Thanks a lot.

Thanks, Marvin. I'll take the first, and then I'll let Sam take the second. So the short answer, so in Q4, I would say, and we had shared this, in Q4, we did hear a little bit of hesitation among dealers related to the election, and then that came and went in Q4. We won't speak much to Q1 at all really. And but I would say, anecdotally, we and others have seen that, dealers are not very reactionary right now, to potential tariffs. I think most of that part of the industry, is simply in a wait-and-see mode, and as you wait and see, just go about your sort of normal operations. But embedded in that, are the themes that I just shared in terms of consolidation, to the largest and most sophisticated platforms. And so, but I do think that there are other trends created, by some of the macro factors that do affect dealers. And so for instance, in Q4, retail sales were up really nicely, about 10% roughly year-over-year. New inventory was up really big year-over-year, and days on market, as a result went up significantly. And so, I think those are more of the day-to-day factors that dealers are dealing with. And they're trying to run a hectic, and active business in the moment, and what's going to be much more pressing to them, is if they have cars piling up in their lot, not if there might be future tariffs.

Martin, I'll take part two. And gosh, it's a good question. I love sports so I wish I could give you an inning reference for CarGurus. I'd probably say early innings still. And why I say that is that we are reimagining the platform. Let's step back to our bigger premise here, which is we believe that sourcing vehicles, as part of what Jason just said, source, price, market, sell is an exceptionally important and probably the number one pain point, for 100% of the dealers that are out there today. How do I acquire inventory? How do I acquire late model inventory? How do we make it profitable, for my business so I can turn times, and move them quickly? Because we have unique sets of data, we've got the consumer demand data that we're matching to pricing data, where we see both retail and wholesale, and the ability to tie that into a transaction capability. We believe CarOffer has a unique and unparalleled opportunity, to make success in the marketplace long-term. What we're doing right now, is focused on those areas that we've mentioned on previous calls. First is we're managing our OpEx. We've got to be smart and thoughtful about, what the operating expenses are of that business, given that we have a slow transaction volume right now. Number two, is we're improving the operating, the operations margins of our business, by improving our transportation times. Still improving our inspection that we're really proud of is, the operating margin of the, of that operations capability, and the inspection and condition of vehicles, is a positive. It's growing more positive for our customers, and our NPS scores. Most importantly, as we're working on our product market fit. And that would be something that, you've known for years looking at our business. The instant trade platform works great, in some environments and for some segments of the market. It works better at other times, when the market pricing is going down, for other sets of the market. What we think we found though, is something truly unique. We talked about it. It's very early stage, and I don't want to get ahead of ourselves. But the insights capability we're providing to dealers, we're showing them, and recommending based on their particular vehicle history, and turn times in their market, the consumer demand in that local market. So think of us being the player in the market, show them what vehicles are selling more in that market, or in highest demand, making recommendation then for the sourcing, or disbursement of vehicles. Depending on what is that market demand, and helping them improve their turn times and profitability. We're seeing in the early stages, of launching this new insights capability to a small set of our customers, that they are finding this to be a better path to engagement on the platform, a better retention of them buying regularly, and we think that holds promise for us, for future product development and go-to-market needs. When we take that to our new customers, and I say that to you that knowing that, many of our CarGurus customers have never been on that CarOffer platform, to give it to the ideal larger customers, and let them see this capability and the insights and the unique data that, we're providing for them and making recommendations on, which purchases to make, we're finding that those customers are saying. I've never seen anything like this before in the market. I'd love to take a look and try. So this gives us promise. It's been several quarters. We're continuing to work on that. It will take us several quarters going forward, to continue to improve this process. We believe we'll run a profitable business longer term, but we've got that early innings, to get us to where we want to go.

That's great color, guys. Thanks, Jason and Sam, appreciate it.

Thank you. The next question comes from the line of Naved Khan from B. Riley Securities. Please go ahead.

Hi. This is Ryan Powell on for Naved. Thank you for taking my question. We wanted to ask on OEM ads. So obviously, in the letter, you talked about being up double-digits year-over-year. Just we're wondering about trends through quarter-to-date, and also like what you guys are thinking about for 2025? Thank you.

Thanks, Ryan. It's Sam

Thank you.

Thank you. The next question comes from the line of Nick Jones from Citizens JMP. Please go ahead.

Great. Thanks for taking the questions. As we think about, I guess, industry normalization, and you guys are driving leverage in the model. How should we be thinking about kind of your sales and marketing plans, or advertising plans? Are there certain channels that are becoming more appealing? We've heard a lot of folks, kind of leaning into social and CTV, away from maybe search and linear. Is there any insights on how you're thinking about marketing, from here? And then I have a separate question around AI?

Sure. Thanks, it's Jason. We are - you've heard us talk a lot about our direct audience, and our direct traffic, to our site and the growth in our app, from both an audience and customer satisfaction, and lead generation perspective. And a lot of that is it's a function of both product and marketing. But from a marketing perspective, it's largely driven by us doing a better job, communicating a brand that is more memorable and differentiated, to our consumers. And that type of marketing execution is largely done in channels like television, like online video, and less around what would traditionally be known as performance marketing. It's also frankly driven by better execution in relationships, and consumer life cycle marketing, once we have attracted a consumer initially to the site. You've heard us talk about, us doing more personalization, more sync experiences across platforms. And all of that feeds into, a more engaged customer that stays with us longer, and then is more what we would then put into the bucket, of direct traffic. So the channel shift that is underpinning that, is one that is an intentional one that is more towards things like, online video, endorsement opportunities, television rather than traditional performance marketing.

Got it…?

And then your question on AI?

Yes. There's a lot of focus on agentic AI, and OpenAI's operator. Just curious, the focus, as large as it's been, I think, on the travel industry and maybe booking reservations. But it would seem kind of a friction point for folks, trying to buy cars is scheduling appointments. Some people may not know, the car they want out the gate. Maybe they know they want to see, but they don't know which one. I mean, how do you see a place for agentic AI in the auto industry? How do you feel kind of CarGurus, is positioned to kind of be a top player there?

Yes. So we think it's a huge opportunity, frankly. You've heard us talk about thinking about AI applications in three ways. One is improving existing products, the other is creating entirely new products, and the third is improving the productivity, of our own team. And so you've also heard us talk about, how we've built our own OEM gateway and our really - our engineering and product teams, in particular, are adopting a lot of AI companion technologies, in order to think in a more agentic way. I would say the most direct application, based on what you're describing is a pilot that we've talked about. It's like a virtual assistant. It's like an agent, and it allows a user to engage with our own data, in a conversational way to not just find the car that is best for them, once they already know the make and model, which is typically and traditionally how consumers have used our site. But instead, it helps them, when they're in an upper funnel mode, to identify what type of car, what type of make and model they would want, and then point them to the right actual car or the best car for them. There are two benefits to that: one, it helps us capture users when they're earlier in their shopping journey. And two, it allows us to gather and collect a lot more information, self-supplied information from that consumer. To give them better personalized work, but then also to appropriately share that with the dealers, because when you're giving the dealer much more information on the thought process of the consumers, they're going to be able to serve that lead better, and convert that lead better. And so, we're seeing - it's early for us, but when users are given the opportunity to engage with an agent, they are engaging really deeply. And then they're much more qualified lead, by the time they get to a dealer, let alone the benefits that we're able to give them, in terms of personalizing the sword and search. So we are firm believers of it. We're seeing the traction in some of our early work. And I don't know how to compare it necessarily to travel, but I think you're right to say, and we think about the fact that there are a lot of barrels.

Thanks a lot, Jason.

Thank you. The next question comes from the line of Chris Pierce from Needham & Company. Please go ahead.

Hi, good afternoon everyone. On your Slide 4, the better consumer experience, I think you had a product called Feature Listing. The personalized comparison pages or the personalized search recommendation, is that something you're monetizing now, or could monetize through dealer listings? Or right now, it's just to drive a better consumer experience?

Let me try to clarify, Chris. So the one I could hear you talk about comparison pages, personalized search results, and then also features?

Yes. Is there a way to take these personalized recommendations, and show specific cars, to have dealers sort of be part of this program, and then monetize that? Or right now, it's just about the consumer side of the world?

I understand, okay. So I would think about the dealer side sort of product-level monetization of it, as still largely if not exclusively, in our featured and featured priority model. The personalized and AI-enhanced search results in short order, you can think of that in the, call it, organic listings. But what it's doing is resulting in more engagement from consumers, and then them being more likely to be a lead to a dealer. And then most importantly, it's also improving the quality of our leads, to dealers, because consumers are submitting themselves as leads on a more likely unit. And so, we're tracking this all the way through. It's not just conversion off our site. It's also about conversion all the way to the dealer. So when we talk about lead quantity and lead quality, and striking that balance, personalized sort and search results are feeding, and helping improve both of those.

Okay. Thank you. And then just lastly, you shared some stats, 69% or 65% of the vehicles you recommend to dealers, they're buying and they transact in a certain amount of time, that's positive. Like are you recommending vehicles that, you're seeing on other wholesale platforms, because of the retail/wholesale data that you have? I just wanted to make sure I understand - the recommendations you're able to make?

Thanks, Chris. It's Sam

Okay. Thanks. Thanks both.

And then you can imagine, just to finish out that point, you could imagine then, Chris, as part of the vision that Sam just referenced that, we then point them to actual cars, just to build sales on CarGurus.

I figured you'd put that in there. I appreciate it. Thank you.

Thank you. The next question comes from the line of Doug Arthur from Huber Research Partners. Please go ahead.

Yes, I'll save my question for the follow-up. Thanks.

Thank you. The next question comes from the line of Tom White from D.A. Davidson. Please go ahead.

Great. Thanks for slipping me in here. Just a question on the account management enhancements that you discussed. Sounds interesting and maybe it's kind of a logical evolution for a Marketplace like yours. I mean, do you envision - I guess I'm just trying to think about how this evolves over the next couple of years. Like do you envision having to hire more folks if this expands? And are we moving towards a day, when the dealers that opt in for this enhanced account management, and start handling the leads, the best optimized way that you guys kind of point them to, et cetera? Are they going to get kind of, a significantly larger share of overall platform leads, kind of sent their way, because it will have a better kind of consumer experience? Just kind of trying to understand, the sort of how this evolves? Thanks.

Hi, Tom, it's Sam

Thank you.

Thank you. The next question comes from the line of Ron Josey from Citi. Please go ahead.

Hi. This is Jamesmichael on for Ron. Just a quick one from me. In the prepared remarks, you alluded to investing more in 2025 to drive international growth. What form will those investments take? How should we think about the long-term payback, or impacts to Marketplace margins?

Thanks, James. So we see a very compelling opportunity to continue, to invest and gain market share in our international geographies. We are focused primarily on two areas, go-to-market and marketing, in order to continue to better serve our customers, and provide more value to them. And we believe that, that is an investment that will pay off and is very, very compelling, not only financially, but also in terms of future growth and truly market leadership.

Thank you. The next question comes from the line of Joe Spak from UBS. Please go ahead.

Hi. It's

Thank you,

And on Amazon, this is Jason. So yes, as you pointed out, their new car focus is with one OEM only. And their flow, which I'm sure you've probably gone through, the consumer sales goes to the dealer. Used cars versus new cars are just a different beast on - for a lot of reasons. The consumer shopping habits are very different. But I would say the bigger difference is on the dealer side. You need to integrate with dealers, non-OEMs. And so rather than 10, 12 OEMs that matter, you've got 40,000 dealers. You need to integrate with them appropriately, and that's hundreds of integrations, and it's just a very fragmented audience, where you need their trust in order to believe that, the leads you're sending, that the data you're giving is accurate. So look, I would never ever discount, or underestimate Amazon as a formidable competitor. But we think it's understandable, and sensible that they're focused on new to start. That's a cleaner market and value chain, and we think used is quite different, and we think our leadership position in used in a two-sided marketplace is a really good point of strength to build off.

Great. Thank you so much, guys.

Thank you. As there are no further questions, I would now hand the conference over to Jason Trevisan for his closing comments.

Thanks very much. So we'd just like to thank everyone for joining. As always, thank you very much to our shareholders and customers as well, and most importantly, thanks to our employees for their hard work, dedication and passion that is allowing us to achieve such outstanding results. Have a good night, everyone.