Greetings, ladies and gentlemen, and welcome to CarGurus, Inc.'s Q3 of 2022 earnings results conference. At this time, all participants are in listen-only mode. Question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, you press star then zero on your telephone keypad. As a reminder, this conference is being recorded. It's now my pleasure to introduce your host, Kirndeep Singh, Vice President, Investor Relations. Please go ahead. Thank you, operator. Good afternoon. I'm delighted to welcome you to CarGurus Q3 2022 earnings call. We will be discussing the results announced in our press release issued today after the market closed and posted on our investor relations website. With me on the call today are Jason Trevisan, Chief Executive Officer, and Sam Zales, President and Chief Operating Officer. During the call, we will make statements regarding our business that may be considered forward-looking within applicable securities laws, including statements concerning our outlook for the Q4 and full year 2022, management's expectations for our future financial and operational performance, our business and growth strategies, our expectations for our CarOffer business and acquisition synergies, the value proposition of our current product offerings and other product opportunities, the impact of the semiconductor chip shortage and other macro level industry issues, and other statements regarding our plans, prospects, and expectations. These statements are not promises or guarantees and are subject to risks and uncertainties which could cause them to differ materially from actual results. Information concerning those risks is available in our earnings press release distributed after market close today and in our most recent reports on Form 10-K and Form 10-Q, which along with our other SEC filings, can be found on the SEC's website and in the investor relations section of our website. We undertake no obligation to update forward-looking statements except as required by law. Further, during the course of our call today, we will refer to certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our press release issued today, as well as in our updated investor presentation, which can also be found on the investor relations section of our website. With that, I'll now turn it over to Jason. Thank you, Kirndeep, and thanks to everyone joining us today. This year has been a pivotal time in the evolution of our company as we have been transforming from a listings business to a transaction-enabled platform at a swift pace, which has enabled us to provide our dealer partners and consumer audience a portfolio of offerings for every stage of the automotive purchasing and selling life cycle. While we are still early in the journey of fully integrating digital retail and digital wholesale with our core listings business, I'm proud of the progress we have made this year as we put in place the building blocks for long-term success. Regarding our most recent quarter, while there were business areas that exceeded our expectations, our Q3 financial metrics fell short of the low end of our guidance range as we did not adapt our wholesale operations to the rapidly evolving macro market challenges. The shortfall from our guidance was driven exclusively by our digital wholesale business as our marketplace results were either in line or well ahead of our expectations. Our digital wholesale business was impacted by intra-quarter volatility, which worsened as the Q3 progressed, where we saw a decline in used car retail demand and wholesale volumes, as well as relatively rapid wholesale unit price declines. These market volume and unit price declines resulted in two disappointing trends, compressed wholesale transaction volumes and sell-through rates within our dealer-to-dealer and Instant Max Cash Offer businesses, as well as higher arbitration rates during the Q3. In addition to these market challenges, we identified operational issues within our CarOffer business which negatively contributed to an already tough dynamic. Simply put, the processes and operations which worked well in a rising wholesale price environment were not effective enough in a declining price environment. Despite the wholesale challenges faced this quarter, we're proud of our foundational listings business and, importantly, our digital retail offerings as they continue to demonstrate their resiliency and performed above Q3 revenue and operating income expectations, highlighting the strength of our platform. While it will take time to work through our digital wholesale operational challenges, we remain committed to delivering on our long-term strategies. We are putting in place heightened operational rigor to create a business that's adaptable, stable, and scalable regardless of market conditions. Significant thoughtful changes have and will continue to be made to position the company for sustained innovation-driven growth, and we remain confident in building an automotive ecosystem that holistically serves both our dealer partners and the largest consumer audience. With that, let me walk through our Q3 results. Our foundational listings business continues to demonstrate value, innovation, resiliency, and growth. Though dealer behavior during these difficult times has varied based on each dealer's individual business needs and objectives, we grew our listings revenue and exceeded our expectations for the quarter. Total paying dealers globally grew to 31,286, up 532 from the prior year. In the U.S., paying dealers were 24,691, up 712 compared to the prior year. Despite seasonality in the second half of the year, compounded with softening consumer demand, we're proud of dealer subscription revenue growth driven by maintaining record high client retention and expansion. In fact, our listings churn this year has improved more than 50% compared to our prior five-year average. As a result, US quarterly average revenue per subscribing dealer, or QARSD for short, grew approximately 4% year-over-year to $5,800. Third quarter performance was driven by dealer wallet share expansion through listing upgrades as well as greater adoption of product add-ons. We believe expansion of wallet share is due to our continued commitment to provide our dealer partners with an exceptional ROI through our consistent formula, large volumes of high intent shoppers at attractive pricing. Internationally, total paying dealers for the Q3 were 6,595, down 180 dealers compared to the prior year. Each market is experiencing different macro conditions which contributed to the decline this quarter. For example, in the U.K., dealers are faced with even higher inflation and fears of a recession, limiting demand and overall sales volumes. These types of factors, coupled with dealer churn, resulted in a decline in international CARSD by $17 year-over-year to $1,507. Despite the decline in CARSD, our recently introduced digital display, otherwise known as RPM in the U.S., saw strong adoption in the U.K. and Canada, nearly doubling quarter-over-quarter. Furthermore, in August, we introduced another new product to our international dealers called Highlight. Highlight helps dealers target ready-to-buy shoppers by showing a selection of promoted vehicles in new sponsored slots beyond the first page. As we continue to demonstrate success in our listings products in the US, we plan to further expand these features internationally to enhance our growth, provide our dealer base an exceptional ROI, and give our consumer audience the best experience while utilizing our end-to-end transaction-enabled platform. A key element of our transformation to a transaction-enabled platform is our digital retail business, which empowers our customers to complete more of the transaction online. In our recently released 2022 Consumer Insights Report, the share of consumers who prefer to do more from home for their next vehicle purchase has risen from 60% to 70%. CarGurus' digital retail platform addresses these needs by providing consumers a convenient, self-selective purchasing journey, all while providing trust, transparency, and the best pricing from the largest selection of inventory among major online automotive marketplaces in the U.S. The key to success on the customer experience front is the choice for consumers to buy their next car precisely the way they want, whether fully online or with an in-person, in-dealer interactions. 67% of those surveyed say the in-person test drive is very or extremely important to their buying process, further highlighting the power of the CarGurus digital retail offering known as Digital Deal. Consumers can build a near penny-perfect deal with either dealer or vehicle-specific finance and insurance products, and then place a deposit on their vehicle of choice with a seamless online-to-in-store experience. Our dealers utilizing Digital Deal are not only capturing high-intent consumers, but are also streamlining the sales process by allowing these consumers to complete more elements at home. Since the end of last quarter, we have more than doubled the number of dealers utilizing Digital Deal, ending this quarter with 963 dealers, representing approximately 100,000 Digital Deal listings, greater than any online-only retailer in the U.S. This quarter, leads to Digital Deal-enabled inventory increased by 30%. Of those leads, 54% were high-value leads, meaning the lead included prequalification, hard pull, deposit, and/or an appointment with the dealer. We realized a 13% increase quarter-over-quarter in leads that had an element of financing, and a 100% increase during the same period from shoppers who scheduled an in-person appointment. Clearly, consumers are craving these transaction elements. Of the consumers who went even further in their online shopping journey and placed a deposit, 60% of those shoppers ultimately purchased their vehicle through the digitally enabled dealer. For the first time, many of these dealers are able to serve consumers far beyond their immediate geographic footprint to reach ready-to-purchase shoppers, all while streamlining the sale process with Digital Deal. We remain focused on growing the adoption of Digital Deal and are pleased with the early results. Offerings like Digital Deal were developed by working closely with our dealer partners to provide the right tool sets to compete more effectively. These tool sets ultimately drive a smoother consumer experience, which is the reason we've been able to effortlessly maintain such a high Net Promoter Score of 80. While the revenue generated from this new and innovative product is relatively small today, as we continue to build out the framework to allow consumers to transact fully online, we expect our digital retail business to grow meaningfully. Turning to our digital wholesale business, during the Q3, public industry data cited wholesale prices for used vehicles declined dramatically by approximately 7% from the end of June to September. Throughout this period, transaction conversion rates also declined as dealers faced greater price uncertainty and rental fleet participation, as anticipated, remained relatively muted during the quarter. Gross merchandise sales, or GMS, was approximately $1.12 billion for the Q3. Up 27% from the previous year and declining 41% quarter-over-quarter due to a reduction in total transactions and declining average selling prices. Total Q3 wholesale and product revenue, inclusive of our dealer-to-dealer and Instant Max Cash Offer businesses, was $261.1 million in Q3, an increase of 314% year-over-year, but down 25% quarter-over-quarter. Similarly, combined wholesale and product non-GAAP gross margin was not only challenged by a reduction in transactions and declining average selling prices, but also due to operational challenges. In a declining market, dealers are more likely to arbitrate a vehicle, and our operating systems and controls related to inspection, arbitration, and transportation, which were built and scaled in a rising price market, were not sufficient to operating an efficient business. For example, in a transaction where a vehicle is unwound and we take repossession, we're holding a depreciating asset in a declining wholesale price environment, which further magnifies the issue. Unfortunately, we did not have rigorous processes in place to manage arbitration and loss effectively this quarter. We saw increased losses on arbitration in the number of vehicles and per vehicle, as well as greater expenses related to transportation for multiple vehicle unwinds and rematches. Digital wholesale grew tremendously as dealers and rental fleets faced inventory challenges due to the semiconductor chip shortage. Because of this, we over-indexed on meeting the needs of rental fleets as they bought aggressively in a rising price environment. We're now readjusting our operations to focus and support dealers regardless of rental fleet participation to better balance our concentration in the future. These combined factors also led to a contraction in our adjusted EBITDA. We are working to quickly address these structural deficiencies by putting processes, systems, data, and incentives in place. Clearly, the wholesale market trends this quarter caught us by surprise and exposed weaknesses in our offering and operations, and we're maniacally focused on fixing those issues and serving our wholesale customers well. We don't believe that this quarter's results should alter our longer-term strategic view or our ability to realize it. Given these challenges, our focus at CarOffer has been largely operational and execution-based. In Q3, unique buyers on the platform grew by mid-single digits as our emphasis was on sell-through rates, arbitration mitigation, and increasing productive activity from existing dealers. We expect that this strategic focus of activating dealers and thereby growing transactions per dealer will bolster our digital wholesale business once macro and operational challenges subside. Dealer-to-dealer revenue for the Q3 was $70.7 million, up 23% year-over-year, but down 27% quarter-over-quarter. We saw a reduction in transactions both quarter-over-quarter and year-over-year as a result of a deteriorating wholesale backdrop, which, when coupled with other transaction-based revenue streams such as transportation, inspection, and ancillary products, served as the root cause of the quarterly decline. As for our consumer-facing wholesale offering, Instant Max Cash Offer, we now have coverage in approximately 93% of the U.S. population. At this stage, we're comfortable with our penetration, and any further expansion will be based on the cost and earnings potential of servicing those geographies. Instant Max Cash Offer generated $190.4 million in revenue for the Q3, growing 3,450% from a standing start year-over-year, but decreasing 24% quarter-over-quarter. The decline in revenue quarter-over-quarter was due to a reduction in transactions and average selling prices. Within the quarter, our business saw a 10% decline in monthly average offers saved, an important top-of-funnel data point. Instant Max is powered by the Buying Matrix. As a result, both businesses are highly correlated and affected by the same macro challenges. During this period of slower consumer demand, inflation, and retail seasonality, we see compounded effects for Instant Max Cash Offer. While the business has ample runway for growth in an exceptionally large addressable market, we're choosing to remain thoughtful about offer competitiveness to maintain healthy margins and operational integrity. With 73% of consumers wanting to sell their car online, we continue to provide an excellent consumer experience. In the Q3, we further optimized our offering by expanding our customer drop-off pilot to a few additional locations and states. With Instant Max Cash Offer, we aim for convenience and optionality, providing the consumer the ability to sell their car when they want, the way they want. With 66% of sellers also in the market to buy a car, we're focused on marrying the capabilities of our transaction-enabled platform for consumers by promoting Sell My Car to the default homepage tab, providing material upside to Instant Max Cash Offer without a negative impact to leads. By leveraging our largest consumer audience across the platform, we continue to realize cross-platform synergies with Instant Max campaigns, generating listing leads whose value covered 25%-30% of marketing investment. In spite of the contributing macroeconomic factors and operational obstacles impacting our business, we continue to believe that the combination of our innovative digital retail offerings, our resilient foundational listings business, and our differentiated digital wholesale business will enable us to persevere through these transitory headwinds. March towards fulfilling our vision of creating the only platform where dealers can source, market, and sell, and consumers can shop, finance, buy, and sell. Further, our long-term market potential and non-GAAP gross margin targets for each of our business offerings disclosed at our investor day earlier in the year are unchanged, highlighting the confidence we have in our business model for the future. Through the announcements of our line of credit, acquisition decisions, and strategic focus areas, we have demonstrated that we will remain prudent in our decision-making for the company's long-term growth, while also remaining judicious in our spend to manage profitability. The hurdles faced this quarter represent an opportunity to move quickly to make the transformations necessary to achieve these long-term goals. While that will require some time and focus to realize, I believe our team can accomplish all that we have set out to achieve, and that our portfolio strategy is the right one. None of this would be possible without our employees, and I'm extremely grateful for their commitment and unwavering dedication to not only our company, but to our customers as well. Now, let me walk through our financial results. I'll provide a detailed overview of our Q3 performance, followed by our guidance for the Q4 and full year 2022. Total Q3 revenue was $426.5 million, up 91% year-over-year and down 17% compared to the previous quarter. As I stated earlier in the call, our total revenue for the Q3 was below the low end of our guidance range by $34 million. Marketplace revenue was $165.3 million for the Q3, up 3% from $159.9 million in the prior year, and up 1% compared to the prior quarter. The increase in marketplace revenue compared to both the prior year and quarter was primarily due to the increase in our high-margin foundational subscription listings revenue, driven by the increase in U.S. paying dealers on the platform and increased adoption of our add-on products. This increase in U.S. marketplace revenue was offset by a decline in advertising and consumer finance revenue, as well as international subscription revenue, in part due to the decline in paying dealers, but also due to foreign exchange rate declines in both markets. Wholesale revenue was $47 million for the Q3 of 2022, up 4% from $45.2 million in the prior year. The year-over-year growth in wholesale revenue is in part due to increased transportation revenue related to our dealer-to-dealer and Instant Max Cash Offer businesses. Additionally, there was an increase in buy and sell fees at the beginning of the year. As a reminder, transportation and its associated costs for Instant Max Cash Offer are recorded within the wholesale line items within the income statement. Despite an increase in transportation revenue per transaction compared to the prior year, we incurred incremental transportation costs due to increased arbitration and unwound transactions for both businesses. As a result, the incremental costs of transporting arbitrated and unwound vehicles exceeded the increase in transportation revenue, compressing margins in the quarter. Compared to the previous quarter, wholesale revenue declined 38%. The decrease in wholesale revenue compared to the prior quarter is mostly due to the continued market softening we began to see in the second quarter, which resulted in decreased transaction volumes for our dealer-to-dealer business. Lastly, product revenue was $214.1 million for the Q3, up 1,105% from $17.8 million in the prior year, and down 21% from the previous quarter. The year-over-year growth is primarily due to the increase in Instant Max Cash Offer transactions, as the offering has expanded to approximately 93% of the U.S. population in just a year since its formal launch. Quarter-over-quarter, however, we saw a decrease in revenue due to decreased transaction volumes and declining average selling prices associated with Instant Max Cash Offer, which generated $190.4 million in revenue, roughly $35 million behind our most recent guidance range. In this challenged market, we are remaining prudent and thoughtful to find the most efficient frontier for this business, evaluating each geographic area as well as offer competitiveness to ensure we are executing decisions that derive the highest return for our investments. I will now discuss our expenses and profitability on a non-GAAP basis, which backs out our stock-based compensation expense, amortization of acquired intangible assets, acquisition-related expenses, and net income or loss attributable to redeemable non-controlling interest. Third quarter non-GAAP gross margin was 37% compared to 73% in the year ago quarter and 38% from the prior quarter. The change in non-GAAP gross margin year-over-year is primarily due to naturally lower gross margins in wholesale end product. While non-GAAP gross margin declined roughly 100 basis points quarter-over-quarter, the composition of non-GAAP gross margin shifted. With a decrease in average selling prices, we saw an increase in transactions that were unwound during the quarter, resulting in higher than expected arbitration losses in our digital wholesale business, more so than the previous quarter. As we mentioned earlier in the call, both our dealer-to-dealer and Instant Max Cash Offer businesses experienced decreased transaction volumes and average selling prices, which coupled with increased transportation and arbitration costs, compressed margins below expectations for the quarter. Total Q3 non-GAAP operating expenses were $127 million, up 27% year-over-year. Non-GAAP sales and marketing expense was up 30% year-over-year to $83.2 million and was down 9% compared to the previous quarter. Non-GAAP sales and marketing expense represented 20% of revenue, down from 29% of revenue in the year-ago period. The increase in marketing expense compared to the prior year and decrease compared to the prior quarter reflects our previous commentary that we are remaining thoughtful with our spend as we continue to grow the business and increase our brand awareness, but are not making material incremental marketing spend increases for the remainder of the fiscal year. Our Q3 non-GAAP product, technology and development expenses grew 24% versus the year ago period to $26 million. Similar to previous quarters, the increase is primarily due to an increase in employee-related costs as a result of a 17% increase in headcount and continued investment in our technology teams to grow digital wholesale and digital retail. We generated non-GAAP operating income of $29.4 million, representing a margin of 7%, and we generated $32.9 million consolidated adjusted EBITDA for the quarter. Consolidated adjusted EBITDA was $12 million behind the low end of our most recent guidance range. This was due to the reduced revenue and reduced profitability associated with our digital wholesale business. Non-GAAP diluted earnings per share attributable to CarGurus were $0.21 for the Q3, $0.04 below the low end of our most recent guidance range. On a GAAP basis, we generated Q3 gross margin of 35% compared to 73% in the year ago period. The contraction in gross margin is primarily due to the impact of Instant Max Cash Offer. We incurred total operating expenses of $122.1 million, down roughly 1% year-over-year. The slight decrease in operating expenses reflects our ability to remain judicious in our spend while investing in key initiatives that we believe will grow our business for the long term. Looking ahead to 2023, we do expect our expenses to increase once our lease officially commences for our new corporate headquarters in Boston, MA. Third quarter GAAP operating income decreased 28% year-over-year to $28.7 million. Third quarter GAAP consolidated net income was $18.8 million. Net income attributable to CarGurus totaled $20.4 million and Q3 GAAP net income attributable to common shareholders of $107 million. We ended the Q3 with $404.4 million in cash and cash equivalents, an increase of $36.2 million from the end of the second quarter. We generated $73.2 million in cash from operations in the Q3 and $68.9 million of non-GAAP free cash flow, which includes capitalized website development and capital expenditure costs of $4.3 million. Cash provided by operations in the Q3 was primarily driven by a decrease of $75.5 million in accounts receivable, offset by a $19.3 million decrease in accrued expenses, accrued income taxes and other liabilities. Additionally, we announced on September 29, 2022, that we entered into an agreement with credit lenders for a $400 million revolving credit facility. We have the ability to draw on the revolving credit facility from time to time for a variety of general corporate purposes, which along with our cash on hand, provides us the flexibility to invest in growth regardless of macroeconomic conditions. We also announced in the Q3 that the board elected not to proceed with acquiring additional equity in CarOffer, otherwise referred to by us as step two in our acquisition agreement. As a reminder, we have the ability to purchase up to an additional 25% stake of CarOffer at 7x their trailing 12 months gross profit as of June 30, 2022, in the form of cash or stock. The decision to not acquire additional equity does not impact our confidence in CarOffer as we continue to optimize the business for long-term sustained success. Further, in the second half of 2024, there is a put call option, otherwise referred to by us as step three in our acquisition agreement, where the enterprise value is based on 12x trailing 12 months adjusted EBITDA. As we did not elect to purchase additional equity in CarOffer for step two, the step three calculation would be calculated based upon the 49% of the company we do not own. I'll close my prepared remarks with our outlook for the Q4 and full year 2022. Automotive sales typically experience seasonality in the second half of the year, but especially in the Q4 as retail demand slows. We expect that our marketplace business will continue to post increasingly strong top and bottom line results. We're also anticipating a contraction in Q4 transactions in our digital wholesale business, coupled with further declines in wholesale prices. As a result, we expect our Q4 revenue to be in the range of $270 million-$300 million, and we expect our Q4 revenue for Instant Max Cash Offer to be in the range of $65 million-$85 million. For the full year 2022, we expect our revenue to be in the range of $1.638 billion-$1.668 billion and our full year Instant Max Cash Offer revenue to be in the range of $667 million-$687 million. With wholesale prices continuing to decline, we expect increased losses from vehicles arbitrated at the end of the Q3, which has since depreciated further. As well as greater arbitration in the first part of the quarter as we clear out the inventory that was accumulated on returns at the end of September. We anticipate increased arbitrations combined with reduced transactions will compress profitability in the digital wholesale business in a more pronounced way than what we experienced within the Q3. With that said, we expect our non-GAAP consolidated adjusted EBITDA for the Q4 to be in the range of $6 million-$14 million and non-GAAP earnings per share in the range of $0.13-$0.16. We are estimating full-year non-GAAP consolidated adjusted EBITDA to be in the range of $166 million-$174 million, and we are anticipating non-GAAP earnings per share in the range of $1.02-$1.05. While we expect the next few quarters will continue to be challenging for our digital wholesale business, we believe our foundational listings business will continue to achieve growth and deliver positive results. In our digital retail business, which is in its infancy, will set the stage for significant evolution to retail transactions and the associated long-term revenue and earnings growth. In the near term, we will rigorously work through operational issues in our digital wholesale business. We firmly believe these operational issues, together with the macroeconomic headwinds we are experiencing, are temporary. We are ultimately focused on achieving our long-term objectives as an end-to-end automotive transaction enabled platform for dealers and consumers. With that, I'll open the call up for Q&A. Thank you, sir. We will now be conducting a question and answer session. If you'd like to ask a question, please press Star then One on your telephone keypad. An information tone will indicate that your line is in the question queue. Press Star Two to leave the question queue. For participants using speaker equipment, it may be necessary for you to pick up your handset before pressing the star keys. Please note, in the interest of time, we ask that you please limit yourself to one question and one follow-up. Wait during the question queue for additional questions. Our first question comes from Chris Pierce of Needham. Excuse me. I was just curious, you talked about operational procedures you're putting in place. What are some things you guys can do to lower the arbitration rate, especially where, you know, wholesale prices or used car prices might come in even further? Is it, you know, switching third party services you're using? I'm just kind of curious how you can kind of get on top of the arbitration rate a little better. Chris, I'll take it. Sam, do you want to take? Yes. Sorry about that, Jason. Chris, Sam Zales here. Thanks very much. Arbitration rates will always increase in a down market. We know that with prices declining for a seller, they're in that product, that vehicle for a higher price and hoping to get it back up. For buyers, it's a decision of is the bottom of the market there already. Those numbers will go up. We have those operating challenges, and we're being direct about how we're changing that process going forward. It starts with inspections, Chris. We just didn't have enough discipline in our inspection process for the scrutiny that goes on in a down price market. What we're doing right now is working with new partners on an inspection basis. 1, we're getting scans for frame damage, really important in a market where prices are declining. 2, mechanical inspections. 3, electrical inspections. 4, vehicle history, doing more scrutiny on vehicle history. We're doing that in comparison to what was external, more an external look at the vehicle for damage on the outside of a car and needing to have much more rigor on the inside of the vehicle. We're enrolling new partners to do that from an inspection perspective, and it certainly advanced rigor on those vehicles that have much higher mileage or older model vehicles. That's 1. It starts with the inspection. 2 is our rematch process and the arbitration process. We again didn't have enough operational rigor at CarOffer around that arbitration process. What happened was if a dealer who was buying said, "I don't like the vehicle," the process of either creating a concession and stopping that arbitration process right at the beginning, as opposed to rematching that vehicle to the next buyer in the marketplace on the Matrix, instead of going directly to auction and taking a loss right away, that would have limited our losses in that part of the business. Number three is on the arbitration process is managing our customer experience. We have dealer sales managers who had the ability to say, make a decision on a specific customer and say that we wouldn't re-remove them from the program. They were incented on getting more transactions through the system. Our focus is how do we get those transactions to be the right and profitable transactions. It's removing the sellers and buyers who have over arbitrated on our system and making sure we have the right partners following our policies into the system overall, and that will lower our percentage arbitration as we go forward. All of that ties to our transportation system as well. If we rematch a vehicle from one dealer to another, that can be a lost or dead transaction. We could lose money on that as well. Our efforts on inspection, refining the processes and the data and systems around arbitration and managing transportation to a single transport and a close of a sale that is arbitrated will lower all of those losses per vehicle. We should have had those processes even in a rising tide market as it is now a declining market. Okay. Thanks for the detail. Next question comes from Jed Kelly of Oppenheimer. Hey, great. Thanks for taking my question. Well, my first question, given the higher attrition rate, and can you talk about sort of the lift it's gonna be to sort of eventually bring dealers back to the platform or can you talk about churn that you've seen? Thanks. I wouldn't say we actually had churn in the business. In fact, our buyer rate of dealers on the marketplace was up actually quarter-over-quarter. We're pleased to say dealers still find the platform to be a tremendous capability to acquire and sell vehicles, so more buyers getting on in the quarter, which is terrific. It's just that in the market, when declining prices show up, arbitrage is more unattractive as buyers scrutinize the vehicle they're purchasing, our operating systems weren't as effective as they could be. In that front, we'll actually take a tougher stand with some of our buyers and sellers to say, "We have our policies. We know if the damage was not above a certain amount, you've got to stick with our policies and make sure we're working together as partners on that front." We were a little too lenient on that front, quite honestly. We tried to serve every customer and make them satisfied, and that leads to transactions that lose money. More importantly, as we go forward, I think with this increased level of scrutiny on the inspection by bringing in scans for frame damage, mechanical, electrical, looking at the vehicle history in more detail, we'll probably let our fail rates go up, which means we won't let that transaction go through, and we won't have an arbitration on the back end. That's where you'll see both of those, but I don't think we've seen churn on the platform. In fact, we've seen more buyers getting on in the last quarter. Okay. My follow-up, I guess. You know, the Instant Max Cash Offer, it makes a ton of sense. I guess, can you talk about how you're thinking about marketing investments and sort of wanting to introduce this more to consumers? I mean, do you have to fix some of the operational issues before you kind of feel comfortable marketing this out on a more broad basis? Sorry, Jed, I didn't hit the unmute button. Sam here again. Good question. We will be more careful about how aggressively we market. Remember that we've had this tremendous consumer experience, where consumers are saying it's the best process I've seen for Instant Max in the market. We are going to be careful about marketing too much until we fix and make more disciplined our operating process. What we did see in the Q3 is more aged vehicles and a lower price point on the consumer transactions they were trying to sell through the Instant Max capability. Because of that, you have to have the disciplined operating processes to manage the inspections at a finer level. If older vehicles are coming through from consumers, you've got to have those more rigorous inspections. Number two, the arbitration processes I just went through have to be much more disciplined in the way we allow that with our customers, and also, how effectively we speed that arbitration process to not take losses by rematching to another customer. You'll see us slow down to speed up again in the future. This whole effort is to say, slow down the marketing. IMCO is still a fantastic consumer experience, but it's got to be a profitable operation for us. While we fix those operational issues, we will then ramp up again, you know, and increase the marketing as we go forward. Thank you. The next question comes from Nick Jones of JMP Securities. Great. Thanks for taking the questions. If I could sneak in 2 here. I guess one, I think Manheim Used Vehicle Value Index came out in the declines in October, maybe moderating a little bit. I mean, do you have any sense of kind of the rate of change and what the impact on transaction volume is? Is it potentially improving into 4Q? That's the first question, and the second question is, I guess back to arbitration. I mean, if it's something kinda structurally different than how the fleets arbitrate versus kind of now indexing away from the fleets, is that potentially underpinning some of the challenges you're feeling today? Thanks. Nick, we have indexed away from the fleets, and that's important. I think that was my point to Jed that, you know, more buyers from a dealer perspective are on the platform, so we're really pleased with that. I don't think it's one customer or another. I really put it on ourselves at CarOffer that the operational rigor, the systems, the data we use has to be more rigorous in that process. I'll give you an example. We're sending a CarGurus team of data analysts and engineers and project managers to join with the CarOffer team to improve the data processes to allow us to systematically reduce that arbitration as we go forward. The data just wasn't available to a manager to say, "Let's stop that arbitration right at one point," as opposed to allowing it to go to a rematch situation or move it through with a more economically bad outcome for us. It really is more on us than the market. I think just in a declining market, and you pointed to the wholesale prices, it's continued down. The drop in the numbers went through September. October has not looked better. I think the wholesale pricing market is continuing downward, but I hope at a much less aggressive rate as it did through the Q3. We think things will stabilize at some point, but more importantly for us, it's the operational rigor and execution that we take going forward, to ensure that we're ready to eliminate the unprofitable transactions and get back to the full percentage of profitable transactions. Yeah. I would just add, this is Jason here. I would just add, Nick, there was, you know, as you pointed out and we mentioned in our comments, a very steep decline in used car unit pricing from July to September. You know, even if it were to moderate in October, you know, if you look at the, you know, the last couple years, they're still at very high indexed pricing. We're operating on the assumption, and we're building the business to plan for some level, and it won't be linear, but some level of ongoing decline, until it's, you know, closer to what I would call normal or expected. I mean, I think inflation's real, and so it won't go back to where it was, but I think it still has quite a ways to go given the sort of 45% increase it had from 2021 to 2022. Thank you. The next question comes from Brad Erickson of RBC Capital Markets. Hi. I guess just a couple more on the super fun topic of arbitration. You mentioned you saw the average prices come down on IMCO through the quarter. I guess back to an earlier question around potentially being structural. Do you ultimately just have to focus on higher value cars maybe a bit more to protect the economics? I know you clearly are doing a lot from an operational efficiency standpoint, but just curious if you have to sort of focus and segment the market a little bit more narrowly to protect the economics there. I have a follow-up. Brad, I would say that in a price-declining market, the entire tide of the business goes downward. I don't think we can control it. We are focused and always have been focused. When Jason mentioned in the rising tide market, the model and the operational rigor we had worked fine when the price points were up as high as they've ever been. As those prices decline, it just requires us to have more of that rigor to ensure we reduce that level of arbitrage and, you know, unprofitable transactions. I think we'll always be known as a platform that is a tremendous one for the high-priced vehicles. As the market moves downward and consumers, part of this is consumer demand is going downward as well, and the price points are moving down on the retail side, we're going with the market. I think once we put in the mechanical, electrical, and frame damage inspection partners that are ramping up right now, I think we'll have the capabilities to work with where the market is right now and always our sweet spot in the higher priced vehicles. Got it. Then just one other one in looking to maybe unpack the EBITDA outlook for Q4 a bit. I think looks like if you back out the CarOffer drag in Q3, it implies the core is running maybe around 30% or so in terms of EBITDA margins. Obviously that's worse in Q4. Understand CarOffer is clearly gonna be a bigger drag, but just curious if in Q4, the EBITDA guidance contemplates margins maybe getting hit on something incrementally or if they're gonna continue running in those ranges. Thanks. Yeah, I can take that one. No, we don't. I don't think there's incremental hits in the core business at all. You know, we have, you know, headcount and marketing are our two big expenses, and those can fluctuate. Marketing can fluctuate. Headcount tends to be a steady increase, and we have hired. We've slowed our hiring, but we are still net adding, and that's to continue to invest in digital retail and build innovation in listings. I would say no incremental surprises there. On the revenue side, no incremental surprises on subscription. Where you can see a little more fluctuation would be in advertising and consumer finance, and those do have a little bit of seasonality to them. Where they tend to be slower into the core. Thank you. The next question comes from Ralph Schackart of William Blair. Good evening. Thanks for taking my question. Jason, in the prepared remarks, you talked about the focus on increasing operations to sort of work through the near-term challenges with digital wholesale. Just curious, you know, how much can you operate and execute through a declining sort of environment or where the macro is tough? I guess in other words, you know, would the base or would the business continue to run at this profitability level for the foreseeable future until you can get, you know, the controls you're trying to put in place? Or will there be sort of like an immediate or more pronounced operational focus that could hopefully return the business to, you know, increase profitability going forward post Q4? Sure. I'll start and then, Sam, if you wanna add. Thanks for the question, Ralph. Part of what you're seeing in EBITDA in Q3 and Q4 is us working out of the operational shortcomings from, you know, August and September. You can think of that as sort of flushing out of the system the higher volume of vehicles that we took in in arbitration. There's a piece of Q3 and Q4 that is one time in that nature as we're sort of righting the wrongs that were done a couple months earlier. I think then when you sort of move to steady-state operations, you know, Sam has already talked about a number of improvements that we've made already. Some of these are simply policy and enforcing that. Some of these are procedures and enforcing that in the company. You can start to see those changes right away as well. Between flushing through and making those operational changes, you know, neither of those happen overnight. As Sam mentioned, we have folks here at CarGurus from a variety of functions that are working very closely with the team at CarOffer to make improvements and changes every day. Even in a price declining environment, and this was my comment earlier, which we're assuming, you know, for lack of more crystal ball clarity. Even if we assume that prices will continue to decline, we're putting in the operations that will make for the asset light, efficient, profitable business that existed, you know, six months ago. It's totally attainable. We know what we need to do. We just have to work through doing it. Okay, thank you. The next question comes from John Colantuoni of Jefferies. Hey, guys. Curious to know what you're seeing in terms of used vehicle demand from the rental fleets on CarOffer. To a little bit more depth, what is your view kind of on the magnitude of the impact that that's slowly recovering sort of new vehicle supply will have on the fleet's appetite for used cars going into Q4 in 2023? What is your outlook for the percentage of kind of CarOffer transactions that'll end up being comprised by the rental fleets going forward, next year? I have a quick follow-up as well. Hey, John. It's Sam. I- Oh, sorry, Jason, go ahead. I was just gonna give you a break from talking, Sam. John, we said in the prepared remarks that rental activity was muted as we expected it to be. That's what we expect it will be, you know, going forward. They are getting more allocations from new and there's a chance they come back in a sizable way into the wholesale arena. But we're not, you know, that's not in our forecast, and we're certainly not building a business around that in any way. The short answer is, while they may come back, we're not forecasting it, and nor did we really see it in any meaningful way in this last quarter. Got it. Thank you. Just to add, this is Vincent on for John, by the way. I would follow up by just asking kind of how the departure of the rental players has kind of affected the bid-ask spread that you're seeing on CarOffer. Assuming it's now gotten kind of too wide, to what extent has that kind of played out due to the departure of the fleets? Thanks. I think that largely worked itself out at this point. Meaning, you know, we had that sort of bid-ask spread hangover from when the fleets were bidding so aggressively. I think that has worked its way through and sort of normalized. You know, where you see that, I think now in any residual way, is that in Instant Max Cash Offer, the offers made to the consumers are not nearly as compelling on a relative basis as they were when the fleets were involved. From a dealer-to-dealer perspective, I think the market has come back to a reasonable bid-ask spread. I think what you are seeing, which has led to, you know, lower volumes in the wholesale market, in general, is that you see a lot of dealers that have cars that they're underwater on, and they are reluctant to sell those wholesale and take the write down. They are instead often trying to hold on to those and sell them at retail. I think, you know, that's a different form of a bid-ask spread. That's where you have a seller that is unwilling to accept what is the new market value for that depreciated asset and instead hoping that they can get out from under the underwater dynamic that they're in. Thank you. The next question comes from Doug Arthur of Huber Research. Yeah, thanks, Jason. Just to that point, I mean what are you seeing on the consumer side? I mean, clearly, given your guidance for Instant Max Cash in Q4, you know, interest in selling cars at lower prices has dried up pretty dramatically. Is there a real reluctance because prices are now, I don't know, 15% lower than they were three or four months ago, and the market just is not adjusting to that reality quickly? It will eventually. I mean, just seeing a lot of reluctance to sell, clearly. Yeah. I think it's a few things, Doug. Thanks for the question. Number one, oftentimes when somebody is selling a car, it's because they wanna buy a car. All of these things are connected, right? We know that retail demand is down. Retail demand is down for a number of reasons, concerns of a recession, higher auto loan rates. If fewer people are interested in buying a car, then fewer people need to sell a car. That's number one. Number two, prices are down. You know, if this is somebody who heard from their friend six months ago, "Oh, I got an amazing offer on my used car," or if they checked on a price of their used car six months ago and it's lower now, that's just on a relative basis unappealing. I think that's sort of the market demand side of it. I would say if we look sort of internally at our CarOffer and Instant Max Cash Offer, you know, as Sam said before, we need to tighten up our operations and make sure we do that before we continue to dial things back up and grow again. We've taken down marketing for Instant Max Cash Offer specifically. We've done a number of things to consciously slow it down, number one. Number two, while arbitration rates are high in a depreciating asset environment, we need to build in more buffer in addition to, you know, making sure that we have arbitration under control. We have to build in a buffer to compensate for what may be higher arbitration rates until we can get them down. That's another factor that will lower the offer that we're able to give to a consumer. That also then, you know, in that sort of, I guess, conservative mindset that I'm describing, we're also less likely to take a car that's significantly older or significantly higher mileage, because that has a higher propensity for arbitration. Number of factors that are both consumer demand side as well as our, the level of aggressiveness that we have in growing that. Does that conclude your questions? Yeah. I'm all set. Thank you. Thank you. you. The next question comes from Naved Khan of Truist Securities. Yeah, hi. Thanks a lot. Two questions from me. One on sales and marketing. Can you maybe just provide how much is fixed versus variable related to ad spending here? And how should we think about the ad spending on the listings business while you are fixing the other pieces? And the second question I had is around use of cash. With the increased flexibility that you have on the revolver, what are the thoughts that the board has on maybe being more aggressive on share buyback? You know, given that the stock has kind of declined pretty significantly in recent months? Yep. Can you repeat the very last thing you said, Naved? Yeah, just on share buyback and putting the, you know, the increased financial flexibility to use to buy back shares more aggressively. Sure. In terms of sales and marketing, fixed versus variable on marketing on our listings business or frankly on any of our sales and marketing for that matter. From a marketing perspective, very little is fixed. If I'm interpreting your question correctly, it's really what is like a locked-in media placement buy versus more flexible performance. A very, very small fraction is locked in contractual media commitments. In terms of use of cash, we are happy that we got the line of credit wrapped up. It is, you know, if you look at our cash position, it's gravy, so to speak. I mean, it's not something that is needed by any means. You know, just generically speaking, I mean, the, as we think about capital uses for our business, it could be to invest more aggressively in operations, but again, we're quite profitable. It could be for M&A certainly, or it could be for a share buyback. We continue to do net share settling. Well, I shouldn't say in any given year. In the last several years, we've bought back $15 million-$20 million worth of shares through net share settling. That is, you know, really one of the three, I guess CapEx too. That's really one of the three uses that we would think about for the cash. On the- It's also just. On the- You know, good. Yeah. On the sales and marketing, you said it's mostly, you know, ad spend, it seems like. Is it fair to assume that it's primarily the listings business where it's going because we saw a sequential sort of downtick, but, you know, it still is roughly 50% of your marketplace revenue. Is that the right way to think about it in terms of go forward? I wouldn't think of it as a steady state. I mean, it's come down quite a bit over time and. Well, two things. Number one, I would think of sales and marketing independently. You know, that's how we think about it. Secondly, even within marketing, you know, we have performance marketing, we have brand marketing, we have a number of different executions, and then we also have different messages that we're trying to get to, you know, respective audiences. As it relates to listings and driving activity there, you know, that's what's driving value, that's what's driving digital deal leads, that's what's driving leads to dealers, consumer finance leads, et cetera. So, we view that as exceptionally low funnel high ROI value to our dealers. Performance marketing is very tunable, you know, by the day. Advertising or brand advertising, and specifically television-based brand advertising, is really the only execution that we do of any scale that requires upfront purchasing, where you do have, you know, some modest level of commitment a few quarters out. We think about all of our marketing on an ROI basis. We look at ROAS, return on advertising spend, and we have high confidence that our ROAS is, you know, at a very high ratio. Thank you. Our final question comes from Tom White of D.A. Davidson. Hey, this is Wyatt Swanson on for Tom. Thanks for taking the question. I'm curious whether you guys can comment or quantify the extent to which you may be seeing meaningful growth in the number of vehicle listings from the dealers that show their inventory on your marketplace. Hey, Wyatt, Jason. Are you asking for the volume of dealers who have any inventory on our marketplace? Yeah. Yeah. We would probably have to get back to you. I haven't looked at that. Just for maybe for everyone's benefit, we have paying dealers, and then we have freemium dealers whose inventory we include. Our freemium model now caps the volume of leads that can go to a free dealer in any given month. But we still think that the inventory there is helpful to the consumer value proposition. Inventory has started to come back. The used inventory was, you know, down 20, 30, I think maybe a max of 40%, but that's come back to near pre-COVID levels. New inventory is where it took the big hit. It was down 70%, and that started to come back. That's most likely more driven by vehicles per dealer and less driven by more dealers coming onto our platform who weren't on before. As you know, we've got about 25,000 paying dealers in the U.S. The number of dealers that we have in total is greater than that. I don't think we actually typically cite that number or that trend, but we can look into it and get back to you. Got it. Okay. Thank you. Okay. Thank you. Ladies and gentlemen, we have no further questions on the line. I will now turn the call over to Jason Trevisan for closing remarks. Thank you very much. I would just like to thank everyone for joining us this evening. And most importantly, we'd like to thank our employees and our customers and our partners, and in particular, I'd like to thank all of our veteran colleagues and customers in light of Veterans Day holiday that we're celebrating all this Friday. Thanks, everyone. I hope you have a good evening. Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect your lines.