Good afternoon, RBC's TMT Conference. I'm Brad Erickson. I cover internet here at RBC. Very pleased today to have Jason Trevisan. I almost was thinking CFO. You were, you were doing both jobs previously- Yeah. CarGurus CEO, Jason Trevisan. Jason, thanks for being here. Thanks for having me. Appreciate it. Yeah, so, I obviously have my exhaustive list of questions, but if anybody has questions in the audience, feel free to raise your hand and we'll try and get to those. I think we have a mic, too. Mm-hmm. So yeah, with that, I think, you know, obviously, you guys just printed results recently. Mm-hmm. Maybe just spend a minute just to level set, kinda, what was the main sort of message and takeaway would you say from the results? And then just kinda hit one or two or, or three kind of key questions you've really been fielding from investors since the report. Sure. Can everybody hear me okay? Yep, okay. I would say the theme of our quarter was momentum in our core business. We've accelerated the growth of our core marketplace listings business, largely driven by acceleration in our KPI called CARSID, which is how much dealers pay us per quarter. So momentum and acceleration there, and then really several examples of innovation across the business, both in our core marketplace, as well as in our path and evolution toward becoming a transaction-enabled platform. And then, the news that we accelerated our buyout of CarOffer, which is a company that we had acquired 51% of before, and we accelerated the acquisition of that from next summer until up to now. The three types of questions I would... or the three maybe most prominent questions we got are, one: what are the drivers of CARSID? And so, we talked about the handful of drivers that we have, one of which is renewing customers, which we call an annual business review. I think some folks probably put too much weight in that. That's not our top or even our top couple drivers of CARSID, that's just one, on a list of half a dozen or so. People asked why we accelerated, and the short answer there is, we wanted to accelerate the buyout of CarOffer. We wanted to accelerate product optimization between the two platforms and the many data-driven things we can create between having retail view and wholesale view. And then, a lot of excitement around a product we introduced called Top Dealer Offer, which is a second offer that we can give to consumers who give us the information on the car that they're looking to sell. It sits alongside our Instant Max Cash Offer product, and dealers love it. We just introduced it to dealers who are in 18 metro markets, and consumers love it 'cause they now have two choices, two options, and typically, the Top Dealer Offer is a higher price point. Got it. Okay, that's great. So let's start with the CARSID, which quarterly average revenue per subscribing dealer- Subscribing dealer. Subscribing dealer. Yeah, all right. All right, that's a, it's a tough one. You talked about the annual business review. It's interesting, you said it's not actually the primary driver. Talk through what are the components or the inputs that are driving that, that CARSID tailwind you mentioned. The biggest component is us signing up new dealers at market rates or more market rates. A lot of our legacy dealers, we've sold in when we were still trying to earn a seat at the table in the listings business, and so we came in at a very aggressive price. And now, though, because we're the largest audience and the largest marketplace, we have the ability to charge more at market rates. We still think we're a discount to our competitors on a cost per lead basis, if, as one metric, and so, there's still headroom there, but we're doing much better at signing up new dealers at market rates. The second is bringing dealers up in package levels. And so, we're doing more and more work to pack more value into higher levels of packages. It used to be just that you would get more leads or you would get more brand awareness, and now we're doing more around data and insights. And, Digital Deal is now, as of this quarter, so it hasn't affected CARSID yet, is being bundled into our higher featured products. ABRs are a subset of overall renewal and renewals. They're just happen to be the renewals with the most egregiously underpriced dealers. So, renewals, as a bucket, is probably next, and then new products is another area. And, and a lever that we have not really pulled on that much this year, but has been prevalent in years past, and you know, absolutely could be one in the future again, is lead volume. You know, we have to balance lead volume with lead quality. We never wanna tip the scale too much into one or the other because dealers have an expectation of what they want, but we try to maintain volume, lead volume levels that excite them, but all the while, improving the quality as well. Got it. Okay. And then on the ABRs in particular, is this like we're going through kind of like a unique cycle, where you're bringing those customers that were below market up to market, and then we kind of re-baseline, or is this something that's kind of a more durable thing over the next several years? It's not a one-time 2023 thing, but if we're effective at it for the next few years, then the bottom 20% at that point should be much closer to an acceptable market rate. Got it. Okay. And then on the dealer front, the new dealer front, you said bringing on a new dealer, or yeah, new- subscribers at market rate. Where have those dealers been? 'Cause it's a difficult environment, right? It seems like it's a tough time to add new subs. Is that maybe dealers you've lost through sort of the COVID period, or is it just... Talk through where are you finding these new dealers? Yeah, I mean- An interesting time, being able to tell that story, so- Yeah, and this was our highest booking quarter since 2018, so pre-COVID, obviously. I mean, certainly some have been on our platform before, no, no question. Yeah. There's 42 to 45,000 dealers in the country, and we have 25,000 paying on our platform now. Pre-COVID, we were at 29,000, so we had the big COVID reset, and then it's been a slow build, a slow and steady build, to be honest. But we added net new dealers this quarter, and it tends to reflect, you know, who are they? It tends to reflect the market. So we have a market representative mix of indie and franchise. Got it. Okay. Then just on, as you're delivering leads, you talked about volume and sort of trying to establish a balance there. I think your traffic has actually been pretty solid- like, on a year-over-year basis lately. Does that pretty much translate to kind of your leads? So that would be one question is just, you know, given all things equal in the market. And then secondarily, as you're having these business reviews, are you maybe just talk about some of the reporting tools you're bringing to those customers, just to kind of... As you try and get them to understand the value you're delivering. I think that's, that's a question we get from investors a lot. I would love to hear more about that. Yeah, so on your first question, traffic does not necessarily travel in parallel with lead volume. Okay. There can be a lot of reasons to it, but one is around lead quality. Okay. And so ultimately, what dealers value and pay us for is lead volume and lead quality. And if our traffic, our uniques or our sessions spike by 30%, they don't notice it, and they're not gonna pay for that- Yeah ... and similarly in the other direction. So, I mean, they, they are oftentimes, all else being equal, will travel in concert, but market conditions, for instance, right now, and I hear this across categories, the buying cycles are a lot longer. So people are looking at items before they're buying, and so that would reflect itself in conversion rate on our site, which would diverge those two metrics- Yeah ... as an example. In terms of the value that we talk about for our dealers, I mean, we really do try to be a, a thought partner to our dealers and have them think of us as somebody who's trying to help them grow their volume and grow their margin, their GPU. Yeah. Gross profit per unit. We will often try to move the discussion to some of the non-lead value adds that we offer. A lot of times, the easiest math for them to do is, "What did I pay you, and how many leads did I get?" I'd be lying if I said that they didn't anchor on that, because they do. But we have products that and some of which we just introduced and talked about. In our core dashboard, we have a pricing tool, and it shows dealers if they move the price what that's gonna do to the deal rating on our site. If they have a better deal on our site, they're gonna get a lot, lot more leads on it. We have merchandising tools and market tools that show them which cars are seeing the most searches in a particular Geo, which of their- how they're pricing their cars, relative to our deal rating. Which cars don't... basic things, don't have the proper information to be merchandised effectively. Mm-hmm. Some of our more recent ones, though, are getting more sophisticated. So a recent one that we introduced is Next Best Deal Rating. So that is a report that they get that says, "For all your cars, this is the minimum amount of money you would need- dollars you would need to drop it to get to the next best deal rating, which, if you were to enact that, you would get significantly more lead volume." Now, they then do, you know, intelligence on their own side, which says, "Well, would I rather drop the price, or do I think it's the right price and I just need to wait six more days? Or that's too big a drop for the Next Best Deal Rating." So we're—these are steps that along the way that bring us to the point where we hope to soon be able to say to dealers, "Here are the decisions you need to make on the sourcing side, and here are the decisions that we'd recommend you make on the retail side to maximize your GPU and to maximize your volume, to ultimately get to maximizing your gross profit at the dealership. Yeah. That's, that's why, frankly, we moved into wholesale, was so that we could say that- Got it ... across the board inside. Okay. Yeah, and I want to get to CarOffer in a minute. Just one more on that. I think a few years ago, you guys were, uh, I think, a piece of this story, and it still is, is the ability to attach on other products with the core beyond just the- Mm-hmm ... the kind of leads marketplace. Talk about, is that still a driver when we look at CARSID, for example, and talking, you know, SEM, retargeting, some of the other add-on services, and maybe just an update on attach rates, or how important is that within that metric? It's certainly important, and it's strategically - it probably punches above its weight strategically versus economically. But we haven't given... We've given a smattering of data points in terms of attach rates, but Digital Deal is maybe the best example, where, right, it's one of our fastest-growing recent launches. Yeah. 18 months in, 3,400 dealers who are paying us, you know, between $300 and $500 a piece standalone. So that's a $15 million-$20 million run rate product that we introduced last year. We do have retargeting products. We do have other advertising products. We have tried selling some things à la carte and found that the opportunity wasn't worth the selling effort, and so we've rolled those into the core listings product, frankly. Yeah. But Top Dealer Offer is another one that is an à la carte add-on, that will be part of- that will be a CARSID driver- Yeah ... that starts to bridge that gap between retail and wholesale. Got it. Okay. And on Digital Deal, you just mentioned 3,400 dealers, just gotten started. What are... I mean, I don't want to say why wouldn't every dealer adopt that, but what are kind of the gating factors towards bringing more dealers onto that? Yeah, so just for the groups, as a reminder, Digital Deal is a subscription product for dealers, but it enables all their inventory to allow the consumer to do a number of things, putting them closer to the final purchase on our site. So when they go to the dealership, when they walk into the dealership, they can spend an hour instead of four hours. That's the easiest way to think about it, and it includes things like a trade-in value, fully qualified for a finance- for an auto finance loan, putting down a deposit, setting up an appointment, things that are part of the overall purchase. Yeah, so I mean, small dealers, the economics would not be worthwhile. Yeah. For mid and large-sized dealers, the economics are fantastic. These leads that come through Digital Deal tend to convert at two to five times a normal lead, depending on which features they attach to it. So they're very high-quality leads. There's a price point, Yeah ... obviously. There's a little bit of workflow change. So if a consumer does all that on our site and walks into the dealership, and the dealership hasn't trained their salespeople to know to get that information out of the CRM, that customer is not thrilled. Yeah. So they have to adopt a little bit of workflow change. There may be a lender overlap, misalignment, but in general, we think it's a strong ROI, and it's what the consumer wants. I mean, in all of our consumer research, they say, "I don't want to spend four hours in the dealership. I want to do more online." You get 2% that are doing the whole transaction online, and a couple% that are doing none of it online. Yeah. Everybody else in the middle wants to do more and more online. Yeah. This, the NPS, dealer and consumer on that, super high. Yeah, got it. Okay. No questions, just confirming. On CarOffer, I guess let's switch to CarOffer for a little bit. Let's start with the you know, completing the acquisition. What was the rationale for the timing? I think you had the, the call was next year, right? In 2024- Yep ... CarOffer. Originally, it was next summer. Yeah. So why, why do it now? What was the kind of strategic rationale there? Yep. Biggest reason was accelerating product innovation together. Second was, if we have full ownership of the company, then we have operational oversight of the company, and in the existing model that we were in, they were maximizing EBITDA to maximize step three. I understand that, that's the structure of the deal. But it caused us to be slightly misaligned in terms of timing and in terms of what our ultimate goals were. Yeah. With 100% oversight, we can make more aligned operational decisions. The third is, we hired an executive who is, you know, sort of custom-built for this role. He previously ran OPENLANE, which is a digital wholesale platform, and ten ran Manheim Digital. ten ran Manheim Digital. Mm. Mm-hmm. His name is Zach Hallowell, and he's gonna run CarOffer when we close next month. And I think just this, the vision that I talked about in terms of having retail and wholesale and sharing the data, that's takes a lot of work, but it's very exciting, and we're so committed to that. We just wanted to do it as quickly as we can. Yeah. And maybe just as a refresher, maybe just speak to the valuation and what you're paying for the asset. Yeah, so the way the deal was structured, we acquired 51% in 2021 for about $140 million. We then had a call right to buy the remainder or a portion of the remainder at 6 times gross profit in 2022. Yeah. And then there was a put call to buy the remainder next summer at 12 times trailing EBITDA. And so we bought the remainder of the equity for $75 million. Got it. Okay. And then just on... I want to get more into the kind of the new products within CarOffer. Mm-hmm. But one question we get from investors is just around, you know, with the emergence of a programmatic model in digital wholesale, right, versus the historical traditional auction, timed auction bid, situation. What... You know, I think one of the criticisms, if there was one, of CarOffer was, is that programmatic is a nice solution, right? But maybe, you know, there are some who offer a fuller platform of services, and particularly, that the programmatic only, maybe addressed a portion of the market, right? It's a different kind of purchase for a lot of dealers. There's some risk associated with it. Arbitrations clearly indexed a little high initially. How do you guys think about CarOffer's ability to address more of the market in the future? And I guess the question being is: Can you do enough with what you have on programmatic? Would you look to expand it into the auction format? Mm-hmm. Maybe just talk about that. Sure. We don't have plans to expand it into an auction format, but we have made investments to enhance or embellish the what was originally the narrow programmatic buying. So programmatic buying is, I as a buying dealer say, "For these types of cars, make, model, trim that fit this criteria, I will pay X% above or below this index. And if you can find five per month, then do those. Yeah. So it's like the stock market. In a rising price environment, when dealers just wanted to get any car because they had the belief and the conviction that if they sold that car, then four weeks later, they would make a nice profit on it, they used CarOffer's platform voraciously. Mm-hmm. It requires dealers to buy cars sight unseen, which is new for a lot of dealers. Yeah. What they've done to enhance the product, which is helping in a price-declining environment, is they're not auctions, but they are features that allow a dealer to pay a little bit more to see the car, and see the inspection report before the transaction is actually completed. Or there is a 24-hour period where a match can be made, but other bids can come in to raise the price of that. And so all of those, I think, are still skewing toward scalable, efficient, programmatic without this notion of sitting there having to watch auctions. Got it. Okay. And then let's talk about the new product, you know, the local product, Sell My Car. Mm-hmm. You guys have had Instant Max Cash Offer has been out for a while, obviously, and that was... You know, I think that worked great for, for a lot of different types of, of customers. Certainly, the buying dealers, they really liked it. But, I think Sell My Car addresses kind of the other pocket of the local aspect. Talk about how those two sort of can work in coordination. You mentioned there'll be a little bit of a cannibalization, at least initially, but talk about how one sort of complements the other, longer term. Yeah, I mean, the best way that their complementarity is shown is that the consumer now gets two options. They get an offer to sell their car to be picked up at their home, and they get an offer to bring their car to a local dealer. And typically, the offer to bring to the local dealer is much higher, can be a couple thousand dollars higher. And the reason for that is because that dealer is not having to pay for an inspection. They're doing it at the dealership, and they don't view that as incremental cost. They're not having to pay for transportation, and they can look at the car, and touch and walk around it. Mm. and start it. They also are then getting what they consider, and appropriately so, a potential customer in their dealership. So for all those reasons, they're willing to pay more. We are structuring that as a lead-based product from our perspective, and so the dealers view it as... We've launched it a few weeks ago, so it's very early days, but the dealers view that as really a low risk and highly valuable channel for them to tap into. Mm-hmm. So the dealers love it thus far. Consumers love the choice, and when they get a higher offer, they typically are choosing that, and they're willing- Yeah ... to forego some of the convenience for it. So they're very different revenue models, and they're reflected very differently in our P&L. But they both support, I think, this concept from the consumer side of selection, choice, trust. Yeah. I'm seeing different offers, and I'm choosing which one I want. And from the dealer side, it's part of this source-market sell, because it's using the CarOffer matrix, it's using the CarGurus audience, and it's really starting to get them to think about how we are a partner to them and a platform for them to source, market, and sell. Got it. Okay. And on that point, you know, you think of a handful of transactions, right? Person, whatever. Person brings a car to sell, dealer doesn't think it's... You know, thinks it's different than it was sold, essentially. Talk through how that process is resolved, either in IMCO or in, you know, a local Sell My Car situation- Popular offer? or whatever. Yeah. And, and- in particular... Sorry to interrupt. Yeah. Given that you've worked on the arbitration, maybe speak to sort of where we started and where the products come, because I know you guys have spent a lot of time to try and improve some of this. Yes. So in the Instant Max Cash Offer user flow, once the car is picked up from the consumer and the money is wired to the consumer, the consumer is done. And so, the car goes to a landed dealer. The landed dealer may or may not be the dealer who bid the highest in the CarOffer matrix on it, but they have a right of first refusal on the car. If they forego that right of first refusal, they have, I think, 24 hours to decide that, then the car is transported to the original buying dealer in the CarOffer matrix. That original buying dealer can arbitrate, but we have done a lot to improve the inspections, to improve the contracts, and the rights, and the expectations, et cetera, so that arbitration is down materially there. In the Top Dealer Offer sequence, the consumer gets the offer online, take it to the dealer. The dealer then evaluates the car, and if it's as the consumer advertised or described, then the dealer is expected to pay that amount, and we have an intake tool that will help track what actually happens. We also have consumer feedback, and are being very aggressive early on in feedback loops to make sure that dealers are not bait and switching- Yeah ... and cheating the system. Oftentimes, what happens is the car is not as described by the consumer. Yeah. And so what we found is that if the dealer explains why they've changed their bid, and it's for valid reasons, the consumer satisfaction, whether they sell the car or don't sell the car, is actually really high. Yeah. Like, we're happy with that NPS. Yeah. What we're not happy with is when the dealer doesn't explain it. Mm-hmm. Yeah. And then that's in a gray area of we don't know if the dealer's being accurate or if the consumer's being accurate. Got it. And on Instant Max Cash Offer, obviously, you guys have kind of throttled volumes, right? Yep. As you've gotten those process improvements more in place, what's gonna allow you to sort of ramp that up? Is that a, is that a choice or a switch you can flip, so to speak, or is it a market dependent thing? It's partly market dependent, but it's more a switch we can flip. I mean, so if you think of... We have the ability to control, within reason, how many people get to the process of getting a car value to them. Yep. From there, they then will choose whether they go to Instant Max Cash Offer. Yeah. So, we're seeing where that's shaking out now, as we're rolling out in Top Dealer Offer, and the majority are taking Top Dealer Offer. Yeah. But, the only thing that will change that balance is the aggressiveness of the bids in the two channels. Mm-hmm. -which we don't control. But what we like about it is that both the lead-based Top Dealer Offer product- Yeah ... is somewhat variable, 'cause they buy packs of leads. Yeah. Instant Max Cash Offer revenue is also somewhat transactional. So once we feel that as a composite dual option, we're getting good economics, which we feel really good about, we're prepared to increase market. Got it. Okay. When car prices were high, we were marketing Sell My Car aggressively, and the economics looked really good. We have a playbook that we can go back to. Yeah. And now we have two options, the lead-based and the- Got it. Okay. Mm-hmm. Then rolling it all up, just in terms of marginal profitability, and I know you've got... I mean, there's a lot of new initiatives on CarOffer, gonna warrant some marketing spend. Mm-hmm. The core business is running really well. You roll it all up, how should we look at kind of marginal or incremental profitability on the business overall? So we- If you wanna, if you wanna unpack it between the two, too. Yeah. You sort of have to- Yeah ... because otherwise growth rates become a big influence. Yeah But, we still stand by the long-term margin targets that we showed at Investor Day last year. Yeah. Yeah. Yeah. So, I think that's a good starting point. In our core business, the products like that go into CARSID, that drive CARSID, I mean, clearly unit pricing, is high margin, Top Dealer Offer is high margin, Digital Deal is high margin. As we bring on more dealers, which we're starting to do now, and as we are getting more to market rates, we're gonna need to drive more lead volume. Yeah. That's gonna cost marketing increases. Yeah. But you know, but for that marketing aspect of it, it's very high flow through. Got it. On the D-to-D side, so the dealer-to-dealer side of CarOffer, you know, that's, we, we think that's 20%-25% EBITDA margin business. What's maybe even slightly more compelling than just that is that we've brought the cost basis down there so that we're supporting almost a break-even operation there right now on very low volumes. Yeah. And so if we got to volumes that were even a fraction of what we got to in the boom, that's gonna be a nicely profitable business. Got it. Then Instant Max Cash Offer, we talked about. Yeah. Yeah. Got it. All right. Just a few minutes left here. I got a little, few lightning round questions for you. Okay. Small, bite-sized answers. It's just fine. Okay. And that's code for- So- talking too much. No, no, no, no, no. This is... And you get to maybe even take your CEO hat off for a second. All right. This is just you and me talking. Sure. No worries. A room full of people listening. So as you think about cloud expenses, right? Everybody in the world essentially has saved money on their... Every company has saved, has saved money on their cloud expenses over the last year, right? And it was, really it was, I'm sure there were some unique company-specific reasons for that, but in many cases, it was the cloud vendors coming to the company saying, "Hey, how can we help you save money?" Right? And I imagine you guys participated in that to some degree. From your perspective, just looking at it industry-wise, your conversations with those vendors, is 2024, can you continue to identify sort of areas for efficiency in 2024, like you did in 2023? Or do you think that's, we've kind of, that was like a kind of a one-time thing, and then we enter back into sort of normal consumption again? I think it enters back into a conversation around productivity enhancement and not cost saving. Okay. Okay, interesting. And then second one, GenAI, most, and you can, again, you can have your CEO hat on or off for this one. GenAI, most interesting use case to you that not enough people are talking about? Content creation for upper funnel audience aggregation. Okay. Historically, we've been. Once you know your car, we'll help you find it. Now we're gonna help people find their cars. help you find it. Now we're gonna help people find their cars. Got it. Okay. And then lastly, just hardest decision you have to make as CEO in the next two or three years? Oh, gosh. Geez! How to prioritize and sequence the product innovation tying wholesale to retail, because they tend to be two different parts of a dealership? Yeah. There's a lot of decades of tradition- Yeah ... that we're gonna have to try to break through- Got it ... to show them what the new world can look like. Yeah. Okay. And then one more. We got a moment. Hired a new CFO. Yes. Congratulations- Thank you ... after a long search. Thank you. I mean, talk about her getting going, and what were the things that you really, you know, evaluated for that role as you filled the seat? Yeah. So, Elisa Palazzo is starting in two weeks, and she has been an investor in online marketplaces for many years, has known us for several years. And, I was just looking for somebody who appreciated enterprise value rather than simply financial reflection. Translating enterprise value into strategy, and then translating strategy into operations. And she has done a lot of that, not so much as an investor, but as a finance lead at a public company. Got it. All right, we're out of time, Jason. Awesome. Thanks for being here. Thank you. Appreciate it. Thanks.