Good afternoon, everyone. Thanks for coming. The second day of the 27th Annual Needham Growth Conference. My name is Chris Pierce from Needham Research, covering Transportation Technology. Within that, we have the CFO of CarGurus, Elisa Palazzo. Welcome. Thanks for coming. Why don't we just start with 30 to 60 seconds on your background, CarGurus as a whole? We'll get into some Q&A, and questions from the room are welcome as well. Yep, sure. So, good morning, everybody. Thanks for having us. CarGurus is a dual-side marketplace. We are the largest auto marketplace in the country. We have the most traffic. We have the most engaged traffic. We have traffic that is closest to the sale, so we are 3x as likely as other marketplaces to be visited as the last destination before a consumer decides to purchase a car, and we have also the most inventory. We have approximately 20% more inventory vis-à-vis the second next best competitor, so this is our core business, so we have, again, traffic mode and content mode. Over time, we also expanded into the digital wholesale vertical, which is a very sizable market. It is approximately $10 billion, with the acquisition of CarOffer. That is an asset that we are currently rebuilding and hoping to bring back to profitability. So we've been focusing on unit economics and stabilizing the business over time. The business has been performing very well, our marketplace business. It's re-accelerated, and so we've been growing double-digit for several quarters now. We've been experiencing strong operating leverage with margins in excess of 30%. And we feel good about the business going forward. OK, great. Thank you for that. We're not going to do a lot of macro, thankfully. But I just would like to start with new vehicle inventories. We have a lot of cars, new vehicles. We don't have a lot of used cars versus historical metrics. How does that affect your business? How should investors think about just inventory levels affecting your business to the extent they do at all? Perfect. Thank you. This is a question we actually get asked a lot, the macro conditions and how that affect us. So let's start with the new cars inventory. They were low for a sustained prolonged period of time. They are currently rebuilding. So we are seeing an increase in the stock of new cars inventory. We are beneficiary of that business via our OEM advertising placements business. So we don't directly benefit from the volume of the number of cars or new cars on our side. However, OEMs come and advertise on our business. And so we have seen a recovery, if you will, of that business that in the last couple of quarters has grown double-digit. So we are very satisfied about that. And we are seeing tailwinds going into 2025. So this is how we benefit about the new car supply replenishment today. Two, three years down the line, those new cars will become used cars, and so we expect to be beneficiary in the long term with a tailwind in the number of used cars and the level and size of used car inventories, which is directly correlated with the size and the volume of our business. In terms of used car inventory, I would say that has been recovering versus the COVID period. However, it has remained somewhat stable in the last few quarters. What we've seen is that dealers tend to advertise more because they tend to essentially run their dealership with a lower level of inventory, and so the turnover has become faster, and so we have been beneficiaries of that trend because dealers tend and try to move their inventory faster, even from a lower level, so that has been a source of tailwind and growth for us. The other side of the coin is because the used car inventory is now stable, but at a lower level, dealers need to find new ways of sourcing used cars. And so a way for them to do so is sourcing directly from consumers. And we have a new product that we launched a few quarters ago. It's called Top Dealer Offers. It's a sourcing product that allows dealers to source directly from consumers. It's a small part of the sourcing pool today, but it's a very high-quality source of inventory for dealers. It tends to be better priced. And also, based on our product, the consumer tends to drive their vehicle to the dealership directly. And so the dealer has an opportunity. To sell the car. To sell the car, so it's a trade-in, but also to lay their eyes on the car and really check and test the conditions of the vehicle, so it's a very compelling product for the dealer, and we've seen very strong market demand and adoption there. OK, perfect. Thanks for the detail there. Before we go into the marketplace and CarOffer, those side parts of the business, I would just like to touch on what are you seeing as far as dealer behavior? If we look back pre-COVID, I know you weren't at CarGurus at that time, but it seems to me there's been dealer consolidation, and dealers are getting smarter in terms of how they think about data and the marrying of wholesale and retail data to run their business. Is that a broad trend that you see continuing? Where are we in that trend, and how do you fit into that trend? Great question. So we have indeed seen consolidation. Prior to COVID, most dealerships were on all the three marketplace platforms, so on Edmunds, on Cars.com, and on Trader. We have seen a consolidation and a focus on ROI. And so we have been a net beneficiary of that trend. We've been a net market share gainer and also a wallet share gainer. That is because we not only offer the most leads and the best quality leads, so a very strong focus on lead ROI, but also a whole host and wealth of value-added products and services that really enhance the value proposition for the dealers. That has been a very strong area of focus for us. We are constantly investing on new product features and new product innovation. And dealers have really appreciated that. And so as a consequence, we have seen an increase of their spend and level of spend with us vis-à-vis competition. I will give you a small hint of a product that has been very successful and has been driven high engagement on our platform. As part of the dealer data insight, so all the data that we have on our site, we tend to transform that into a report. We have Next Best Deal Rating. That is a product that essentially suggests to the dealer, hey, if you lower by a minimum X amount of dollar the price on this vehicle, you can achieve a better rating because we have rating best, great, and good on our platform. And so every time that we provide that signal, dealers have acted 1.7 million times between Q1 and Q3 year to date on that signal. Typically, the turnover time of that vehicle improves by 35%. That is very compelling. It's a product that we are offering currently free. We're bundled into one of our subscription tiers. However, dealers have found great value. These are unique products and innovations that are exclusive to our site, but dealers find great value in that. And so because of that, they continue to increase their spend on us. What we've shared is on the last earnings call, 50% of the dealers that have been with us for more than two years have increased their level of spend with us. We have been a net beneficiary of that. Their very strong focus on ROI as well. OK. And just to kind of put a finer point on that, what you're saying is you can present your vehicle ahead of other vehicles by the deal rating, but there's some science behind moving the price now versus before? A dealer might move the price too much and hurt their gross profits versus now they know exactly where they can land. OK. We arm them with data that basically allows them to run their business better, more efficiently, and maximize really their product, their profit over time, and allows us to position ourselves as a partner long term that allows the dealers to better run their business over time. So it's a partnership. It's no longer just a marketing platform. Got it. And then, since we're on that, how do a lot of businesses like to make that transition from "I sell this customer X" become "I'm a partner in their business now"? Is it new product introductions? Is it Salesforce? How have you kind of done that? Or is it just over time, kind of a slow process? Absolutely. So it's everything, right? What we said is provide value to dealers. More value to dealers constantly is one of the pillars of value creation, and so we constantly introduce new products and services that enhance the value proposition. That's one, but our Salesforce has also become much more consultative over time, and so we spend much less time selling the product and more time giving competitive insights, competitive information, really consulting with our dealers so that they find better value in our products and services. We even have a group of people who goes to the dealer in person and shows them how to best use our services so that the lead conversion increases, and we are seeing great customer dealer satisfaction because of that. What that has resulted into is dealers are more willing to engage with us on a longer-term basis. And so approximately 40% of the contracts that we signed in the third quarter is six months or longer. It's a very remarkable data point for an industry that was traditionally month to month. We are really becoming a long-term partner to our dealers. Okay, and this is in contrast to sort of what dealers had communicated to me before, where you would introduce a product with a press release, and that was sort of the end of it versus now it's more going to them, showing them how to use it. Do I have that right? Yes. OK, perfect. OK, so let's talk about the two-sided marketplace. Let's talk about the consumer marketplace. So you talked about the most traffic. How do you kind of maintain that? How important is maintaining that? How do you think about what's the right number of eyeballs that you need to maintain that leadership? And how do you drive the traffic to your site versus peers? So what I've just mentioned a couple of times is not only the lead quantity, it's also the lead quality that we're focused on. And so it's how the lead converts into a transaction. So that's one thing. The second one is our marketing spend has never been more efficient. And that is because we continuously work on traffic acquisition and, again, the number of leads that we generate for our dealer. Something that we have recently focused on is our app. Our app is a very sizable source of traffic and leads and is, per se, highly engaged traffic. Approximately 80% of the app users self-register without even being prompted. And they are recurring and returning users. So they keep coming, and they are highly engaged. So that is a source of leads that has been growing over time and will continue to grow. The second initiative that we have is brand and focus on virality. That is an investment that is multi-year, and so what we've seen is that users, and what we aim at, is that users come to our traffic organically without us paying or going through performance marketing. That over time should, again, increase the portion of organic traffic that just comes to our website and also the higher intent quality of traffic. The third one is products. We have a product. It's called Digital Deal. It's essentially an opportunity for the consumer to come to our website and pre-configure the majority of the transaction online. That is very high intent traffic that converts up to 3x as high as a normal lead and has perfect attribution, so that is another way for us to essentially increase the quality of our lead and provide even more value to our dealers. OK. And can you just talk about we're talking about lead, Digital Deal, that type of thing. Just go a little deeper. And I guess I'm on my phone. I need a used car. You prompt me to download the app. That shows that I'm a high intent customer. But what does the dealer see when they get it? Do they see the car I looked at, my email address? And then it's up to them to pick up the phone? Or how do you kind of frame it to the dealer to pick up the ball and kind of close the transaction? So you're talking about our Digital Deal product? Well, regardless, if we just start at the lead level, then we move to Digital Deal. What's the difference? So essentially, Digital Deal allows the consumer to pre-configure the majority of the transaction online and then have the transition from online to offline into the store. So you can look at the car, put down a deposit, run your credit score, book an appointment into the dealership, and then essentially walk into the dealership. What the dealer sees is which type of financing and credit score the consumer has and also, obviously, the appointment time. So there is basically visibility on all these aspects of the transaction. What we've seen is that there is nearly perfect attribution of these leads, and it's much higher conversion. So it's very compelling for the dealer. Currently, we are not monetizing this explicitly. It's bundled into our top two subscription tiers. So it's extra value that we provide to the dealers, essentially at no charge. Can you contrast that with a non-Digital Deal lead? Oh, the non-Digital Deal, you don't have to put down a deposit. Yeah. What does the dealer see? What's the difference from the dealer side? You basically see only the details and the context of the customer, the name, and whatever other information they can disclose. But it's not deposit. It's not credit score, which is highly qualified. Perfect. And then if we think about the TAM, where lead generation sits within dealer marketing, how do you think about or have you framed the TAM in terms of total dealer marketing spend, where lead gen sits within that, how much lead gen is, and how you've been gaining share there? Thank you. Great question. So the overall auto advertising market is approximately spend is $20 billion annually. Of that, $14 billion is digital advertising. And a subset of that, between $3 and $4 billion, is marketplace. We currently have approximately half of the share of voice of traffic, but between a third and a fourth of the revenue share. So there is an opportunity for us to level up our revenue share to the point of traffic share and so go from 25% - 30% of revenue within that $3 billion - $4 billion of marketplace ecosystem up to almost 50% over time. How do you do that while maintaining the same ROI to dealers that you maintain now? Essentially continuing to provide more and more value with leads and non-leads over time. So we are growing our platform, but we're also growing the value-added products and services that we provide to our dealers. So over time, that has allowed and we believe will continue to allow us to continue to grow market share. OK, perfect. And if we think about the KPIs in the model, we've got U.S. dealers, and then we've got QARSD for the average revenue per subscribing dealer. How should investors think about the movement of those two metrics over the next couple of years? Actually, why don't you tee it up even better for you? Why don't you talk about the movement in QARSD and what's happened in QARSD? Yeah. What we have disclosed over time is the drivers of QARSD. We have listed them in order of magnitude. The first one is the increase in the dealer base at current market rates. It's new and existing that have basically come into the platform at market rates. We have been for a very long time underpriced, so that has been a source of growth for us. The second one is the adoption of value-added products and services. That has been a metric that has continued to go up over time, both the adoption of value-added products and services and the attach rate, i.e., the number of services they adopt. The third one is, again, lead quantity and quality. Only a distant fourth has been like-for-like price increase, which, again, is a very minor portion of our growth and will be de-emphasized over time as we continue to enhance the quality of our platform. OK. And can you talk about the path forward with those two metrics? So in terms of path forward, we continue to invest an enormous amount of dollar spend every year in innovation. That is embedded in our margins. And what we have said is continuing to invest. We also believe that the current level of annual margins should be sustainable into 2025. However, our priority is to continue to innovate and come up with new products and services. And so we will be opportunistic should we see ROI in terms of investment opportunities. Over time, we will continue to increase the adoption and the engagement with the value-added products and services. Currently, we are not monetizing it, so that could be a potential source and driver of growth. But more importantly, that is also a driver of the platform quality because engagement goes up, retention goes up. And so for a platform of our size, not only acquiring and upselling customers is important, but retaining is also important. So we have seen that adoption correlates positively with retention. So that should also be a driver of implicit growth going forward. Okay, and can you just touch briefly on the freemium offering and how that plays into the listings? So I'll take a step back on our company history. Again, we were initially the number three platform. We were a challenger with a small market share. And so our founder came up with the idea of having a freemium model, so allowing all the dealers to list their inventory for free on our website. That allowed us over time to gain content leadership, so to have the most inventory, which we have retained over time. We have 20% more inventory than the second-best competitor. When you have more content, as everybody knows here, a marketplace has a competitive advantage. So that, in turn, allowed us to attract audience and traffic. What we also did is, with the freemium model, we paired it up with a truly transparent rating system that was most beneficial and most true to the consumer, so no promoted listings. So the ranking of our listings was just the most beneficial to the consumer. That, over time, has allowed us to attract consumer and traffic leadership. And that's how we have increased our market share and progressively become the leader. And we continue to expand our growth because of this model. OK. And can you touch on just briefly the three product tiers and what it takes to move customers between these tiers, sort of what you've shared on pricing between tiers, what's in the tiers that kind of? Yeah. So we have different pricing tiers. Of course, we have a basic one, and then we have the top two. Over time, sometimes we release new products. Typically, we bundle it over time into our highest subscription tiers. What we've shared a couple of quarters ago is that the adoption of our top two subscription tiers has gone up 20% year over year and continues to increase every quarter. However, we still have room to grow. The top two most premium tiers are still below 50% of our overall penetrated dealer base. Okay, perfect. And then you sort of hit on it earlier, but can you talk about what's in those tiers? So Digital Deal, Top Dealer Offer, are those only available to certain dealers within those tiers? And kind of we hit on Digital Deal, but want to go a little deeper on Top Dealer Offer. And then that's something that not every dealer can get. So why don't you kind of? Yes. So we have a full description of what is included in our tiers on our website. What I would say is Digital Deal now is bundled in the top two higher subscription tiers. All the dealer data insights, which is basically this all wealth of reports that is based on our data, and so providing dealers with suggestions on how to run their dealership better, so Next Best Deal Rating, Profit Maximizer. These are all data-based reports that basically suggest dealers, OK, if you undertake this action, you will improve the profit on this unit. So that is something that we are currently not monetizing and that we are starting to bundle in our premium subscription tiers. There is an opportunity over time, but our playbook is very much give more value for free to our dealers, give them a chance to appreciate the extra incremental value that we provide to them, and then eventually start thinking how and when to monetize that. That is a lever that we have not used yet. Top Dealer Offer is different because it is a sourcing product. It is not a marketing product that essentially monetizes a source of demand that is adjacent, i.e., dealers needing to source cars away from the traditional wholesale channel into a higher quality inventory pool, which is the direct-to-consumer. Top Dealer Offer is monetized a la carte today. It is a $2,000 a month subscription. We are seeing very strong demand and adoption from Top Dealer Offer. However, this is a very high-touch experience for the consumer because every consumer that drives the vehicle in dealership needs to have a good experience, and so we have been scaling this product despite very strong market demand in a very judicious and careful and progressive way to ensure that the consumer experience is compelling and also onboarding very gradually new dealers into our product. Can you talk about Top Dealer Offer versus something like KBB's product where I put in my vehicle information, and then my phone starts ringing from like five different dealers versus the white glove experience that you're referring to? We match every consumer only with one dealer. So again, it's a very controlled consumer experience that has really been designed for scalability over time as opposed to maximizing and exhausting the demand in the near term. OK. And what is the dealer? So the dealer sees a customer come in. They have a general idea of the condition of the car. And then from there, the idea is that they have a consumer that is selling a car, so likely needs a car, and that's why it's of value? Yeah. So essentially, the consumer will drive the car into the dealership. You are matched with one dealer as a consumer, and you drive your car into the dealership. When you get into the dealership, again, there is a protocol on how to handle these leads to make sure that the dealer honors the price and that the consumer has a good customer experience on-site. From the dealer perspective, you can actually get a higher quality vehicle, better-priced, not paying the transportation cost, which is a meaningful source of cost, part of the cost for a dealer. Most importantly, get a trade-in, right? Because the dealer, in a high percentage of cases, will be looking to buy a new car. So it is a very compelling value proposition both for the dealer but also for the consumer that typically gets a better price vis-à-vis selling it through different avenues. OK. We have about 10 minutes left before we move into CarOffer. Are there any questions in the room? Yes. So I have a quick question. I'm assuming part of some of the growth opportunity is that there's Carvana, and dealerships want to compete on the digital side, and you're helping them do that. Can you help me better understand, is it regulatory or what kind of inhibits them from the worry of you just selling, bypassing the dealer through your digital opportunity? We are very much positioned. It's a great question. Thank you. We are very much positioning ourselves as the digital partner of choice to dealer as opposed to competing with them. That is our core business. It's a bread and butter. It's what we've been successful in doing. And we will continue to do that over time by providing more value to the dealer and also more reports and dealer data, what we call dealer data inside to run their dealership better as opposed to cannibalizing their unit economics by competing directly with them on a transaction that, if you look at the unit economics and the margin, is actually low single-digit%. So it's not appealing from a unit economics to us as a business. We have a much more compelling profitability profile today. And then just one more question. In terms of the trade-in. Sorry, just to add to that, Digital Deal is essentially almost equivalent to a Carvana-like service, right? Because you pre-configure all the transactional line. Then you go in store into the dealership from four hours from the beginning to the end of a typical in-dealership transaction time, you go down to one hour. It's very efficient for the consumer. It does pretty much the same thing. What we've seen with the recent study is between 70% and 80% of the consumers still prefer to go in dealership and test drive the car as opposed to fully buy it online. We are capitalizing on the trend, and we are offering almost full online, but then the transition also between online and offline, which is something we do very, very well. For the dealer, if you think about this product, it converts much better. You have full attribution. You have full visibility. You retain the unit economics. Very compelling product, Digital Deal. It's approximately a third of our dealer base, but it keeps increasing quarter on quarter, and it's a KPI we've been disclosing on. Great. And And then just a second question. For the consumer trade-ins, do you have an idea if they were to get vehicles from the wholesale auctions, does the wholesale auction do the condition? Does it prep it for the dealer, or is the dealer doing the conditioning and everything? It's typically on the wholesale side. That is one of the key activities of the wholesale business. But the pricing is also significantly different. And so the conditions as well typically are better for a car sourced directly from the consumer. And the price is very different, right? They buy better, and they buy a better vehicle. Is there a way for you to increase your international market share to the domestic? And if so, how would you do that? Thank you. This is a question we get frequently. And so our international business has been a source of superior growth for us and also a market where we are and will continue to invest because we are seeing compelling ROI. The two markets are very different, U.K. and Canada. In Canada, we are replicating very much the U.S. playbook. And so we were the new entrant. We had a smaller market share. But over time, because we are delivering so much more value compared to our competitors, we've been gaining market share. And so we have now a traffic leadership, what we've been calling out. And we are also starting to deploy new products that we have in the U.S. into the Canadian market. The U.K. has been a market that was with very high competitive intensity and with a very clear leader. But we've been very savvy in the operations of that business. And so we've been able to scale operations profitably and incrementally gain market share vis-à-vis other players in the marketplace, but in a very efficient and effective way. Are all your products that you offer in the U.S. available internationally? No. Absolutely not. So I think we have Digital Deal in Canada and Next Best Deal Rating in the U.K.. And also, to just address your question from earlier, we are in these markets, we offer very compelling value in terms of pricing and QARSD vis-à-vis other competitors. But that is not our playbook. Our playbook is not to maximize monetization in the near term and increase pricing. It's actually to continue to provide value so that we become almost undeniable. We gain market share, and then we have truly a local moat in the marketplace. So with the time we have left, I think we've established or you, CarGurus, has established marketplace leadership and separation. I'd love to talk about CarOffer. We don't have to go into the history, but I think investors are curious what you can share in terms of not necessarily what it might look like in terms of units or anything like that, but how can you marry the data and the data insights and things like that to help dealers run their business even better now that you have the wholesale and retail side of the business. And it could just be data on both sides, not necessarily units. So what we've shared is that the business has very strong appeal both strategically and in terms of synergies with our retail data that we collect on marketplace. So the way the business, the traditional wholesale business worked is dealers used to visit car lots and have to make in a very short period of time a decision on which units to buy and how to bid. And they didn't have real-time retail data on how much you can sell it for. So you have no idea of the profit, but you have some sort of gut and intuition. Then we had digital wholesale. And so the evolution of that digitally, what people do is compare the value of the car vis-à-vis the book value on the wholesale side, which is not real time, right? Our data, what they allow to do is to say we have an instant market value. So this unit, based on the data that we have on our retail website, you can sell it for $22,000. So if you bid $20,000, you're going to make a profit of $2,000 on this unit. So the bidding is much more aware and is much more data-driven than on any of the other platforms. The second benefit of that is you can go programmatic or a single vehicle. So for smaller dealers that have demand for one specific vehicle, type, model, color, they can go on our website, on our CarOffer website, and basically bid on that in a way that is going to make them money, OK? Programmatically, large dealers can just say, give me all the units nationally that can get me $2,000 of GPU on any single unit. And so we can also deliver that value proposition. So it's a much more informed and data-driven way of operating in the wholesale space compared to any other operator. And also, we don't benefit from the sale of the car. We are an intermediary who charges a transaction fee. So our platform is truly agnostic to any price. And you talked about the benefit from, I want to buy a car at wholesale to run my business. Can you talk about the benefit from, I have a car on my lot. I'm pricing it at X. How can I see into the wholesale market at that point in time because I've had this car for 70 days, and maybe I've gone to the next best deal rating, but I'm one of the smaller percentage where that hasn't driven a transaction? How does it work from the beginning? There is liquidity. And so we obviously provide liquidity. And the liquidity is immediately matched between the buy and sell. So that's another benefit of our platform. OK. So the dealer can see what the wholesale price would be at the time if they chose to go to that market right away versus listing a car and sort of seeing what happens. You have uncertainty, yeah. OK, and then just lastly, what have you shared on how investors should think about the relaunch of the product as far as what did you learn from last time? What won't happen this time? Yeah. So what we've shared is we are currently in a rebuilding phase, and it's taking longer than anticipating. We are very much focused internally as opposed to externally on improving the unit economics and enhancing the user experience or the dealer experience, enhancing the operations. And also, we have focus on the go-to-market, which is completely different in this market versus a few years ago. What we have found out is that our metrics, we need to educate really the dealer to set the parameters of buying and selling a car. And these parameters need to be current and refreshed and updated on a recurring basis to make sure that they are still current, right, and they are still valid. And so that has taken time. However, we've seen an improvement in unit economics because of all that activity despite the transaction volume declining. In the next few quarters, as seasonality becomes favorable again, Q3 and Q4 typically are very low quarters. But as we head into the new year and in the next couple of quarters, we are going to really test the changes and the development that we've made on the product and the go-to-market side to see whether there is an increase in the product and improvement in the product market fit and a return to profitability, which we've been focusing on for the last few quarters. OK. Perfect. Well, thank you for your time this afternoon. Thank you. Good luck to the rest of your meetings. Thank you. Thanks, everyone.