CarGurus, Inc. — FY2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report. CarGurus operates online automotive marketplaces and digital retail and wholesale services. It reports U.S. Marketplace and Digital Wholesale segments, with international marketplace results included in “Other.”
Financial and operating performance
| Metric | FY2023 | FY2022 |
|---|---|---|
| Revenue | $914.2 million | $1,655.0 million |
| Gross profit / gross margin | $651.5 million / 71% | $657.6 million / 40% |
| Operating income / operating margin | $32.6 million / 4% | $108.5 million / 7% |
| Consolidated net income | $22.1 million | $79.0 million |
| Net income attributable to CarGurus, Inc. | $36.9 million | $84.4 million |
| Diluted EPS attributable to common stockholders | $0.19 | $0.62 |
| Operating cash flow | $124.5 million | $256.1 million |
| Adjusted EBITDA (non-GAAP) | $195.7 million | $186.7 million |
Revenue declined 45% year over year, while gross profit was nearly flat; gross margin increased largely because lower vehicle-sale revenue and related vehicle costs reduced the share of lower-margin wholesale and product revenue. Marketplace revenue rose 6% to $698.2 million. Wholesale revenue fell 58% to $100.9 million, and product revenue fell 85% to $115.1 million. Digital Wholesale segment revenue declined 78% to $216.0 million and recorded a $96.4 million operating loss, versus an $11.8 million loss in FY2022. U.S. Marketplace revenue increased 5% to $647.3 million; segment operating income was $127.7 million, little changed from FY2022.
Digital Wholesale transactions fell 66% to 65,418. Management attributed the decline to unfavorable market conditions and operational challenges in the prior year, and said it deliberately prioritized operational rigor and process improvements over transaction volume. U.S. quarterly average revenue per subscribing dealer was $6,532 at year-end, up 12% from $5,842 a year earlier. Average monthly unique users increased to 38.3 million from 35.7 million, while total paying dealers declined to 30,935 from 31,307.
Liquidity, debt, and capital allocation
- At December 31, 2023, cash and cash equivalents were $291.4 million and short-term investments were $20.7 million, compared with $469.5 million of cash and cash equivalents and no short-term investments at year-end 2022.
- Operating cash flow was $124.5 million. Investing activities used $61.6 million and financing activities used $253.6 million; cash, cash equivalents, and restricted cash decreased $190.2 million during the year.
- No debt was outstanding under the $400 million revolving credit facility; $9.6 million of letters of credit left $390.4 million available. The facility matures in September 2027. The company reported compliance with its covenants.
- FY2023 financing cash use included $208.5 million of share repurchases and $25.0 million paid to acquire CarOffer’s remaining minority interest. CarGurus authorized a new share repurchase program of up to $250 million for 2024; it is discretionary and may be suspended or discontinued.
- Operating lease liabilities totaled approximately $194.4 million. The company expects approximately $69.8 million of net spending on its new Boston headquarters buildout; $46.5 million of gross contract commitments remained unincurred at year-end.
Material changes, unusual items, and outlook
- On December 1, 2023, CarGurus acquired the remaining CarOffer minority interests for $75.0 million in cash, subject to adjustments, making CarOffer wholly owned and eliminating the redeemable noncontrolling interest.
- The transaction triggered approximately $50 million of stock-based compensation expense from accelerated and redeemed CarOffer awards, contributing to higher general and administrative expense and the Digital Wholesale operating loss. The company also recorded a $5.8 million deemed dividend related to the transaction.
- FY2023 consolidated net income was $22.1 million, while net income attributable to CarGurus, Inc. was $36.9 million, reflecting the loss attributable to the redeemable noncontrolling interest. The 2023 diluted EPS comparison also reflects transaction and noncontrolling-interest accounting effects.
- Management said existing liquidity, including revolver availability, should fund operations for at least 12 months from the filing date. The 10-K provides no quantified revenue or earnings guidance. Management’s outlook depends on dealer subscriptions and pricing, consumer and dealer activity, CarOffer execution, macroeconomic conditions, and successful integration and optimization.
- Management cited higher interest rates, vehicle affordability and inventory pressures, wholesale-market volatility, competition, search-engine and AI-driven traffic changes, privacy and regulatory requirements, and cybersecurity as risks. CarOffer goodwill had a reduced fair-value cushion; further deterioration in projected results could prompt a material impairment charge. No material pending or threatened litigation was identified.
Controls and other investor considerations
Management concluded that disclosure controls and internal control over financial reporting were ineffective at December 31, 2023, due to a material weakness involving IT general controls at CarOffer. The weakness affected the consistent operation of manual controls dependent on data from certain systems. Management reported no resulting material misstatement of the financial statements and is continuing remediation during 2024. The auditor issued an adverse opinion on internal control over financial reporting, but an unqualified opinion on the consolidated financial statements.
The company reported a 44.5% effective tax rate attributable to CarGurus, Inc., including effects from state taxes, stock compensation, and the CarOffer transaction. Its dual-class structure gives Class B shares ten votes per share; founder and Executive Chair Langley Steinert controls a majority of voting power. The company also disclosed that its 2023 annual goodwill test found no impairment, although CarOffer’s fair-value cushion declined.
Important facts for investors to verify
- Whether Digital Wholesale transaction volumes and segment losses improve as CarGurus balances operational controls with growth.
- Whether Marketplace subscription revenue and dealer monetization continue to grow, and whether dealer count stabilizes.
- How much of FY2023 profitability and adjusted EBITDA depends on non-GAAP exclusions, particularly stock-based compensation and CarOffer transaction-related items.
- Progress and independent validation of CarOffer internal-control remediation, given the material weakness and adverse auditor opinion on controls.
- CarOffer goodwill valuation assumptions and the potential for impairment if operating forecasts weaken further.
- Cash use for the 2024 repurchase program, headquarters commitments, and operations, alongside ongoing cash generation and revolving-facility covenant capacity.