CarGurus, Inc. Class A Common Stock 2026 Q2 Earnings Call

Please go ahead. Good afternoon, thank you for joining us.

With me on the call today are Jason Trevisan, Chief Executive Officer, and Sam Zales, President and Chief Operating Officer. We will be making forward-looking statements which are based on our current expectations and beliefs. These statements are subject to risks and uncertainties, and our actual results may differ materially. Information concerning those risks and uncertainties is discussed in our SEC filings. We undertake no obligation to update forward-looking statements, except as required by law. Please refer to our press release and our investor presentation on the investor relations section of our website for a reconciliation of GAAP to non-GAAP measures. I'll now turn the call over to Jason.

Good afternoon. We delivered strong second quarter results with revenue growing 13% year-over-year to $251 million, above the midpoint of our guidance range, including another robust quarter in our international business, which grew 28% year-over-year. Adjusted EBITDA increased 7% year-over-year to $85 million at the high end of the guidance range at a 34% margin, reflecting disciplined investment. We also generated strong cash flow, converting 103% of our adjusted EBITDA, or $88 million, to free cash flow in the quarter. In the first half of this year, dealers have taken a more deliberate approach to incremental spending decisions. We believe market trends like dealer margin pressure and fewer days on lot, coupled with one-time developments like recent FTC-mandated all-in price transparency requirements, made dealers more cautious about spending. We view these factors as temporary, not structural.

Despite these pressures, dealer engagement continued to grow on our platform. Average sessions per dealer on our platform were up 28% year-over-year in Q2, driven by increasing AI functionality in our products and expanded capabilities across more of the dealer workflow. We continue to grow wallet share, which we believe is driven by our strong ROI and new dealer product introductions. We believe we remain well-positioned to continue capturing a disproportionate share of incremental spend as the environment improves. Our full-year revenue growth guidance is unchanged, we remain confident in our long-term opportunity. We've also begun to realize meaningful benefits from our investments in AI, which is helping us accelerate the pace of innovation, enabling our teams to bring new products to market faster while improving engineering efficiency and operating productivity across the business.

Combined with our focus on operating discipline and organizational efficiencies, these productivity gains have generated greater leverage than we anticipated at the start of the year. As a result, we are raising our full-year profitability outlook and now expect full-year non-GAAP adjusted EBITDA margins to compress approximately 50 to 150 basis points in 2026 relative to 2025. We believe our ability to accelerate innovation thoughtfully and operate more efficiently positions us well for all market environments. More importantly, the investments we've made are reinforcing a virtuous cycle across our platform. As we have used AI to innovate faster and bring new products to market more quickly, we are seeing deeper engagement with our platform from both dealers and consumers.

In addition, we continue to capture rich first-party shopper signals, nearly half a billion signals each day across demand, pricing, inventory, and shopper behavior that inform and continually improve our dealer software and analytics and consumer experience. This creates a differentiated data advantage that we believe helps dealers make better decisions while enabling a more personalized and trusted consumer experience. We believe faster innovation leveraging our proprietary marketplace data makes CarGurus increasingly valuable to both dealers and consumers and strengthens our competitive position by providing a better car shopping experience for both consumers and dealers. As we continue to expand beyond our leading marketplace business, our strategy is built around three value creation drivers. First, we're expanding CarGurus' offerings into integral parts of the dealer workflow, connecting inventory, marketing, lead conversion, and data pillars through mutually reinforcing products.

Second, we're focused on transforming car shopping into a trusted AI-led journey from research through consideration and purchase, giving consumers greater confidence and increasing the value they get from CarGurus. Third, we are deploying capital with discipline with the aim of growing long-term earnings power and stockholder value. I will now walk through our second quarter progress across each of those drivers. Driver number one, expanding CarGurus offerings into integral parts of the dealer workflow, connecting inventory, marketing, lead conversion, and data pillars through mutually reinforcing products. We have increased dealer engagement with our platform, reflecting our focus on embedding data and insights into more of the dealer's daily decision-making. We're leveraging our differentiated data on retail dynamics, pricing, and inventory trends, and deep consumer insights to inform smarter and more predictive dealer decisioning, which we believe results in an ultimately stronger ROI for our dealer customers.

In fact, among subscribing independent dealers, those in the top quintile of engagement with our platform had a 78% higher leads per unit than those in the bottom quintile, suggesting that use of our expanding dealer product suite not only drives adoption among more people at the dealership but also drives performance on our platform and ultimately dealer profitability. Within the inventory pillar, our focus remains on helping dealers source, stock, appraise, merchandise, and price inventory more effectively. In the second quarter, PriceVantage bookings grew more than 50% sequentially, with a higher AOS as the product has continued to prove its value. Dealers that adopted PriceVantage saw a median 15% lift in VDPs and 9% lift in leads per listing after adoption.

In our marketing pillar, we recently introduced VinMax, our newest AI-powered product that helps dealers improve merchandising performance and achieve turn time goals without dropping price and sacrificing margin. VinMax identifies high-potential but underperforming VINs and dynamically boosts them across organic sort, highlight, and audience targeting. Since we began rolling out VinMax to early access dealers in February, promoted listings have sold 23% faster and received 34% more leads per day than comparable non-promoted listings. In the conversion pillar, we introduced a new competition filter to Shopper Signals that helps dealers understand how many other dealers the shopper has submitted leads to, allowing them to better assess urgency, allocate sales resources more effectively, and convert customers to sales at a better rate.

Within the data pillar, we're building on our data advantage by equipping dealers with deeper competitive insights, helping them benchmark their performance to competitors on metrics like leads per vehicle or recently sold vehicles on competitor lots so they can make more informed pricing and inventory decisions. We've seen a greater than 80% open rate on the weekly competitive digest email, illustrating how our data has become a critical input into dealers' daily operations. Collectively, these new products have extended CarGurus beyond our marketplace and into daily dealer decision-making, which we believe will fuel growing dealer engagement, greater product adoption, stronger retention, and more dealer wallet share over time. Driver number two, transforming car shopping into a trusted, AI-led journey from research through consideration and purchase, giving consumers greater confidence and increasing the value they get from CarGurus.

Buying a vehicle remains one of the highest consideration purchases a consumer makes, a process that often lasts several months as they research, explore, select, and negotiate their final deal. Consumers want confidence in their search, transparency in their results, and trusted guidance throughout that process. In July, we launched Guru, our end-to-end consumer-facing brand for all of our AI capabilities across the CarGurus platform. Guru currently exists in two forms, as an AI-native experience, formerly known as Discover, and as a seamless overlay to our existing site. Together, fueled by real-time dealer feeds and a robust methodology and ontology, they serve as a trusted guide that helps shoppers research better, understand and compare their options faster, make more informed shopping decisions, and complete their purchase in the dealership with greater confidence. Engagement with Guru continued to grow rapidly, with Guru-driven leads up 60% sequentially in the U.S.

In addition to better shopper-to-lead conversion rates, Guru provides much richer signals about user preferences and intent that bolster the depth and quality of the lead we send to dealers. Given the strong usage in the U.S., we recently launched our conversational AI experience in the U.K. and Canada, allowing shoppers to shop by describing their needs and use cases, which is not solved easily with traditional one-size-fits-all filters rather than searching by vehicle specs. In the consideration step of car shopping, Sell My Car continued to gain traction, improving the selling experience for consumers as we made enhancements to the consumer experience that increased funnel conversion and drove significant incremental leads. These improvements also gave dealers more efficient access to sourced inventory at a time when acquiring used vehicles remains a top dealer challenge.

At the point of purchase, Dealership Mode extends the CarGurus experience into participating U.S. dealer lots by putting pricing transparency, deal ratings, payment estimates, and Guru-powered vehicle comparisons directly in shoppers' hands. Consumer engagement with Dealership Mode in our app more than doubled in the second quarter, further cementing us as a trusted tool for both consumers and dealers, which we believe will deepen engagement and facilitate more closed deals and cars sold on our expanding platform. Driver number three, deploying capital with discipline with the aim of growing long-term earnings power and stockholder value. We believe our subscription business model is resilient, and we expect it will continue to generate strong free cash flow that will fund our long-term growth initiatives while also allowing us to return capital to stockholders.