CarGurus, Inc. (NASDAQ:CARG) Q1 2024 Earnings Call Transcript

CarGurus, Inc. (NASDAQ:CARG) Q1 2024 Earnings Call Transcript May 10, 2024

CarGurus, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day, ladies and gentlemen, and welcome to CarGurus Inc.’s First Quarter 2024 Earnings Results Conference. At this time all participants are in listen-only mode. A question-and-answer session will follow the formal presentation. [Operator instructions] Please note this conference is being recorded. I will now turn the conference over to Kirndeep Singh, Vice President, Head of Investor Relations.

Kirndeep Singh: Thank you, Operator Good afternoon. I’m delighted to welcome you to CarGurus’ first quarter 2024 earnings call. With me on the call today are, Jason Trevisan, Chief Executive Officer; Sam Zales, President and Chief Operating Officer; and Elisa Palazzo, Chief Financial Officer. During the call, we will be making forward-looking statements, which are based on our current expectations and beliefs. These statements are subject to risks and uncertainties which could cause our actual results to differ materially from those reflected in such statements. Information concerning those risks and uncertainties is discussed in our SEC filings, which can be found on our SEC’s website and in the Investor Relations section of our website.

We undertake no obligation to update or revise 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 comparable non-GAAP measures is included in our press release issued today, as well as in our updated investor presentation, which can be found on the Investor Relations section of our website. We believe that these non-GAAP financial measures provide useful information about our operating results, enhance the overall understanding of past financial performance, and future prospects, and allow for greater transparency, as it relates to metrics used by our management in its financial and operational decision-making.

With that, I’ll now turn over the call to Jason.

Jason Trevisan: Thank you, Kirndeep, and thanks to all of you for joining us today. Each year, I share a theme that serves as our North Star. For 2024 our guiding principle is intelligent acceleration, as we leverage our industry-leading marketplace business, end-to-end transaction-enabled platform and integrated retail and wholesale data ecosystem, with the aim of continuing to grow our business even more profitably. We’ll begin the discussion today with a high-level review of our quarterly results, then highlight the progress against our drivers of value creation, and take you through our exciting journey to innovate and transform the way dealers and consumers predict, source, market, and sell used and new vehicles. Before we dive into the quarter, I want to take a moment to recognize Ismail Elshareef, our new Chief Product Officer.

As we continue to innovate new products and services to bolster our platform, Is’s extensive experience with subscription and transaction models, and his rich appreciation of both enterprise and consumer needs will be invaluable in strengthening our partnership with dealers and deepening our connection with consumers. Turning to our results. I’m pleased to share that we ended the first quarter at the high end of our forecasted revenue and above our adjusted EBITDA guidance range. In the first quarter, non-GAAP consolidated adjusted EBITDA grew 24% year-over-year, achieving the highest first quarter EBITDA margin in the last three years, driven by continued growth in our subscription base. In our marketplace business, revenue growth accelerated again in the first quarter to 12% year-over-year.

And our quarterly net new bookings grew 28% year-over-year. We’re also particularly pleased with the performance of our international business, which profitably grew revenue 24% year-over-year in the first quarter. Our strong marketplace results were driven by our ongoing focus on optimizing QARSD through the levers we’ve discussed in recent quarters. We are continuously enhancing the value of our listings tiers, and are engaging with dealers more frequently, to ensure they understand the full breadth of our platform’s capabilities, and are in the tier that best fits their strategy. At the same time, our consumer connections continue to drive greater ROI, so we are working to ensure pricing is commensurate with the value we provide. During both renewals of existing customers and new business conversations, we remain dedicated to cultivating enduring relationships with our dealership, supported by a growing set of data, insights and tools integrated into their workflow, to help them grow their businesses faster and manage operations more effectively.

More broadly, our impressive results reflect our ongoing efforts to advance against four drivers of value creation that represent our current business priorities. One, provide more value to dealers. Two, improve the consumer experience. Three, enable digital transactions and finally, four, rebuild and integrate digital wholesale, providing more value to dealers. As I just mentioned, our primary focus is providing more value to our dealer partners, using our data, platform, tools and audience to support their businesses and become increasingly integrated into their decision-making processes and transaction flow. As we continue to innovate our products and leverage exceptional data insights, with the aim of enhancing dealers’ operating results and ROI from our platform, the quantity and quality of our leads remain pivotal factors.

In the first quarter, we delivered double-digit growth in leads driven by an increase in unique visitors and sessions. In the first quarter, we had 25% more unique visitors and 57% more minutes per visit than our next closest marketplace competitor, underscoring our audience leadership. The robustness of our traffic metrics is fueled by sustained growth in organic and owned channels, including direct traffic and app usage, which continue to grow year-over-year, reflecting our investments in brand and user experience. We continue to enhance the value of our various listings tiers, and as part of that effort, we continue to offer an increasing amount of dealer data insights, or DDI, to our dealers, supporting their day-to-day decision-making process.

DDI leverages our end-to-end retail and wholesale data ecosystem and offers dealer-specific recommendations and insights to our dealers, which we believe helps them sell cars faster and at higher margins and will entrench us more deeply in their daily workflow. For example, in under two quarters, we’ve had several thousand dealers enroll in Next Best Deal Rating to inform their retail pricing decisions. Approximately, 30% of enrolled dealers receive their reports daily, with the remaining 70% of dealers receiving them weekly. In the first quarter, our dealers made over 300,000 price changes driven by Next Best Deal Rating, to sell cars faster and improve their dealership performance. Additionally, as we continue to prioritize predictive analytics to support dealers’ day-to-day decision-making, we are currently piloting our inventory acquisition recommendations tool, which is designed to inform dealers about what vehicles they should acquire to meet the demand of consumers in their markets.

This tool leverages both dealer inventory data and CarGurus’ website activity, to improve the accuracy of turn time predictions, and will be accessible exclusively to subscribers of our premium listing peers, starting in Q2. In pursuit of long-term partnerships with dealers, we have refined our account management approach to increase communication frequency, foster thought partnership and leverage local expertise to enhance customer value. These conversations allow us to convey the value and ROI we provide, and over time will allow us to capture greater dealer wallet share and maintain a long runway for QARSD growth. Our renewed emphasis on life cycle activities is already yielding remarkable results. In the first quarter, the number of dealers increased and 31% of new contracts sold were annual contracts, more than twice as many as the prior year period.

Better consumer experience, along with providing increasing value to dealers, we strive to create a better consumer experience as we focus on simplifying the complexity of car shopping, whether that is financing, buying or selling. As consumers increasingly look to complete more of the vehicle buying and selling journey online, we are providing them with the convenience and confidence they seek on our platform, and are investing in a more seamless integration of the full range of transaction capabilities. We remain focused on enhancing the consumer experience across multiple platforms, and have been investing in our market-leading mobile app to make it an invaluable tool for consumers at any stage of their car buying or selling journey. Our app continued to be the number one automotive app in terms of downloads across iOS and Android and one of our fastest-growing channels.

Our app generated more than a quarter of total leads and app users averaged more than three sessions per week with strong engagement and loyalty. Approximately 70% of app users ultimately registered with us, allowing us to offer increasingly customized user experiences with recommendations tailored to their preferences and needs. We continue to offer our consumers the largest selection of used and new cars. In the first quarter, we grew our available listings by 30% year-over-year, and we ended the quarter with approximately 20% more available inventory than our next closest automotive competitor. We ended the quarter as the most visited automotive marketplace with 57% more total visits than our next closest competitor, and 48% of our monthly unique visitors did not visit our leading competitors’ websites.

Our net promoter score remained extremely high with 90% of buyers stating that they would recommend CarGurus to a friend. Transaction enablement, in the first quarter, we continued to execute against our vision of building an end-to-end transaction enabled platform. During the quarter, we continued to experience tremendous adoption of digital deals, growing to 6,102 dealers as of the end of the first quarter, nearly tripling from the prior year. In providing these digital solutions, we enable transactions for our dealer partners, vastly expanding their reach to cater to the almost 60% of buyers open to complete their purchase online, encompassing nearly half a million digital deal-enabled vehicles. Digital deal leads accounted for approximately one-fourth of a dealer’s email leads and we have seen reservation deposits increase by 185% year-over-year.

This is a remarkable achievement, as the growing number of consumers trust us with their credit card data, and we are delivering highly qualified leads to our dealers with higher close rates. A key component to creating our end to end transaction enabled marketplace is the ability for consumers to not only shop for a vehicle on our site, but to also trade in their existing vehicle. In 2023, we began piloting Top Dealer Offers, a high margin subscription service that facilitates matching a prospective car seller with the most suitable dealership. Our pilot has been well received by both consumers and dealers, and we recently expanded this offering to major metropolitan areas, prioritizing our commercially savvy dealerships with the desire to aggressively acquire inventory.

Dealers in our early access program have found exceptional value in Top Dealer Offer leads, as we consider a number of factors such as price, dealership reputation, distance, and available trade-in inventory to ensure optimal matches. We’re the only marketplace player that offers both white glove, sell from home experience with Instant Max Cash Offer and drop-off at dealer location services via our Top Dealer Offer subscription. In the quarter, we also continued to pilot CG Buy Online, further validating the product market fit of our digitally-native retail platform. By the end of March, approximately 1,000 vehicles were enabled on this platform with coverage across 10 states. We use the CarOffer platform to provide consumers with an estimated trade-in value during the CG Buy Online transaction journey.

And these trade-ins can either be purchased by a CG Buy Online partner dealer or sold through the CarOffer platform. Rebuild and integrate digital wholesale. I’ll wrap up by sharing our progress on rebuilding and integrating digital wholesale. As I mentioned earlier, we’re excited to bring wholesale and retail insights together to assist our dealers in buying and selling inventory based on real-time retail pricing and market data. Since assuming control of CarOffer in December, we’ve been in the process of rebuilding our wholesale business and hiring new talent, with the aim of creating a more efficient and scalable wholesale platform, and we are confident in the operational progress made so far. As we invigorate our go-to-market strategy to foster deeper, enduring partnerships with our dealer network, we have restructured CarOffers sales organization and redefined its incentive structure.

Our new sales model is based on a consultative approach, and we’ve begun selectively adding local consumer demand data and market days supply sourced from extensive data sets to our matrix recommendations. We are encouraged by early results, as we have seen new and returning dealers purchase five times as many vehicles per month, and retained dealers double their monthly purchases, when leveraging our powerful insights. We are bolstering our product strategy and increasing our investment in engineering and product development. Our teams are focused on improving matrix usability, leveraging CarGurus’ differentiated data set, to blend retail and wholesale data. We are incorporating consumer trends, competitive inventory analysis, and dealer turn times, as we aim to optimize inventory acquisition strategies.

Overall, we are proud of the progress and improvement the CarOffer team continues to make, as we believe these steps are crucial to return the business to profitable growth in the next few quarters. To summarize, I’m thrilled with our financial results and business performance. Every quarter, we’ve continued to add products, insights and features that leverage our end-to-end capabilities, and deliver increasingly more value to our customers. We are becoming increasingly embedded in the dealer’s daily workflow, making our services stickier over a longer period of time. We believe this will translate into continued earnings growth, and a pipeline of products that we believe will deliver sustained expansion over time. With each step, we remain dedicated to sound financial management, operational excellence, and efficient capital deployment, which we believe are the foundation to continue to enhance profitability and create enduring value for shareholders.

Now, let me turn it over to Elisa to discuss our financial results.

Elisa Palazzo: Thank you, Jason and thank you all for joining us today. My commentary will cover a detailed overview of our first quarter performance, followed by our guidance for the second quarter of 2024. First quarter consolidated revenue was $216 million, down 7% year-over-year, driven by lower wholesale and product volumes, partly offset by healthy expansion of our monthly recurring revenue base. Marketplace revenue was $187 million for the first quarter, up 12% year-over-year, driven by continued strength in subscriptions, as net new MRR grew 28% year-over-year, resulting in a $20 million increase in listings revenue. Consolidated QARSD grew approximately 14% year-over-year, driven primarily by the addition of new active dealers at current market rates, and increasing adoption of add-on products such as top dealer offers.

International QARSD achieved the strongest year-over-year growth since the first quarter of 2022, reflecting positive momentum in renewals, both in the UK and in Canada. Wholesale revenue was $16 million for the first quarter, down 36% year-over-year, driven by a decline in dealer-to-dealer transaction volume, as we continue to focus on rebuilding our go-to-market engine and improving our product offering and customer service, which we believe will result in a higher degree of confidence and trust among our dealer customers. Lastly, product revenue was $12 million for the first quarter, down 69% year-over-year, reflecting Instant Max Cash Offer decline, as the growing number of consumer and dealers continue to opt in for our highly profitable subscription-based consumer vehicle sourcing product.

Top Dealer Offers. Despite a decline in Instant Max Cash Offer transaction, we have seen increasing demand for Top Dealer Offers which drives high margin subscription revenue to our marketplace business. The combined impact of these two offerings is accretive at the consolidated gross profit level. I will now discuss our profitability and expenses on a non-GAAP basis. First quarter non-GAAP consolidated gross profit was $176 million, up 10% year-over-year. Non-GAAP gross margin was 82%, up from 69% in the prior year quarter. The meaningful year-over-year expansion in non-GAAP gross margin was primarily due to the shift in revenue mix toward our high-margin marketplace business. Marketplace non-GAAP gross margin expanded 160 basis points year-over-year to 92%, driven by favorable product mix.

Our digital wholesale non-GAAP gross margin was down approximately 200 basis points year-over-year, as CarOffer lower transaction volume was not sufficient to cover our fixed cost base. Consolidated adjusted EBITDA was $50.4 million, up 24% year-over-year. Consolidated adjusted EBITDA margin was 23%, approximately 580 basis points higher year-over-year. Marketplace adjusted EBITDA grew 29% year-over-year to approximately $55 million. Digital wholesale adjusted EBITDA loss was $4.5 million in the first quarter. First quarter non-GAAP operating expenses increased by 6% year-over-year to $131 million, predominantly driven by higher sales and marketing spend which was up 9% year-over-year but modestly below our initial expectations. Non-GAAP diluted earnings per share attributable to common shareholders was 30% for the first quarter, up 23% year-over-year, reflecting the increasing consolidated adjusted EBITDA, and lower share counts.

We ended the first quarter with $246 million in cash and cash equivalent, a decrease of $66 million from the end of the fourth quarter. The lower cash balance was primarily driven by $81 million spent on share repurchases in the quarter and cash payments related to our new headquarters build-out. I will now close my prepared remarks with our outlook for the second quarter. We expect our second quarter consolidated revenue to be in the range of $202 million to $222 million. We expect the momentum in our marketplace business to continue in the second quarter, with quarterly revenue expected to be in the range of $189 million to $194 million, up between 11% and 13% year-over-year. In the second quarter, we expect digital wholesale segment volumes to be down sequentially, as we continue to rebuild our sales organization and optimize our unit economics, further compounded by expected strong market adoption for Top Dealer Offers.

We expect our second quarter non GAAP consolidated adjusted EBITDA to be in the range of $47 million to $55 million. Given our OpEx outperformance in the first quarter, we now expect non-GAAP operating expenses as a percentage of revenue to remain flat in the second quarter, and to decline progressively in the second half of the year. Finally, we expect non-GAAP earnings per share to be in the range of $0.29 to $0.34 and fully diluted outstanding shares to be approximately 105.5 million. With that, I would like to open the call for Q&A.

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Q&A Session

Operator: [Operator Instructions] Our first question comes from Marvin Fong of BTIG. Please go ahead.

Marvin Fong: Good evening. Thanks for taking my questions. Two questions if I may. So I was interested in your disclosure, The net new bookings was up 28%. Correct me if I’m wrong, but I don’t believe you’ve ever given us like a specific percentage number on this. I’m just curious, how should we view this as a leading indicator of revenue growth? What’s sort of the correlation and the phase-in of those bookings into revenue? And then my second question, just on Top Dealer, understand the excitement around that product. How much of a driver of QARSD improvement was that in this last quarter? Was it material at all considering how early stage the product is, maybe you could just kind of help us understand the dynamics there. Thanks.

Elisa Palazzo: Thanks for the question. So in terms of marketplace revenue, I recommend you — I would point you out to the listings, which were actually up $20 million this quarter versus $60 million last quarter year-over-year. And so we are seeing a continued acceleration of the top line growth at the marketplace.

Jason Trevisan: It’s reflected in — this is Jason, hey, Marvin, and it’s reflected in the guidance to give you a sense for flow through.

Marvin Fong: Okay. So we should just kind of see it as that revenue that’s sort of recognized in the next quarter?

Jason Trevisan: Yeah. I mean, typically, when we bring on a new customer, that gets activated fairly quickly. I mean sometimes they’ll have an intra rate or something like that, but it can — it tends to materialize in pretty short order. Now it does depend in terms of when it’s booked in the quarter in terms of its impact in that quarter relative to the next quarter. But they’re monthly — there may be an annual contract you’ve heard us say in the script, but they’re built and recognized monthly. So the flow-through is the best way for you to get a sense for that outside of those sort of intra-month comments and intra rate is through the guidance. In terms of Top Dealer Offer impact on QARSD, there are a number of drivers of QARSD.

As you’ve heard us say, the primary ones are us bringing new customers on at more commensurate market rates. The other is another big one is upgrading dealers to higher packaged tiers and a lot of that is driven by us continuing to add more and more tools, insights, features, even some products into the higher tiers that are packing more value into that rather than charging a la carte. And then the third is new products. And so a Top Dealer Offer, we can consider a new product.

Marvin Fong: Okay, understood. Thanks a lot. Appreciate it.

Operator: The next question comes from Jed Kelly of Oppenheimer & Company. Please go ahead.

Jed Kelly: Hey, great. Thanks for taking my question. Just looking at your — the margins in the marketplace, looks like they were pretty strong. Can you kind of tell us like, is that the right basis to look at? And then can you kind of give us a sense on — granted you gave us 2Q guidance, but can you give us a sense on how you’re sort of thinking about the marketing cadence going for the balance of the year? Thank you.

Elisa Palazzo: Yeah. So the marketplace business continues to experience strong growth at the top line and also to demonstrate operating leverage, and you should expect that also going forward. In terms of the marketing cadence, so I’ll remind you what we said about OpEx as a percentage of revenue, we expect it to be flat in the second quarter and then to decline sequentially in the second half of the year. In terms of marketing spend cadence, what we anticipate is Q1 to be the largest quarter as we front-loaded our branding expense related to our new advertising campaign Your Car, Your Way and then Q4 to be the smallest quarter in terms of marketing spend as we typically dial down our media spend on the holiday season.

Jed Kelly: Thank you.

Operator: Our next question comes from Rajat Gupta of JPMorgan. Please go ahead.

Rajat Gupta: Great. Thanks for taking the question. Maybe like just to clarify the second quarter commentary, the complexion of the marketplace revenue. Can you give us a sense of how much of that sequential pickup or maybe you want to talk about year-over-year it’s coming from QARSD improvement versus paying dealers? And maybe relatedly, if you could touch upon the outlook for the international business a bit more over the next few quarters? Any initiatives in the pipeline that could potentially catalyze the segment further? And clearly strong uptick here in like the QARSD and also like dealer count there. Curious like what’s going on there? And any forward commentary would be helpful. Thanks.

Elisa Palazzo: So in terms of QARSD, it was up 14% year-over-year and was primarily driven by dealers migrating to higher subscription peers as well as new dealers joining at market rate. And the number of — and the number — sorry, the number of dealer was also up sequentially from the fourth quarter, as we registered the highest number of new dealers joining our platform since the first quarter of 2021. And also, we had 30% of our — of the contracts for new dealers being longer than one year, which suggests that over time, our retention will go up.

Rajat Gupta: Got it. And the second quarter guidance on marketplace, does that assume continued improvement on both the QARSD and the dealer count? Or is like one dominating the other, as you think about the remainder of the year?

Elisa Palazzo: Yeah. We don’t guide on these two specific drivers. However, what I can tell you is that our guidance implies to add year-over-year more revenue, both at the low end and the high end to add more revenue than we did in the last two quarters. So we are seeing continued momentum in the Marketplace business.

Rajat Gupta: Got it. And just on the international side, any additional thoughts there on any new initiatives during the pipeline Q2 to capitalize that segment further?

Sam Zales: I’m happy to take it, Rajat. Thank you for noticing. Our business is cranking in the marketplace across the globe. So I’m really proud to say that it’s not just one market that’s doing it. You know that we got to profitability in those markets, and we’re really excited about where they’re going. We’re fueling fast growth there. I think we described the 24% growth in the international markets. So we’re really excited about where those are going. It opens up huge opportunities for us. We’re catching the market leaders. It leaves us opportunities to launch some new products that we’ve launched here in the US, and that means more QARSD growth and more ability to add dealers as we have in the international markets, but it also opens up partnerships to look at other ways to continue to add on new product capability beyond what we build organically, and we’ll probably follow the path we’re doing here with — you’ve seen the addition of new products that have helped consumers move further down the transaction cycle.

And so both of those give us huge opportunity to continue catching the big market leaders there. And I think we’re really astounded by the growth and profitability in those businesses and are excited to keep that going.

Rajat Gupta: Great, thanks. Thanks for the color. I’ll get back in the queue.

Operator: The next question comes from John Colantuoni of Jefferies. Please go ahead.

John Colantuoni: Hi everyone. Thanks for taking my question. I wanted to zoom in on CarOffer. A few years ago, there was a ramp of investments in product and marketing to expand awareness and build tech capabilities behind the offering. After having already gone through that initial investment phase, are there any learnings that could help make you more efficient next time around once you’re ready to relaunch the wholesale offering so there might be a more tempered increase in expenses? Thanks.

Sam Zales: Hey, John, thanks for the question. Sam Zales here. I don’t know that I’d characterize the investment a couple of years ago as major investment in product and marketing. Quite honestly, as we’re looking at this business, and we couldn’t be more excited about the combination of wholesale and resale retail coming together. We’re still the only instant trade platform in the market, and we know that putting wholesale and retail together, as you heard in the prepared remarks, that we are now seeing some really interesting growth in transactions from those dealers who are using the CarGurus’ information on consumer demand tied to their inventory strategies and making more investments in that way. So we were still building and running a start-up there that was running and incented on daily profits.

That business focus was how do we get the most out of each day to maximize our incentive and the acquisition of the business. We are now running the business like we run the CarGurus business. Our focus in this investment is product-first. Let’s make sure that the product capabilities and the analyzers that we’ve built into matrix are going to optimize customer results. And quite honestly, we’re rebuilding customer demand from a product capability that we didn’t have in the days that we didn’t fully acquire the business. So the focus on product now, the focus on tooling our operations to make sure those are optimized, so we make money at a low volume as a business when we get to that point. and now recrafting our go-to-market team and our sales and service teams to focus on consulting and putting this data analytics and the AI we’re creating to look at CarGurus data on consumer demand, match to inventory strategies and inventory profits for our dealers is showing its first sign of growth in this 2 times to 5 times increase in transaction activity.

So I wouldn’t say that anytime in the past, there was real investment for the long term on product and marketing. At CarOffer today, we’re making those investments now so we can retool and build back the business demand that we’ve had from our customers. in the past and go for growth as we go forward.

John Colantuoni: Thank you.

Operator: The next question comes from Naved Khan of B. Riley. Please go ahead.

Naved Khan: Yeah, thanks a lot. So it’s great to see the traction you’re seeing with the dealer count and new dealer growth. Maybe can you just share with us the monthly trend if you saw strength kind of building throughout the quarter, how does April look like? And the other kind of related question is on the — you shared the percentage of annual contracts. What — in terms of pricing, does an annual kind of look the same on a sort of monthly times 12? Or is it — do the dealers get a discount? How should we think about that? Thank you.

Jason Trevisan: Sure. I can take a crack at that. Thanks for the question. So I mean monthly trends building towards the quarter, we don’t talk about current quarter. So in our scripted comments, you can see and hear a number of trends that we talked about that resulted in the first quarter. In terms of contracts, I mean, there’s a number of — if I understood the extent of that question. So correct me if I’m wrong or clarify. The — an annual contract, I think, is helpful in a number of ways. I think it sets a different expectation for customers in their relationship with us. I think it’s actually a function of us building closer and better and more consultative relationships with our customers. I don’t think they would be willing to sign an annual contract, frankly, if they didn’t think that we were going to be a longer-term partner.

And in the past, we weren’t necessarily always earning the right to be a long-term partner to them. But now as we’re delivering more insights and more tools, and as Sam just referenced, ways in which we’re helping them source smarter and price smarter, they realize that we’re adding a lot more value beyond just lead. We haven’t ever commented on pricing implications for annual contracts versus monthly, but I think you can think of them as very similar, although a lot of software companies for longer-term contracts may initiate a slight discount, but it’s not anything big. I mean they think of our pricing in a very similar way, whether it’s signing a monthly or an annual.

Naved Khan: Great. Thank you.

Operator: The next question comes from Tom White of D.A. Davidson. Please go ahead.

Tom White: Great. Thanks for taking my question. Jason, your comments about the DDIs and also kind of the more consultative approach you’re taking with CarOffer. I don’t know, it seems to me like you guys are maybe have been talking about this, but it seems like you’re increasing your focus on leveraging all of your data in more creative ways and kind of circling it back to your customers. But can you just talk a little bit about the high-level kind of monetization opportunity of that strategy and then I got a follow-up.

Jason Trevisan: Sure. Hey, Tom. So you’re right that we are talking about it more because we are delivering more. I would think of it on. maybe a couple of different dimensions. The first dimension is how we’re using our insights to just help them sell cars better, smarter, faster with higher margin in our listings business. And so — you’ve heard us talk about over time as we have had a pretty steady introduction of these. We’re giving our dealer customers information on their market share of leads in the market relative to their market share of units of inventory. We’re giving them information on how quickly they are dropping prices and the magnitude of their price drops. We’re giving them information on what are demand trends in the market relative to supply data.

More recently, we’ve talked about Next Best Deal Rating, which helps them reduce how much they drop the price of a car to maintain margin, but generate a lot more interest on the car by increasing the rating of that car and getting more activity on our site. You heard us talk about an inventory acquisition recommendation tool that uses, again, supply and demand data and to inform our they should be stocking on their lots. And so as we — we’re really starting to take our — and the next level is with CarOffer, I’ll get to that in a second. We’re really starting to reorient our thinking as we’ve been building a lot of these capabilities, products, insights and taking more of a customer lens through our dealers to say, we can tie all of the steps that you need to do as a dealer together through our data.

So you need to source inventory and predict how that inventory is going to do. You need to price it, you need to market it in a number of different ways. You need to merchandise it in a number of different ways. You need to ultimately sell it, you need to retain your customer. And so when we take the dealer lens and realize all the data we have, we can help in most of those steps. When you then layer in CarOffer, that gives us access to the whole sort of back end, if you will, of that value chain into the wholesale market. to do things that really just honestly help them predict more. It’s what kind of car should I acquire based on how I predict that car will sell in four weeks when I had it ready for sale. And that becomes a really virtuous cycle.