Greetings. Welcome to the CarGurus Third Quarter 2021 Earnings Conference Call. At this time all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the call over to your host, Kirndeep Singh, Vice President of Investor Relations.

Thank you, operator. Good afternoon. I'm delighted to welcome you to CarGurus' third quarter 2021 earnings call. We will be discussing the results announced in our press release issued today after the market closed and posted on our Investor Relations website. With me on the call today are Jason Trevisan, Chief Executive Officer; Scot Fredo, Chief Financial Officer; Sam Zales, President and Chief Operating Officer; and Bruce Thompson, Founder and Chief Executive Officer of CarOffer. During the call, we will make statements regarding our business that may be considered forward-looking within applicable securities laws, including statements concerning our outlook for the fourth quarter and full year 2021. Management's expectations for our future financial and operational performance and innovation, our business and growth strategies, our expectations for our CarOffer business and anticipated acquisition synergies, our expectations for CarGurus Instant Max Cash Offer, the value proposition of our current product offerings and other product opportunities, the potential impact of the COVID-19 pandemic, the semiconductor chip shortage and other macro-level industry issues on our business and financial results and other statements regarding our plans, prospects and expectations. These statements are not promises or guarantees and are subject to risks and uncertainties, which could cause them to differ materially from actual results. Information concerning those risks is available in our earnings press release distributed after market close today and in our most recent reports on Forms 10-K and 10-Q, which, along with our other SEC filings, can be found on the SEC's website and in the Investor Relations section of our website. We undertake no obligation to update forward-looking statements, except as required by law. Further, during the course of today's call, we will refer to certain non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our press release issued today. Our updated investor presentation can also be found on the Investor Relations section of our website. With that, I'll now turn it over to Jason.

Thank you, Kirndeep, and thank you to all those joining us today. I'm pleased to share that CarGurus achieved excellent results in the third quarter of 2021. Despite the ongoing semiconductor chip shortage, our performance demonstrated the continued resiliency of our leading foundational listings business, and impressive progress in our transaction capabilities, including digital wholesale, Instant Max Cash Offer and digital retail. Since April, the automotive industry has been navigating the semiconductor chip shortage and pent-up consumer demand, resulting in depleted new and used inventory and vehicle price inflation reaching all-time highs. While some forecasts predicted a recovery in the second half of 2021, it appears that the chip shortage will last into 2022, potentially late into the year. Though it remains difficult to predict when the shortage will ease and the resulting implications on new and used inventory, we continue to work closely with our dealer partners to provide support as we all continue to navigate through these unprecedented times. Before I dive into our business results, I'd like to first highlight our successful third annual automotive industry conference, Navigate, which was held in October. This year, we virtually welcomed dealer registrants from across the U.S., Canada, and the United Kingdom. The three-day event discussed the move towards digital retail, wholesale optimization through CarOffer, brand building and much more. We are pleased with the insights and the content we were able to provide dealers and look forward to an even bigger and hopefully in-person, Navigate 2022. Now turning to our business performance. We are thrilled to have exceeded our guidance for the quarter. Performance this quarter was driven by three key factors: our ongoing evolution from a listings business to an end-to-end transaction-enabled marketplace, our partnership with dealers to develop innovative digitally initiated solutions and finally our ability to provide consumers a self-selective digital retail journey when buying or selling a vehicle. With these three areas driving our performance during the third quarter, we were pleased to see strong dealer penetration of our CarOffer platform, swift execution and rapid expansion of CarGurus' Instant Max Cash Offer and continued innovation as we bring digitally initiated capabilities to our consumer audience and dealer partners. As we have said before, the addition of CarOffer has created powerful synergies through our integrated platforms that have further helped overcome the headwinds faced by the industry at large, and we are thrilled with the continued growth of the CarOffer business in Q3. Strong dealer adoption of the CarOffer platform continues as enrolled dealers increased by 27% quarter-over-quarter to approximately 7,000 rooftops with similar enrollment rates in October. CarOffer continues to drive enrollment with approximately one third of new dealers coming from the CarGurus sales team. The CarOffer buying matrix creates an opportunity for all types of vehicles, regardless of price, to transact on the platform. And as we continue to grow, we believe over time, a meaningful portion of CarGurus listings dealers would be excellent candidates for the CarOffer platform. With no monthly subscription fee, dealers are encouraged to try the transaction-based platform as a method to source and/or liquidate inventory. This quarter, revenue from CarOffer's dealer-to-dealer business grew modestly to approximately $58 million. However, gross merchandise sales, or GMS, declined moderately during the same period to approximately $875 million. This decline was in part caused by dealer apprehensiveness in purchasing vehicles wholesale as prices trended downward from July through late August. However, we saw this trend reverse in September with an uptick in transactions correlating to a rise in wholesale prices that was caused by a dearth of new vehicle supply and even fewer lease returns. Furthering that trend, October marked a record month for CarOffer, driven by a record number of transactions. Despite wholesale price volatility and seasonality driving near-term transaction fluctuations, we're very pleased with CarOffer's progress. With each passing quarter, through further integration, we are harnessing the combined CarOffer and CarGurus technology to provide dealers a differentiated value proposition unlike anything else. Just a few of the initial examples of the power of our combined platforms include: Dealers now have access to our IMV pricing data in their wholesale matrix, retail prices next to wholesale offers in their CarGurus dealer dashboard and access to a new source of consumer trade-ins via Instant Max Cash Offer. As we transition to a more digitally initiated environment, where consumers can choose to complete some or all of the transaction online, we are pleased to see dealers embrace and evolve with the change in consumer behavior. We continue to make great progress on our end-to-end solution with new functionality becoming available for dealers and consumers like Instant Max Cash Offer or Instant Max for short. Since its launch in Q3, Instant Max has expanded to cover over 50% of the U.S. population in just three months. Today, I'm happy to announce that this week, we are expanding even further into three additional states: New York, Maryland, and Minnesota, now covering a total of 22 states. We are incredibly pleased with the performance since its launch. Since inception, we have already completed hundreds of transactions with vehicles ranging in price from approximately $2,000 to $78,000, which shows how this product can serve a wide swath of the market. In October, we completed approximately 13 times the number of transactions we did in August. We are thrilled with the week-over-week growth as we continue to scale the business. As we expand further with national coverage anticipated in 2022, we expect to see continued growth across a wide variety of vehicles transacted on our platform. With each expansion effort, we continue to refine the consumer and dealer experience. Recently, we streamlined the document upload process, added ACH as an alternative payment method and invested in tools to enhance the intake experience for our logistics partners and landed dealers. We are combining CarGurus' customer centricity and experience with CarOffer's deep expertise in documentation, logistics, and inspections to create a service that consumers can reliably trust and leverage for their vehicle trade-ins and sales. We believe we are poised for success as we have built an offering that provides our industry-leading consumer audience, the most competitive price from thousands of dealers and a great digital and offline experience. And dealers have the opportunity to become a landed dealer and receive access to thousands of consumer trade-ins otherwise not attainable. CarGurus is the only platform where wholesale dealers and consumers can transact instantly and at scale. Here's what our satisfied customer, Dalen from Texas, had to say about his latest experience: "The offer was better than any offer I was getting from dealerships or people in general, and it was just an offer I couldn't turn down. I will tell everybody CarGurus will give you a great offer. Also, it was a smooth process, an easy process for me to go through to get the car sold, so I would definitely recommend it to friends and families." Leveraging the same technology and dealer network that powers Instant Max's Cash Offer, we are now offering dealers Consumer Lane, a powerful trade-in tool for their own website that enables them to instantly purchase vehicles directly from consumers with the confidence of a standing bid from another CarOffer dealer. Following a successful pilot, Consumer Lane is now being deployed by some of the industry's leading automotive groups. Consumer Lane reduces the risk for dealers offering to purchase a digital trade-in by using CarOffer's proprietary buying matrix technology, which leverages dealers who have placed standing buy orders, thus guaranteeing a value for the car to be traded. Dealers can instantly make the most competitive offer on trade-ins to shoppers right from their website. With every consumer offer backed by the buying matrix buy order, Consumer Lane provides the originating dealer the opportunity to keep the car or simply click a button and sell it through the wholesale platform at a guaranteed price. Shoppers will seamlessly receive the highest cash offer from thousands of dealers in the matrix, which they can then bring into the dealership to receive payment or to use towards an upgrade. The integration of Consumer Lane provides dealers with an enhanced ability to retain consumer business from trade-in to new car purchase and adds yet another layer of transparency to the car buying experience for consumers. As we continue to grow our dealers' capabilities to purchase vehicles from consumers, we believe it is an opportunity to not only raise awareness for Instant Max's Cash Offer, but to enhance our brand awareness among consumers as well. We have evolved tremendously from our traditional listings business to an end-to-end transaction-enabled marketplace where consumers can now transparently shop, buy, and sell vehicles online. With such a compelling consumer offering, we're excited to expand our marketing to communicate our broader set of offerings. While we still plan to remain judicious with our spend and recognize efficiencies today on the listings foundation of our business, we are acutely aware that investment is required to ensure CarGurus is top of mind when it comes to vehicle trade-ins and a digitally initiated experience. In October, we launched a new 'Do More From Home' brand campaign, which emphasizes how CarGurus uses technology and scale to equip consumers with the confidence and information they need to buy or sell a vehicle online. These brand campaigns are just one of our many avenues for raising consumer awareness and driving high-intent shoppers to our transaction-enabled marketplace. With the launch of Instant Max Cash Offer, we are realizing the synergistic effects of our combined CarOffer and CarGurus platforms. Consumers who utilize Instant Max Cash Offer to sell their vehicle are also more engaged shoppers in the market for a new vehicle. 56% of consumers who saved an offer utilizing Instant Max also used CarGurus to view vehicle detail pages for a new vehicle, and approximately 20% of Instant Max offer savers also submitted a lead through CarGurus. As our Instant Max offering scales, we believe we will be able to target even more consumers lower in the funnel that have sold their vehicles and are now in the market for a new vehicle. These early marketing synergies are just one example of where the sum of the parts is greater than the stand-alone components. Although we saw increased conversions from consumers using Instant Max Cash Offer, overall leads were down this quarter in the U.S. As prices for vehicles increased and consumers became more aware of the chip shortage, we saw consumer demand pare back resulting in fewer leads. Our latest research from our 2021 Buyers Insights report shows that 58% of current shoppers are aware of these higher prices, which has resulted in 31% of current shoppers delaying their vehicle purchase. While we view these dynamics to be temporary, we are still pleased with the quality of the consumer base we continue to attract and the high-intent shoppers that come to our site as a result of our targeted marketing efforts. While Instant Max Cash Offer allows consumers to sell their vehicles from the comfort of their homes, our other recently announced capabilities allow consumers to complete more elements of car buying online. According to a national survey, 80% of dealers said the pandemic has accelerated their adoption of digital path to purchase experiences and 90% of dealers expect to continue or accelerate digital retailing at their dealership. In order to meet this growing demand, we continue to innovate so dealers can reach and engage new shoppers in a local market and target new shoppers outside their immediate region as well. We recently augmented our CG Convert product, which is still in early access and only available to a limited number of dealers with the addition of deposits and expanded financing capabilities. CG Convert allows car shoppers to start their purchase from a CarGurus vehicle detail page and get to a near penny-perfect personalized deal on the vehicle they're interested in purchasing before scheduling an appointment with the dealership to finalize the purchase quickly and transparently. Now with AutoFi integrated into CG Convert, shoppers can submit a credit application to receive real offers from a dealer's preferred lender group. With AutoFi's 40-plus lenders, we believe this not only is the next step to a fully digital experience but also a path to create more lower funnel and qualified leads for dealers while they retain their profits from F&I products. Here's what a satisfied customer had to say about their experience using CG Convert, "We decided to try convert in an effort to get more quality leads. Customers that have done their process of elimination, they've done their research. They are ready to buy. Salespeople are aware that not all leads are created equal. They're extra excited and eager to hop on it when they see a CarGurus convert lead come through. They know that it's a serious committed buyer that's provided us with the information that we are looking for to begin the next steps to sale." Additionally, for consumers who are ready to commit and lock in their chosen vehicle, especially during an environment of limited inventory, we have recently piloted the ability for a consumer to put down a deposit for the car on our site. The feature allows shoppers to place a $500 deposit to reserve a vehicle for 72 hours. This not only improves the car buying experience for consumers, but also provides dealers with a more committed high-intent shoppers that are ready to purchase. CG Convert with its updated functionality provides consumers a self-selective journey, allowing for a smooth online to offline transition. We're pleased with dealer feedback on the enhancements and are continuing to further refine CG Convert while in early access before supplying broader access to dealers who are eligible. Beyond CG Convert, we continue to enhance our other digital retail capabilities. In August, we partnered with Spin Card to provide CarGurus dealers with interactive 360-walkarounds on their VDP. The addition of 360-degree walkarounds adds another element of digital engagement and builds trust between dealers and consumers by bringing the physical showroom experience to car shoppers online, allowing for a more immersive and engaging experience. Moreover, as we continue to work closely with our dealers, we have listened to their feedback and created even more optionality with Area Boost. Dealers can now select the delivery range that best suits their business, providing a more tailored offering that fits each dealer's unique budget. Based on the preferred delivery range, dealers are likely to increase VDP clicks by 20% to 50%. With growing adoption for both Area Boost and our consumer financing offering, combined revenue for those two products increased 36% year-over-year. Even with the addition of AutoFi, dealers continue to utilize our consumer financing offering for consumers that prefer a soft pull versus a hard pull, both still resulting in high-quality prequalified leads. Finally, as we mentioned at Navigate, we have begun testing our delivery pilot, which enables dealers to deliver vehicles to shoppers, utilizing the CarGurus platform outside their local region without geographic limitations. Similar to Instant Max Cash Offer, the delivery experience associated with purchasing a vehicle needs to be flawless to earn consumers' trust. With CarGurus representing the last mile, it is imperative to ensure the customer receives a white glove hassle-free experience and dealers are worry-free of logistics, documentation and customer service calls. We are eager to use our learnings from the pilot to quickly adapt and create a solution that's optimal for consumers and dealers. With these incremental additions, we continue to get closer to creating a full end-to-end digital retail solution. Consumers are shifting toward a digitally initiated mindset to reduce the guesswork and time commitment behind traditional car shopping. 51% of consumers prefer to sort out their financing online versus in the dealership and 45% prefer to negotiate price before heading to a dealership. With consumer preferences to complete more elements of the transaction online, having grown to over 60%, our digitally initiated tools allow consumers and dealers the flexibility to choose how far to take the transaction online. Our vision is to partner with dealers by supplementing what works in their dealerships with new tools that adapt to the evolving consumer needs, thus allowing dealers to sell more and sell efficiently. While the listings business that we were founded on has grown to become a piece of a much greater story, it still remains the fundamental core of the CarGurus platform, integrating all offerings into a unified marketplace that creates a full wheel effect for the overall business. This quarter, our Listings business exceeded forecasted marketplace subscription revenue in the U.S. and internationally. We ended the quarter with 23,979 U.S. dealers, a modest increase quarter-over-quarter. Internationally, we continue to see growth in Canada with a slight increase in paying dealers quarter-over-quarter, while the U.K. had a nominal decline during the same period. Although Canada has followed our U.S. business closely, in the U.K., there remain lingering effects from COVID-19 related shutdowns and a delayed impact from the semiconductor chip shortage. This quarter, while paying dealer adds remained modest, we are pleased to see dealer churn decline from elevated levels earlier this year. While we entered Q3 with fewer paying dealers on our platform than when we entered Q2, we're incredibly impressed with our account management team who continue to drive quarterly average revenue per subscribing dealer or QARSD growth. U.S. QARSD grew by $52 to $5,602, primarily through upgrades and product expansion. Moreover, new paying dealers that were added to our platform were generally higher paying franchise and independent dealers while lower paying emerging independents churn. Internationally, QARSD increased by $33 driven by similar factors. As we continue to roll out additional features to create a full end-to-end solution for dealers and dealers continue to reengage in marketing efforts, we believe we are well positioned to grow QARSD through product expansion and upsells. Our foundational listings business continues to expand, and there are several growth vectors for us that we believe can overcome the near-term headwinds of the global pandemic and chip shortage. We look forward to unlocking these opportunities to grow the business and further propel our initiatives in digital wholesale and digital retail as we develop a customer-centric end-to-end transaction-enabled marketplace. We are pleased with our Q3 results. While the chip shortage continues to cause near-term uncertainty and volatility, we remain excited about our long-term vision and opportunity. By combining our foundational listings business with digital wholesale and digital retail, we are able to provide consumers and dealers with an automotive transaction-enabled marketplace experience that is unmatched anywhere else. We're the only full-featured platform that will enable dealers to purchase vehicles wholesale using proprietary market insights, listed using our IMV technology and ultimately sell it to a consumer, all through a single suite of sites and before the vehicle even reaches their lots. This same platform offers consumers access to a one-stop shop from the comfort of their home to transparently and confidently shop, buy, finance, and even sell from the largest network of dealers and their inventory. As CarGurus has expanded its capabilities beyond being the top listings marketplace in the industry, we believe that with our vast consumer audience and largest selection of inventory among major U.S. online automotive marketplaces coupled with our technology roots, supplies us with an edge that is unparalleled, and it's these key differentiators that drive both our excitement and our growth. This was an exceptional quarter, and I would be remiss if I did not thank our extraordinary employees globally for their continued dedication and commitment as our evolution to an end-to-end transaction-enabled marketplace takes shape. This is an exciting period in CarGurus' history, and I'm energized to work with a talented group of individuals, bringing our vision to reality. With that, I'll turn it over to Scott to discuss our financial results.

Thank you, Jason. Before I begin, I am pleased to share that in October, we released CarGurus' first corporate social responsibility report. The report highlights our focus on making a positive impact in the areas of environmental, social and corporate governance. While there is still much to learn and even more to do as we formally launch our ESG journey, we look forward to continuing the momentum and sharing our progress along the way. Now I'll provide a detailed overview of our third-quarter performance, followed by our guidance for the fourth quarter and full year 2021. Total third-quarter revenue was $222.9 million, up 51% year-over-year and nearly $7 million ahead of the high end of our most recent guidance range. Our marketplace subscription revenue grew 11% versus the year-ago period to $144.6 million. The increase in marketplace subscription revenue aligns with Jason's previous comments regarding the strength and resiliency of our foundational listings business despite the ongoing macroeconomic industry headwinds faced by our dealer partners. Wholesale and other revenue in the third quarter grew 347% year-over-year to $78.3 million. However, it continues to drive strong growth as inventory-constrained dealers look to source vehicles through an efficient acquisition channel. As seen in our investor presentation and as reported in our 10-Q, wholesale revenue for the quarter was $63 million, a 10% increase from the prior quarter. A meaningful portion of the quarter-over-quarter growth was driven by the launch of Instant Max Cash Offer, which contributed approximately $5 million in quarterly revenue for the third quarter, an incredible contribution since its launch at the end of July. As we continue to expand across additional states, Instant Max Cash Offer has the ability to meaningfully drive revenue while creating a flywheel effect for our listings and digital retail businesses. As mentioned last quarter, our guidance estimates for Q3 were not inclusive of any incremental Instant Max Cash Offer revenue, and we are excited with this early growth. Our U.S. business generated $134.3 million in marketplace subscription revenue in the third quarter, and our international business generated $10.3 million in marketplace subscription revenue. The U.S. accounted for 95% of total revenue in the third quarter. U.S. revenue increased 53% versus the year ago period to $211.6 million and our international revenue increased 25% year-over-year to $11.4 million. The increase in the U.S. is largely attributable to increased revenue from our wholesale business and exceeding our forecasted marketplace subscription revenue for the quarter. International revenue continues to demonstrate strong growth as the markets recover from the economic impact of COVID-19 and experienced the impact of the semiconductor chip shortage. Turning to paying dealer count. We ended Q3 with 30,754 total paying dealers, representing an increase of 27 dealers from Q2 and an increase of 592 compared to the year-ago period. In the U.S., we finished the quarter with 23,979 paying dealers, which is an increase of 29 dealers from the end of the second quarter. We're pleased to see positive dealer adds in Q3 during challenging market conditions. It is through our differentiated value proposition that we remain confident in the future growth of our dealer base as macroeconomic headwinds subside. In our international business, we finished the third quarter with 6,775 paying dealers, a decrease of two dealers from the end of the second quarter. The decrease is primarily due to the lingering effects of COVID-19 in the U.K. market, as previously mentioned, but was offset by an increase in paying dealers in Canada. In the third quarter, U.S. quarterly average revenue per subscribing dealer was $5,602, representing a 1% increase compared to the prior quarter and a 9% increase compared to the year-ago period. International quarterly average revenue per subscribing dealer was $1,524, representing a 2% increase compared to the prior quarter and a 21% increase compared to the year-ago period. I will now discuss our expenses and profitability on a non-GAAP basis, which backs out our stock-based compensation expense, amortization of acquired intangible assets, acquisition-related expenses and net income attributable to redeemable non-controlling interest. Third-quarter non-GAAP gross margin was 73%, down roughly 4% compared to the previous quarter and a 20% decrease from the year-ago quarter. The change in non-GAAP gross margin quarter-over-quarter is primarily due to a 24% increase in cost of revenue associated with the growth of the CarOffer wholesale business. We anticipate our consolidated gross margins to evolve as the wholesale business continues to scale. Total third-quarter non-GAAP operating expenses were $99.9 million, up 21% year-over-year. Non-GAAP sales and marketing expense increased 16% year-over-year to $63.9 million and represented 29% of revenue, down from 37% of revenue in the year-ago period. While we have increased our marketing spend to further enhance our brand awareness for newly offerings such as Instant Max Cash Offer and digital retail, we continue to recognize efficiencies in our traffic acquisition as it relates to our foundational listings business in comparison to the year-ago period. Moving forward, while we anticipate continued marketing efficiencies, we will invest prudently in the areas where we generate the consumer traffic that is key to the growth and success of the business. Our third-quarter non-GAAP product, technology, and development expenses grew 34% versus the year-ago period to $21 million. The increase is primarily due to an increase in employee-related costs as a result of a 39% increase in headcount and continued investment in our technology teams to grow our new areas in digital wholesale and digital retail, as well as new features and enhancements to marketplace subscription products. We generated non-GAAP operating income of $63.1 million, representing a margin of 28% and roughly $6 million ahead of the high end of our guidance range. Non-GAAP diluted earnings per share attributable to CarGurus Inc was $0.38 for the third quarter, $0.06 above the high end of our guidance range. On a GAAP basis, we generated third-quarter gross margin of 73% and incurred total operating expenses of $122.8 million, up roughly 30% year-over-year. The increase in operating expenses was primarily driven by an increase in our expenses compared to the prior year's cost minimization efforts in response to the COVID-19 pandemic, as well as an increase in headcount and other people-related expenses pertaining to the CarOffer acquisition. Third-quarter GAAP operating income decreased 8% year-over-year to $40.1 million. Third-quarter GAAP net income attributable to common shareholders totaled $29.2 million. Geographically, third-quarter U.S. GAAP operating income was $41.9 million, down 10% year-over-year. We had a GAAP operating loss of $1.9 million in our international business compared to a $2.9 million loss in the year-ago quarter. We ended the third quarter with $321.1 million in cash and investments, an increase of $51.4 million from the end of the second quarter. The increase in our cash balance was primarily driven by our profitability in the third quarter. We generated $53.7 million in cash from operations in the third quarter and $51.4 million of non-GAAP free cash flow, which includes capital expenditures and capitalized website development costs of $2.3 million. I'll close my prepared remarks with our outlook for the fourth quarter and full year 2021. We expect our fourth quarter revenue to be in the range of $273 million to $285 million. Of that, we expect Instant Max Cash Offer to account for $32 million to $40 million. We are sharing the forecast specific to Instant Max Cash Offer because of the gross revenue treatment of those transactions and the corresponding impact on consolidated margins. Non-GAAP operating income is expected in the range of $44 million to $50 million and non-GAAP earnings per share in the range of $0.28 to $0.30. For the full year 2021, we expect revenue to be in the range of $885 million to $897 million. Non-GAAP operating income is expected in the range of $224.4 million to $230.4 million and non-GAAP earnings per share in the range of $1.41 to $1.43. With that, we'll open up the call for Q&A.

We will now be conducting a question-and-answer session. Your first question comes from Dan Kurnos with Benchmark Company.

Great. Thanks. Good evening. A couple here, obviously, good progress CarOffer across the board here. But Scott, just to be clear, were you making a comment that you expected dealer growth to be sequentially up in Q4?

Paying dealer growth?

Paying dealer count that would be sequentially up.

I don't think we said anything about that, Dan.

Okay. Just you said future growth. All right, that's fine. Just wanted to double check. And then just in general, you guys have obviously announced more expansion on INCO, it's a huge ramp in Q4. You guys already cover more than 50% now. So just can you give us sort of any initial learnings you have in terms of timing to stand up. So market stands up. How much is coming from, let's say, the initial three to ten markets that you launched and kind of what you're seeing and maybe how that is influencing your decision to expand on the timeline you are? Thanks.

Dan, Sam Zales. I'll start it, and I'll turn it over to our friend, Bruce Thompson, the great CEO of CarOffer to share any color behind it. It starts with consumer experience. So we started with three states, moved to eight, got to 19. Now we're moving to 22. We're thrilled with our performance. And it starts with the consumer experience, are they having a great quality experience when they instantly receive an offer, do they save it? Do they sell their vehicle and our NPS and consumer satisfaction scores have been phenomenal on that front; number two, can we keep up with the operations. There's a process and Bruce can talk to it of the title transfer, the processes we take to ensure a great consumer and dealer experience, digital payments and everything else that goes into that; number three is, does our marketing work on site? Are we using all those visitors who are coming in and turning them into the funnel we need and is the brand awareness up there that you can now sell your car on CarGurus from an incredible digital experience. And are those consumers also turning into leads for us. I think Jason's comments remarked that Sell My Car or Instant Max, consumers are coming in and actually submitting leads as well as selling their vehicles, which is really important to us. And then finally, is there a gross margin to this business that can really scale up for the long term and create a profitable business. We've seen all of those things work really, really well so far. And dealers are having a great experience in the landed dealer concept that locally they receive that vehicle. All of those moving in the positive direction tells us to keep moving to more states. And Bruce, I'll ask you to add any color from something I've said there.

Yes. Thank you, Sam. Yes. So basically, in late July and August, it was all about really getting our operations down from getting that white glove service to pick up these CarGurus customers operationally, as Sam indicated, handling titles, money transfers, and the payment. Secondarily, the logistics, we got to make sure that we can scale in every market, which we are doing. We're leveraging a lot of the ridesharing services, which gives us really a limited scale, which we're proud of that. We also developed a system that the way we rolled out with an intake process to be able to take those documents at a consumer's home or place at a business, get those documents instantly uploaded, we have teams here that can analyze those in minutes and finalize those transactions. And I think you also mentioned from the first set of dealers to the second set of dealers, I think we launched a second set of dealers roughly 30 days or so, 30 days maybe post-launch. I saw about a 30% lift in terms of volume from the secondary launch and excited to keep the momentum going.

Awesome. Thanks for the color. I appreciate it guys.

Next question comes from Tom White, D.A. Davidson.

This is Tevis on for Tom. Just one question for you. Wondering, could you elaborate a bit on the size of the addressable market opportunity for Instant Max Cash Offer for the next three to five years?

I didn't hear the first name, sorry, I couldn't hear it, but thanks for asking the question.

Travis.

Thank you so much. It's Sam Zales. I'll start in. It's an enormous TAM. I hate to put numbers on it, but there are about 30 million vehicles that are transacted every year from a consumer either trading in or selling to another consumer. We look at that market, and I'll say to you that what we're most excited about is that I think you heard the range of vehicle prices that we've worked on and Sell My Car and the Instant Max capability. It's gone from low single thousands to $80,000 vehicles, $78,000 or maybe more was our highest transaction. But the average transaction is very significant, the price of the vehicle. So when you look at those 30 million vehicles, and we think we can participate in both the trade-in process or the peer-to-peer transaction process. We think it's hundreds of billions of dollars in TAM, and we look at that as a huge opportunity for us. And we're going to take more of that share because the consumer has this unique value proposition with hundreds or thousands of dealers bidding to the highest bid to win their Sell My Car offer. It's a differentiated offer, and we think we can take a large share of that hundreds of billions of dollars in TAM. Anybody else want to add to that on the team?

I would just echo that from our perspective, the reason that we did – really did this deal with CarGurus in January was to capitalize on the 34 million, 35 million, 36 million consumers that visit and really develop a system, a platform to take these cars in and deliver those to our dealer networks and our dealer clients. And feel like we can really level the playing field for them. Deliver a lot of cars with a brand-new consumer channel that they typically don't have the marketing scale to be able to reach, and collectively with CarGurus and the CarOffer, we can deliver those cars.

Great. Thanks so much. Great info.

Thank you. Next question comes from Naved Khan with Truist Securities.

Hi, can you hear me?

Yes, we got you, Naved.

Great. I have a few questions on CarOffer and Instant Max Cash Offer. So maybe just a clarification. So the $875 million in GMV, that's just dealer to dealer, right? And then on the gross margin side of things, gross margin did go down between Q2 to Q3. And the numbers are a little noisy because of Instant Max Cash Offer. So how should we think about the margins in just the dealer-to-dealer side, what are the puts and takes and what might have shifted? And then just on the standalone basis, how does Instant Max Cash Offer look like on a margin basis? Is this something that can be comparable at scale to the dealer-to-dealer?

I can – Scott, do you want to go here? I mean to take a shot? Okay. Thanks, Naved. So on your first question, the $875 million gross merchandise sales is just B2B. And in terms of gross margin dynamics at CarOffer, which I'll focus on D2D to start. I think we've outlined in the past that we include quite a lot of our trade advisers and account management in our cost of sale. And so you'll notice that there's not that much OpEx below the gross profit line on a relative basis, which is what allows the business to be as profitable as it is at this early stage, and we think that's a testament to the more efficient business model than a lot of other wholesale platforms that have to have heavy sales forces at dealerships, trying to remind them to launch vehicles and remind them to bid on vehicles. So in any given quarter, there are a mix of revenue streams between buy and sell transactions. We have other products; transportation is a revenue stream. So depending on the mix of those, that can influence the gross margin line from an operating expense and also from a headcount perspective that goes in the cost of sales, that the company is growing fast. And so there may be a quarter here or there where we're hiring ahead or behind on hiring that could influence that as well. But I think ultimately, what is so impressive about what Bruce and his team have built there is the efficiency of the business model. In terms of your last question in terms of margin profile for Instant Max Cash Offer, you can think of that like other wholesale operations of other dealer groups, I would say, which tends to be in the mid-single digits from a gross margin perspective. And the OpEx associated with that is not that intensive, especially when you get to scale. And the fact that we can leverage a lot of our audience from CarGurus is a huge benefit because we can control much better the marketing expense associated with it because we have this baked-in audience already. The price of the vehicles can influence gross margin as well because a buy fee for a $14,000 car is the same as a buy fee for a $24,000 car under our model right now. So as car values come down and the transaction fee stays the same, the gross margin would tick up naturally because of that.

Understood. Thank you.

Of course.

Next question, Chris Pierce with Needham and Company.

Hi. Just looking at the average U.S. average monthly uniques in the past couple of quarters, would you say this is kind of related to consumers pulling back in the used car market in terms of shopping? Or is this a large percentage of these efficiencies that you guys are able to ring out to learn from the pandemic in the sense that marketplace subscription revenues were flat quarter-over-quarter on much less visitors. Are they higher quality visitors? Were you kind of scraping less quality business in the past? I'm just kind of curious about this dynamic here.

Sure. I can – thanks for the question, Chris. I can take it. It's Jason. It's all of the factors that you said. So – but just to reiterate them, number one, inventory is down. And so with dealers having fewer cars on the lot, there is less reason for us to drive high volumes of leads on a single given unit. The second thing is that we have gotten much more effective at acquiring users to our site who have a higher likelihood to convert. And so we're able to drive – think of it as we're now able to drive the same volume of leads on a smaller audience than we could have a year ago or two years ago. And then I guess maybe it's related to inventory. But the point that I think somebody made earlier about dealers' interest in and willingness to market right now is pretty limited for two reasons. One, they have less inventory; two, demand is high, and so they're able to garner pretty high prices, which is terrific for them, but they also don't need to market as much. And so in the absence of us renewing, we're again, sort of picking our spots and being thoughtful about the timing of when we would want to drive a lot of volume. So this has been a question that we've gotten often as to the correlation between traffic and our audience size and lead volume. And we are sort of squarely focused on lead volume and traffic is sort of a means to an end. Two other sort of macro comments I'll make is that, one, there's seasonality in Q3 from Q2 typically. And then the second is that – and we talked about this in the script, consumers are aware of these high prices. So despite the fact that they're paying high prices, I think leads into dealers at an industry level are likely down just because consumers – 31% of our shoppers said that they're going to delay their purchases.

Thank you.

Next question, Marvin Fong with BTIG.

Terrific. Thanks for taking my questions. Just two, if I may. First, a little more on Instant Max Cash Offer. Just – I know it's early days, but I'm just curious on how the dynamics work? How quickly after you launched in your states or regions, do you feel like it takes for dealers to kind of start reaching a level of bid that's very competitive with, say, the local CarMax or whoever? Is it pretty competitive out of the gate? Or does it take time for that to sort of mature?

Yes, this is Bruce. I'll take that first question and Scott can handle the second. The beauty about our system is it works very similar to the stock market. And so buy orders are placed in what we call the matrix and dealers go in and they enter those orders in the system for the quantities of cars, the specific – the cars that they want to buy across the board. In any given day now, we have billions and billions of offers that are in that Buy matrix. When a consumer launches his car, what we've essentially done is basically point the same matrix that operates on the dealer-to-dealer platform to the consumer, right? So it's instantaneous. So when a consumer goes online and launches his car, we take that car and push that bid number through the matrix, and it's automatically going to match it to the highest buy order in the system, just like you would with the stock market, and we then turn around and display the offer. So in terms of traction, the traction is immediate. All of the dealers on our platform today want these consumer cars and have a high demand for the consumer cars. And so launching a region or an area, market area is instantaneous as far as that goes. And it's a testament, I mean, we mentioned that October was a record month for us. It's on every front. That's – it's with the Instant Max Cash Offer, the dealer-to-dealer and enrollments as well. So we're thrilled with our October and the way the fourth quarter started. And with that, I'll turn it over to Scot to address your second question.

Awesome. Thanks for the color. I appreciate it guys.

Next question, Nick Jones with Citi.

Great. Thanks for taking the questions. Can you just comment on kind of your pilot of the kind of last mile delivery? What kind of investment might that be for you as you gain traction and decide to expand it? I mean, is that – is there a way that you're going to maybe control some of the logistics and actually own it? Is it largely going to be outsourced? Can you just give a little more color on how that's evolving in the early days? Thanks.

Sure, Nick. Thanks for the question. This is Jason. So the pilot right now is with a short list of dealers, and it's us, acting as a delivery layer for third parties who are doing the delivery. And so the idea is the dealer can work with a single party, which is us and really sort of be hands-off with the delivery in so much as we are ensuring that it's a seamless process, that's a good consumer experience that consumer interactions are with us, but we are not driving trucks around. And so it's an asset-light technology and service layer between the dealer and the buyer.

Great. And maybe just a follow-up on some of the last mile delivery. I think some other maybe direct-to-consumer players that are using third-party logistics have had some challenges in kind of providing the white glove service that consumers want in the delivery. Are there ways to kind of solve that? Or is there kind of never a path to where you get more involved in making sure the delivery is kind of up to standard for consumers?

Sure. Well, I think a lot of credit goes to Bruce and the team because they've been moving cars around for a couple of years now at really high volume. So they've brought a tremendous amount to the table in so much as expertise and how to work with partners and how to ensure the best possible experience for both shipper and recipient. We are very focused on it as well. And so we're working closely with partners to make sure that there's a consumer interface and a consumer angle to it rather than any sort of long-haul mindset. And we're also building – we're working with them to build some features as well. And I think the ultimate testament is that our consumer satisfaction and NPS of Instant Max Cash Offer is extremely high right now. And we're – that's something that is we talked about expansion before. We won't expand if we feel that there are any issues bubbling up on the consumer experience side. And so are there plans for us to own it? No. Right now, we don't have plans to own the logistics. We have, again, CarOffer had built a network of logistics providers. We're leveraging that with them. And so far, and we know it's early days on a relative basis. But so far, it's working well. We have a high NPS and consumer satisfaction score for Instant Max Cash Offer.

Thanks.

Next question, John Colantuoni with Jefferies.

Thanks for taking my questions. I have two. Just wanted to start with sales and marketing expense. It looks like by our estimates, it's down around 40% per unique visitor from pre-pandemic levels, just for the legacy business. And I know you've talked about more efficient traffic acquisition, but maybe you could talk about how much of the decrease is being driven by structural improvements versus transitory dynamics resulting from a unique industry backdrop? And I have a follow-up.

John, it's Scott. I'll take that as best I can. We've talked about this for probably four maybe six quarters of the overall market being down. So competitive spend is one factor, but we also believe that we have, even prior to COVID, become much more efficient in the way we look to drive traffic and ultimately lead to leads that we can monetize. So I think those elements and the – I can't put a dollar figure on it or a percentage, but those elements are durable and are internal and will continue. But the investing more in marketing, both for the core business and for – to drive the new engine of Instant Max Cash Offer are especially a new venture like Instant Max Cash Offer will be, say, less efficient at an entry point, but we have the efficiency of the core business already to leverage on an ongoing basis. I mean we focus far more on lead economics, like leads per unit of inventory, leads per dealer versus total traffic numbers. So we will keep trying to drive traffic in that way, and that's where it will be more efficient than we were prior to the pandemic.

Great. And just one about CarOffer. It looks like Q3 revenue was about flat sequentially after excluding $5 million from Max Cash, and that's despite gross transaction volume moderating about 12%. Can you just help us better understand what drove the sequential increase in take rate?

Yes, I can take that one. This is Jason. So it's largely through other products. CarOffer in broad brush strokes has a D2D business and now an Instant Max Cash Offer. But within their D2D business, they do have other products and other revenue streams. And so it's largely through the mix of those other revenue streams. It's not – when you mentioned take rate and we've gotten that – we've gotten questions posed like that in the past. And I understand why there's value in looking at it that way. It's not exactly the case here just because it's not a percentage of the – it's not driven by a percentage of the gross merchandise value. It's instead driven by features, transaction pricing, other revenue streams, and then you can sort of compute a take rate off of that. So it's an output rather than input.

Thank you. I will now turn the floor over to Jason for closing remarks.

Thank you very much, operator. So thank you, everyone, for the questions and joining us today. And of course, thank you for your interest in our business. We're extremely proud and very excited about our progress and about what we built this last quarter, but also this entire year. I also wanted to recognize Veterans Day on Thursday and thank not only our CarGurus and CarOffer veterans, but also their family members, but also all veterans for their service. So thanks again, and have a wonderful evening, everyone.

This concludes the teleconference. You may disconnect your lines at this time and thank you for your participation. Goodbye.