Good day, ladies and gentlemen, and welcome to CarGurus Inc.'s First Quarter 2024 Earnings Results Conference. Please note, this conference is being recorded. I will now turn the conference over to Kirndeep Singh, Vice President, Head of Investor Relations.

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 in 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.

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, an end-to-end transaction-enabled platform, and an 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, Ish'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 3 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 dealers, 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 continued 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 2 quarters, we have 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 tiers 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 #1 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 average more than 3 sessions per week with strong engagement and loyalty. Approximately 70% of app users ultimately register 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 listing 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 Deal, 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 completing their purchase online, encompassing nearly half a million Digital Deal-enabled vehicles. Digital Deal leads accounted for approximately a quarter of a dealer's email leads, and we have seen reservation deposits increase by 185% year-over-year. This is a remarkable achievement as a growing number of consumers trust us with their credit card data, and we are delivering highly qualified leads to our dealers with a higher close rate. 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 also to 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 that desire to aggressively acquire inventory. Dealers in our early access program have found exceptional value in Top Dealer Offer leads as we consider various factors, such as price, dealership reputation, distance, and available trade and inventory to ensure optimal matches. We're the only marketplace player that offers both a 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, I'm 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 CarOffer's 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 5 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 strategy. Overall, we are proud of the progress and improvement the CarOffer team continues to make as we believe these steps are crucial to returning 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 have 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 dealers' 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.

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 subscription, 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 adding 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 U.K. and 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 a growing number of consumers and dealers continue to opt for our highly profitable, subscription-based consumer vehicle sourcing product, Top Dealer Offers. Despite a decline in Instant Max Cash Offer transactions, 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's 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 increase in consolidated adjusted EBITDA and lower share count. We ended the first quarter with $246 million in cash and cash equivalents, 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.

Our first question comes from Marvin Fong of BTIG.

Two questions, if I may. So I was interested in your disclosure; the net new bookings were up 28%. Correct me if I'm wrong, but I don't believe you've ever given us 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 can just kind of help us understand the dynamics there.

Thank you for your question. Regarding Marketplace revenue, I want to highlight that listings increased by $20 million this quarter compared to $60 million in the same quarter last year. This indicates that we are experiencing continued acceleration in top-line growth at the Marketplace.

And this is Jason, Marvin, and it's reflected in the guidance to give you a sense of flow through.

Okay. So we should just kind of see it as that revenue that's sort of recognized in the next quarter.

Yes. Typically, when we acquire a new customer, activation happens fairly quickly. There may be some initial adjustments, but it tends to occur in a short time frame. The timing of when it's booked in the quarter affects its impact for that quarter compared to the next. While contracts can be annual, they are recognized on a monthly basis. Therefore, the best way to understand this flow-through, apart from intra-month observations, is through our guidance. In terms of the impact of the Top Dealer Offer on QARSD, there are several factors influencing QARSD. As we've mentioned, the main ones include acquiring new customers at more aligned market rates. Another significant factor is upgrading dealers to higher packaged tiers, which is driven by our continued addition of more tools, insights, features, and even some products into these higher tiers that provide greater value instead of charging separately. Lastly, new products also play a role, and we consider the Top Dealer Offer to be a new product.

The next question comes from Jed Kelly of Oppenheimer & Co.

Great. Looking at the margins in the Marketplace, they appear to be quite strong. Can you confirm if that's the correct perspective to consider? Also, you provided guidance for the second quarter, but could you share your thoughts on the marketing strategy for the remainder of the year?

Yes. So the Marketplace business continues to experience strong growth at the top line and also 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 around the holiday season.

Our next question comes from Rajat Gupta of JPMorgan.

Great. Maybe 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 pick up? Or maybe you want to talk about year-over-year is 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 this segment further? I mean, clearly, strong uptick here in the QARSD and also dealer count there. I was curious, what's going on there? Any solid commentary would be helpful.

In terms of QARSD, it increased by 14% year-over-year, primarily due to dealers moving to higher subscription tiers and new dealers joining Marketplace. Additionally, the number of dealers rose sequentially from the fourth quarter, marking the highest influx of new dealers to our platform since the first quarter of 2021. Furthermore, 30% of our contracts for new dealers extend beyond one year, indicating that our retention is likely to improve over time.

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

Yes. 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 2 quarters. So we are seeing continued momentum in the Marketplace business.

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

I'm glad to address that, Rajat. Thank you for highlighting it. Our business is thriving globally, and I'm proud to say that it's not limited to just one market. We've achieved profitability in these markets, and we're excited about their future potential. We're experiencing rapid growth there, with a reported 24% growth in international markets. This progress presents significant opportunities for us as we catch up to market leaders. We have the chance to launch new products in the U.S. as well, resulting in increased growth and the ability to add more dealers similar to our international efforts. Additionally, this opens doors for partnerships to enhance our product capabilities beyond our organic developments. You've likely seen the introduction of new products that assist consumers in progressing through the transaction cycle, which provides us substantial opportunities to continue closing the gap with the major market leaders. We're truly impressed by the growth and profitability in these sectors and are eager to maintain that momentum.

The next question comes from John Colantuoni of Jefferies.

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?

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 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 startup 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 to 5x 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.

The next question comes from Naved Khan of B. Riley.

It's encouraging to see the progress with the dealer count and the growth of new dealers. Could you share the monthly trend? Did you notice any strengthening throughout the quarter, and how does April appear? Additionally, regarding the percentage of annual contracts you mentioned, how does the pricing for an annual contract compare to a monthly one multiplied by twelve? Do dealers receive a discount for annual contracts? How should we approach this?

Thank you for the question, Naved. Regarding monthly trends leading into the quarter, we typically don't provide insights about the current quarter. However, you can observe several trends in our prepared comments that contributed to the first quarter. In terms of contracts, if I understood your question correctly, an annual contract is beneficial in several ways. It establishes different expectations for our customers regarding their relationship with us and signifies our intention to foster closer, consultative relationships. Customers are likely to sign an annual contract only if they believe we will be a long-term partner. In the past, we may not have always earned that opportunity. Now, as we provide more insights, tools, and support in sourcing and pricing decisions, customers recognize that we bring significantly more value beyond just leads. While we haven't discussed pricing differences between annual and monthly contracts, they are generally perceived similarly. Some software companies might offer a slight discount for longer-term contracts, but it's usually not substantial. Our pricing is viewed in much the same way, regardless of whether customers choose a monthly or annual plan.

The next question comes from Tom White of D.A. Davidson.

Great. Jason, your comments about the DDIs and the more consultative approach you're taking with CarOffer suggest that you might be increasing your focus on leveraging all of your data in more creative ways and connecting it back to your customers. Can you discuss the high-level monetization opportunity of that strategy? I have a follow-up as well.

Sure. Tom, you're correct that we are discussing this more because we are delivering more. I see it in a few different ways. First, we are utilizing our insights to help dealers sell cars more effectively and profitably within our Listings business. Over time, we have consistently introduced tools that provide dealers with data on their market share of leads compared to their inventory. We inform them about price drops and the speed of those reductions, as well as demand trends in relation to supply data. Recently, we introduced the Next Best Deal Rating, which assists them in minimizing price reductions while increasing interest in the vehicles by improving their ratings and encouraging more engagement on our site. Additionally, we have an inventory acquisition recommendation tool that applies supply and demand data to guide dealers on which vehicles to stock. As we develop these capabilities, we are shifting our perspective to better align with our dealers' needs, connecting all necessary steps for them using our data. Dealers must source inventory, estimate its performance, price it, and market it effectively to make a sale while also retaining customers. With our wealth of data, we can assist in most of these processes. When we incorporate CarOffer, we gain a comprehensive view of the wholesale market, enabling dealers to make better predictions about what types of vehicles to acquire based on anticipated sales performance. This creates a beneficial cycle. We believe our data provides a more integrated approach than our competitors, and we are committed to transforming this data into actionable insights. Currently, we have tried various pricing models, including a la carte options like Lead AI, which helps dealers understand shopper behavior better, ultimately enhancing their sales closure rates. However, we have found that bundling these services into organized packages results in better adoption. This strategy not only encourages upselling to higher tiers but also improves customer retention as they become more dependent on our data. For instance, thousands of dealers are using the Next Best Deal Rating, with a substantial portion accessing this information daily, which is a significant improvement from the past when they might not actively engage with our dashboard. So, yes, we are experiencing a growing emphasis on data, which is crucial in connecting our end-to-end services.

That's great. That's super interesting. Maybe just a quick follow-up. QARSD growth obviously continues to be super strong. And it looks like the guidance, by my math, kind of looks like another double-digit kind of growth quarter for QARSD. How should we think about the sustainability of this level of QARSD growth kind of over the next several quarters?

I will continue speaking. I feel confident about this. It is quite sustainable, and we've discussed various factors that support it. Most of these factors will persist for a long time. The example I just mentioned illustrates this well; as we provide more value to dealers, even through bundling a listings product, we significantly enhance their dealership's value. We believe their perspective is changing from simply paying for leads to investing in the capability to enhance their dealership's sophistication, which is happening through CarGurus while also receiving leads. There is continued potential for package upsells if we successfully introduce these value-added features and insights, bringing dealers to market rates. We have many dealers who have been with us for a long time and are still priced below market. We believe our competitors are increasing their unit prices as well, raising the pricing ceiling. We maintain a strong return on investment because, overall, we are still less expensive. Additionally, other products like Top Dealer Offers exemplify this. We are full of new ideas, and you heard a brief mention of Ish, who brings an excellent perspective focused on the dealer customer. With his contributions and the more unified activities with CarOffer, we see new opportunities for products that didn't previously exist.

Our next question comes from Doug Arthur of Huber Research.

Elisa, regarding the operating expenses, it appears that both GAAP and non-GAAP sales and marketing costs were higher. Meanwhile, product development expenses decreased, and general and administrative costs increased. Is there any trend we should be aware of, or is this primarily a result of some opportunistic actions in the sales and marketing area?

Yes. Thanks for the question. It's primarily the marketing that was elevated in first quarter, as we said, because we front-loaded our branding spend related to the advertising campaign. But as we said, this should decline into the fourth quarter and throughout the year, and our OpEx in the second half of the year as a percentage of revenue should also continue to decline.

The next question comes from Ron Josey of Citigroup.

This is Jamesmichael on for Ron. Can you help us unpack the 30% inventory that you saw in the quarter? What trends are you seeing in the new and used autos macro? And what controllables are you executing against your expanded inventory? And then any more color on the potential you see from the new inventory acquisition recommendations tool would be helpful as well and if you think this is a driver for QARSD.

Sure, I can assist. I may need you to repeat the second part of your question, as it was delivered quickly. Regarding inventory expansion, there are two key areas to consider: the payment to dealers and our approach to premium dealers. There hasn't been significant change in how we handle premium dealers, but we did see a modest increase in paying dealers, which should provide some benefit. Currently, the situation is mostly influenced by broader market trends. Recently, there has been an uptick in new car inventory, while used cars have seen a slight increase but remain below pre-pandemic levels. New car inventory is still considerably below pre-pandemic figures. As for the inventory acquisition tool you mentioned, it's currently in the pilot phase with a limited number of dealers. We believe all of these tools will positively affect retention. It's important to note that dealers vary significantly—there are large and small franchise dealers, independent ones, and differing levels of sophistication within those groups. For some dealers, the inventory acquisition recommendation tool will be as essential as their daily use of next-best deal ratings, while others might rely on different tools. Each tool we introduce aims to aid retention among the most relevant dealer segments. However, it's challenging to pinpoint the specific impact of any single tool on retention. Our overall strategy is to keep rolling out these insights, especially as we integrate CarOffer, which we believe will have a very beneficial effect overall. I apologize, but I missed the last part of your question.

Yes. I think you addressed the question on the inventory or recommendation tools. That's helpful. My second question is just around the app. Obviously, some success in kind of downloads, engagement, the 25% lead contribution. Can you talk about the investments you're making in either marketing or the core app infrastructure to drive some of those gains?

Much of our focus is on product and technology improvements. While there is some additional marketing directed at the app, the primary effort is on enhancing the product itself. In retrospect, we may have lagged behind the industry in app investment because we were achieving significant success with our mobile web platform. Now, as we dedicate more resources to the product, we're witnessing impressive results. Notably, we began to see improvements even before increasing resource allocation. As we invest further, particularly in features that enhance app engagement—distinct from mobile web usage—we're experiencing substantial growth. This includes increases in registration, frequency of use, engagement with dealers, and communication. We are genuinely excited about the app's performance and proud of its recognition compared to our industry peers.

James, I'm just going to add something. It's Sam Zales here. Thanks for the question on both because Jason hit it all, but just a couple of pieces of color from the market. One is when you add things like Top Dealer Offer to your app and you say, 'Sell my car,' we're the only player in the market that offers either the white glove, pick up the vehicle at your home or drop it off at the dealership and make a little bit more money. It is a truly unique offering in the market. It's one of the reasons 70% of the app users are registering and saying, 'I want to think about this. At some point in my future, I'm going to be in the long-term transaction model of auto ownership.' It creates that incredible #1 position in the app space for automotive marketplaces. Number two is on the inventory acquisition report, as another example, as Jason was talking about analytics. A dealer typically says to us, quantity and quality of leads is the price of entry into this business. And you can see from our QARSD growth, our Marketplace growth, the lead growth we talked about year-over-year at double-digit, the lead we have on our competitors for visitors and visits, the lead we have in our competitors from an inventory perspective, that all fuels that lead volume and lead growth and lead quality that we have that we believe drives a highest ROI in the business and leads to that growth in our Marketplace business. The second part of that, though, is can you teach me how to run my dealership more profitably. So all of those analytics reports that Jason is talking about, including this new inventory acquisition report, nobody in the market can take consumer demand with the largest audience in the marketplace and match that against inventory turns in a local market and help that dealer say, 'Here's your best option. To meet the market demand in your market, acquire that inventory and turn your inventory more quickly,' which is both a CarOffer and CarGurus value proposition in the synergy of our businesses that we think is truly differentiated.

Ladies and gentlemen, we have reached the end of the question-and-answer session. I will now hand over to Jason Trevisan for closing remarks.

Thank you very much. I just wanted to give a special thanks as we always do to all of our employees. We're extremely proud of all the innovation and growth that we're experiencing as a company. I'd also like to thank everyone today who joined for your interest and support of us. We look forward to seeing many of you at upcoming conferences. Have a good evening.

Ladies and gentlemen, that concludes today's event. Thank you for attending, and you may now disconnect your lines.