CarGurus, Inc. Q1 FY2026 Earnings Call

Good day, and welcome to the CarGurus First Quarter 2026 Earnings Conference Call. Please note, this event is being recorded. I would now like to turn the call over to Kirndeep Singh, Vice President and Head of Investor Relations. Please go ahead.

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

Good afternoon, and thank you for joining us. We delivered strong financial results in the first quarter with 15% year-over-year revenue growth to $244 million and adjusted EBITDA up 17% year-over-year with a margin of 33% as our product investments helped drive sustained growth while maintaining healthy profitability. This performance was driven by premium tier adoption, greater usage of our AI-powered products, lead growth and net dealer additions. That strength was especially evident internationally in our U.K. and Canada markets, where revenue grew 39% year-over-year, reinforcing our ROI advantage, driving share gains in both markets. At the foundation of our product innovation and increasing customer engagement is the data layer of our marketplace. We ingest roughly $0.5 billion first-party consumer shopping signals each day across demand, pricing, inventory and engagement. Today, we apply these proprietary marketplace signals in our AI-enabled analytics platform to build products that enable dealers to make better informed decisions and help consumers shop with more confidence and achieve better outcomes. That work shows up in our 2026 strategy through three value creation drivers. First, we are expanding CarGurus offerings into integral parts of the dealer workflow, connecting inventory, marketing, lead conversion and data pillars through mutually reinforcing products. Second, we've begun transforming car shopping into a trusted AI-led journey from research through consideration and purchase, giving consumers greater confidence and more benefits from using CarGurus. And third, we are disciplined in our capital deployment with the aim of growing long-term earnings power and stockholder value. I will now walk through our first quarter progress across each of these drivers. Driver one, expanding CarGurus offerings into integral parts of the dealer workflow, connecting inventory, marketing, lead conversion and data pillar to mutually reinforcing products. Our marketplace has long helped dealers market inventory and generate high-quality customers from our largest and most engaged car shopping audience. And dealers rank CarGurus #1 in ROI among listing sites, which was recently reaffirmed in a survey of a select group of dealers. We're building on that marketing foundation by expanding across additional key dealer pillars, inventory, lead conversion and data and have begun embedding predictive intelligence more directly into those dealer workflows to support better informed decisions. That is showing up in greater wallet share gains and higher engagement as dealers use CarGurus for more of their day-to-day work. In our inventory pillar, we're focused on helping dealers make better decisions about which vehicles to stock and how to price them to optimize their margin and turn time goals. PriceVantage, our first specialized software solution sold a la carte has already reached several hundred paying dealers since its October launch. It uses our first-party demand signals, market data and machine learning to generate VIN level pricing recommendations aligned to dealer objectives. Our top engaged dealers using PriceVantage saw a 117% improvement in turn time relative to their top 5 competitors on CarGurus and a 47% median increase in daily VDP views as they adjusted pricing faster and with greater precision in response to live market conditions. We're also making our data available wherever dealers make daily inventory decisions. Our browser extension gives paying customers access to CarGurus pricing signals directly within inventory management systems and auction sites, putting our data in the dealer's workflow at the point of action. The aim is to make CarGurus intelligence a more embedded input in how dealers source and price vehicles. Usage of the extension tripled quarter-over-quarter, demonstrating that more daily inventory decisions are happening with CarGurus data in the loop. In the conversion pillar, we're focused on how dealers turn interest into sales. In April, we launched Shopper Signals in our premium tiers. Shopper Signals brings together first-party shopper behavior across CarGurus, including browsing activity, vehicle preferences, dealer engagement and Digital Deal actions. Leveraging AI, Shopper Signals gives dealers a richer view of each shopper's intent, preferences and activity so they can take a more customer-centric approach to follow-up. That can include prioritizing high-intent leads, understanding which vehicles best match the shoppers' needs and suggesting similar inventory when the original vehicle is no longer the best fit or available. Driven by our leading inventory and consumer demand data, we're able to help dealers better prioritize and personalize their engagements with buyers, improving lead conversion and driving better ROI for dealers. This value is already resonating with our dealer base with over 8,000 dealers engaging with the feature since its mid-April launch. In our data pillar, we're focusing on giving dealers a clearer view of their performance relative to their competitors and the market broadly, so they can make more profitable decisions. We launched Performance Insights, a monthly report that gives paying dealers a more actionable view of marketplace performance. The report benchmarks dealers on leads and VDP views per vehicle as well as average turn time relative to comparable dealers in their area, then pairs those benchmarks with VIN level recommendations to help dealers improve merchandising, optimize inventory mix, price more intelligently and drive stronger performance. Dealers receiving performance insights had a 76% open rate and made an average 59% more price updates in the period prior. By providing data that contextualizes a dealer's performance, predicts the outcomes of recommended actions and allows dealers to see the results in our marketplace, we believe we are gaining reliance on our data and engagement with our platform. Leveraging our marketplace as the foundation of our dealer value proposition, we're expanding our platform by embedding intelligence more directly in the day-to-day decisions dealers make across these four pillars. That has shown up in stronger dealer engagement with our platform, growth in products per dealer and U.S. QARSD up 9% year-over-year. Driver two, transforming car shopping into a trusted AI-led journey from research through consideration and purchase, giving consumers greater confidence and more benefits from using CarGurus. AI is reshaping how consumers discover and research vehicles. But for the second largest purchase most people make, we believe confidence still comes from trust in a shopping process. In Q1, we deepened our role across that full journey, engaging shoppers earlier through AI native discovery, giving them personalized tools to evaluate options and building more confidence at the point of purchase. That has driven stronger engagement across CarGurus with monthly uniques, sessions, time spent and steps taken on the platform all growing year-over-year. Our app reflects that momentum as well. It remained our fastest-growing traffic source, and we are #1 in the auto category in active users and time spent. We categorize the consumer journey into three stages: research, consideration and purchase. In research, shoppers often start broad before narrowing to a model and then a specific vehicle. A very small but growing percentage of shopping journeys now begin in AI native environments, and we want CarGurus inventory and data to be present where that discovery starts. In Q1, we launched the CarGurus app inside ChatGPT, becoming the first automotive marketplace in the U.S. to integrate live local inventory directly into the platform. When shoppers express purchase intent in ChatGPT, they can see local vehicles, vehicle details and deal ratings without leaving the conversation, then move directly to CarGurus to contact the dealer or submit a lead. AI-driven search traffic remains small but is growing quickly, and CarGurus has shown up well in that traffic because shoppers can access broad inventory, rich vehicle data and trusted deal ratings directly at the point of discovery. That matters because conversion from this traffic remains meaningfully higher than traditional channels. We also continued to evolve our on-site generative AI search experience, Discover, from a research feature into a more effective shopping guide. We added new car inventory, improved relevance using shopper profile data and made it easier for shoppers to move from conversation to specific vehicles and dealer contact all within the experience. That helped move shoppers from exploration to evaluating real inventory and connecting with dealers more quickly while generating richer demand signals across our platform. Discover users continue to grow quarter-over-quarter and more notably, leads grew 52% quarter-over-quarter. In consideration, shoppers are deciding whether a specific vehicle fits their needs and budget, comparing options and understanding the trade-in value for their current car. We advanced Sell My Car by introducing a conversational AI flow that makes it easier for consumers to get valuations and offers with less friction. Sell My Car continued to gain traction in the U.S., improving the selling experience for consumers and giving dealers efficient access to source inventory. In the first quarter, we launched Sell My Car in Canada, where early engagement and adoption were off to a strong start. In the purchase step, we're focused on the moment when a shopper is physically on the lot and making a final decision. Dealership mode is built for that moment. When a CarGurus app user arrives at a participating dealer, the app brings pricing, deal ratings, payment estimates and AI-powered vehicle comparisons directly into the in-store experience. Recently, we began rolling out capabilities that give dealers more visibility into verified online activity. Those signals are more predictive of purchase intent than a traditional lead and help us close the loop between online activity and in-store outcomes. Since Q4, daily lot visits have grown 67%. We believe dealership mode has also become a leading driver of app downloads, expanding our owned audience at the point of purchase and strengthening the connection between shopper engagement and dealer value. Across research, consideration and purchase, we are using AI and first-party signals to make CarGurus more relevant, effective and personalized across the consumer journey. As consumers engage with us across more steps, we have more opportunities to help them move from research to action while improving the signals we translate into dealer value. We believe that is driving more leads and more down-funnel shoppers while giving consumers clear information and greater trust in the outcome. Driver number three, disciplined capital deployment with the aim of growing long-term earnings power and stockholder value. We generated strong free cash flow, and that cash generation fuels our capital allocation strategy. We will continue investing internally where we see the strongest long-term returns, preserving flexibility for targeted M&A and returning capital to stockholders. 2026 is an investment year by design with increased product, technology and development spend, including AI-driven innovation as well as higher sales and marketing investment to support the introduction and adoption of new dealer products and growing our consumer brand and audience. We expect these investments to modestly weigh on margins in the near term, but we believe they will drive more durable long-term growth and a healthy margin profile. In the first quarter, those investments funded the launches and expansions I described earlier across our dealer pillars and consumer journey. They also funded the infrastructure and internal capabilities needed to launch more products and features faster as well as the security, governance, standardized systems and dedicated teams required to scale AI responsibly across the business. Today, a majority of employees use AI in their daily workflow. And in Q1, we standardized AI systems across engineering and product and established a dedicated AI solutions team to identify, prioritize and transform high-value workflows with measurable ROI. We measure engineering productivity using a mix of internal metrics and external benchmarks. Those indicators show that AI solutions have contributed to a 20% year-over-year productivity lift and a 50% lift quarter-over-quarter among AI laggards, expanding our overall product development capacity. Beyond engineering, AI-powered content creation helped drive a roughly 30% increase in unpaid leads year-over-year, and AI has also helped our sales team spend more time with customers, reach more dealers and better educate and engage them on how our solutions can help them make better informed decisions. These investments are improving speed, capacity and execution across the platform as we move from AI-assisted workflows toward Agentic AI capabilities that we believe will support more complex end-to-end work in the future. We've applied the same discipline to capital returns. Since 2022, we have repurchased approximately $896 million worth of shares or about 29% of our shares outstanding, while continuing to grow revenues and profitability. In 2026, our Board authorized a new $250 million share repurchase program through year-end. And in the first quarter, we deployed approximately $175 million under that authorization. We will continue to repurchase shares when we believe it is an attractive investment after funding product and technology investment and maintaining balance sheet strength. We are allocating capital with discipline toward product, technology and AI-driven innovation while continuing to return capital to stockholders. We believe this approach will expand our capacity to innovate, strengthen profitability, increase cash generation and create long-term stockholder value. Q1 showed progress across our dealer and consumer value creation drivers. On the dealer side, we expanded further into the dealer workflow across inventory, marketing, lead conversion and data. On the consumer side, we extended our role across more of the shopping journey from AI native research through purchase. What connects these efforts is the intelligence layer of our marketplace. The real-time demand, pricing, inventory and engagement signals across CarGurus help us build better products for dealers and better experiences for consumers. Over time, we expect this to increase dealer reliance on our platform, grow our share of dealer wallet and deepen consumer engagement across the journey. We are supporting that strategy with disciplined capital allocation, investing in the product, technology and AI-driven innovation, we believe can drive the strongest long-term returns while continuing to return capital to stockholders. Now let me walk through our financial results, followed by our guidance for the second quarter and full year 2026. First quarter revenue grew 15% year-over-year to $244 million, above the midpoint of our guidance range, driven by strength from our strong year-end 2025 bookings as well as continued momentum in our international business with slight moderation in OEM advertising, reflecting the typical first quarter step down. In the first quarter, U.S. QARSD grew 9% year-over-year, and we added 963 paying U.S. dealers year-over-year. We continue to increase our dealer base while taking greater wallet share, driven primarily by upgrades and broader adoption of add-on products with modest contribution from like-for-like price increases and higher lead quantity and quality. For the second quarter in a row, new product adoption was the largest driver of the sequential increase in QARSD. Our international business outperformed in the first quarter with revenue up 39% year-over-year, driven by favorable FX and overperformance in U.K. advertising revenue. I will now discuss our profitability and expenses on a non-GAAP basis. First quarter non-GAAP gross profit grew 14% year-over-year to $225 million. First quarter non-GAAP gross margin was 92%, down about 80 basis points year-over-year. First quarter non-GAAP adjusted EBITDA grew 17% year-over-year to $80 million, above the high end of our guidance range and adjusted EBITDA margin was 33%, up about 60 basis points year-over-year due in part to a favorable item related to a retroactive change in Canadian tax law. First quarter non-GAAP operating expenses totaled $152 million, up 13% year-over-year, reflecting higher sales and marketing expense and higher product, technology and development expense versus prior year as we invest to continue the accelerated pace of AI product introductions. First quarter non-GAAP net income per diluted share attributable to common stockholders was $0.58 up 21% year-over-year. We ended the quarter with $72 million in cash and cash equivalents, a decrease of $118 million from the end of the fourth quarter, primarily driven by $175 million in share repurchases in the quarter, partly offset by adjusted EBITDA. As of the end of Q1, we had $75 million remaining on our 2026 authorization. I will now turn to our guidance for the second quarter and full year 2026. We expect our second quarter revenue to be in the range of $247 million to $252 million, up between 11% and 14% year-over-year, respectively. For the second quarter, we expect our non-GAAP adjusted EBITDA to be in the range of $77.5 million to $85.5 million. We expect second quarter non-GAAP earnings per share to be in the range of $0.57 to $0.64 and diluted weighted average common shares outstanding to be approximately $91 million. Turning to the full year. We are reiterating that we expect 2026 revenue to grow in the range of 10% to 13% year-over-year. We still expect full year non-GAAP adjusted EBITDA margins to compress approximately 1.5 to 2.5 percentage points in 2026 relative to 2025. With that, let's open the call for Q&A.

Operator provides instructions for callers on how to queue for questions. Our first question is from Chris Pierce with Needham.

If I look at the midpoint of the guide for 1Q and where things landed, I would love to get some color around whether it was planned spending on product development that was pushed out, or if spending was less than you expected because of the AI tools you're talking about. Big picture, margins came in a lot better than we were expecting. I want to get a sense of why, how we should think about it going forward, and whether the full year guide is still intact.

Thanks very much, Chris. It's Jason. Thanks for the question. We called out one thing in particular, which is the retroactive change in Canadian tax law. There were a couple of other timing items or smaller one-time items that, if you were to aggregate all of those, would have put us closer to the midpoint. As a result, I would say there are no structural changes or surprises, which leads us to having reiterated our guide. Timing of spend could be, for example, marketing and brand. The midpoint is where we aim.

On the new tools and premium tier adoption, it seems like these are mostly data-related tools. Are dealers still holding off on digital deals because they prefer to get the customer in the room for financing? It seems like digital deal adoption is an underutilized long-term trend. How are you winning so much on data while dealers are still hesitant to go fully digital?

Thanks, Chris. It's Sam Zales. Digital Deal continued to grow in the quarter. We didn't put specific metrics on it, but it remains a very important tool for more than half of our customers. Consumers still indicate they want to complete much of the purchase process online, but then they like to go to the store. The large majority still want to touch and feel the product in the store; only a few percentage points in the market are buying fully online. So we're gaining adoption in Digital Deal. We focus on high-value actions in our digital process: consumers who provide trade-in information, share budget, or pursue financing as part of the process. You heard about Shopper Signals launched in April, which has taken off dramatically with over 8,000 customers using it either daily, in a real-time process, or integrated into the CRM. We're providing information that helps dealers engage with high-value actions that bring the consumer further down the funnel and make them more ready to buy. That's why we're achieving the #1 ROI position according to dealers. So while Digital Deal is still growing and remains a big part of our business, dealers know consumers still want to be in store, and that's why we're building multiple ways for dealers to interact with those high-value actions.

Our next question is from Rajat Gupta with JPMorgan.

You mentioned moving from AI-assisted workflows toward Agentic AI capabilities. Was that comment about internal product development and engineering, or about customers and helping them move in that direction? I have a follow-up.

It's Jason. The comment was primarily about our internal evolution across engineering and product, and also about workflows. You can assume that same evolution is already happening with our products.

Are there one or two use cases around Agentic AI from a customer standpoint in your pipeline, such as operations, consumer support, or pricing workflows? Any hints you can give us?

The best examples of AI in our products today are pricing and inventory, where we read the market in real time and make real-time recommendations to dealers, then predict and hold accountable to those predictions the implications of those changes. In terms of AI versus Agentic AI, that's on the margin. It is a broad-based evolution that will manifest in various ways, and we'll provide more detail as more pronounced and obvious examples emerge at the customer level.

A quick follow-up on the U.K. We saw reports about potential dealer churn at one of the larger players in that market. Did that benefit your share growth in the region or give you an opportunity to engage customers?

Thanks, Rajat. Our success in the U.K. and Canada continues on a very aggressive and successful path. You saw growth in both dealer additions and QARSD. There was probably some positive impact from that incident; we heard about it and are connected deeply in that market. I think the competitor stunted a bit, but it didn't have a massive effect on our business. We're following our playbook from the U.S. We're listed as ROI #1 in that market and have been for a long time. Dealers comparing us to the market leader see that they are charging more while we provide better ROI, which prompts them to test our product. That's why we're gaining customers and building QARSD: we're also building new products in those markets and following our U.S. playbook. Our visitor base is growing faster than our competitors, and we're making the investments to make the product better for our customers. I wouldn't put too much emphasis on that single incident; we're focused on continuing to outperform.

Our next question is from Andrew Boone with Citizens.

Big picture on data: dealership mode and Discover seem like data plays. Can you speak to new ways you're interacting with consumers and the additional information you're gaining from more AI-type interfaces? How do you think about deeper integration with customers and what that unlocks? Also, traffic for the quarter—was it down in the U.S., perhaps due to weather—can you speak to weather impact and what you saw in Q1?

Data is a key enabler for us, but it's also what we do with the data that allows us to create our unique products. Historically, we've been strong once the consumer knows which car they want. Discover is evolving from a research feature into something that helps consumers upstream determine which type of car is right for them, helps them find inventory, and helps them navigate the consideration phase and connect with dealers. Dealership mode, when the user arrives on the lot, brings pricing, deal ratings, payment estimates and AI-powered comparisons into the in-store experience. In doing this, we learn a great deal about our customers. In conversational exchanges, consumers share information because the better the information they share, the better the response and guidance they'll get. We use that to help them find the best match and then to help dealers with better signals when the shopper arrives in-store. Our AI tools have memory and personalization and travel with the consumer, changing the experience from episodic filtering into a guided tour that answers questions and helps them get to the best answer. Regarding traffic and weather, we are seeing Discover helping upstream engagement and our app is our fastest-growing traffic source, and overall monthly uniques, sessions and time spent grew year-over-year. We continued to grow visitor statistics year-over-year, and while storms can impact dealers' foot traffic short-term, our global and U.S. business continued to grow.

I'm happy to jump in, Andrew. We saw visitor statistics rise year-over-year, so we didn't see a negative impact on our global business. There were storms that impacted dealers' foot traffic at times, which is a general fact, and there are many factors affecting the market today, including gas prices, consumer sentiment, and inventory acquisition challenges. Nevertheless, uniques and sessions for us were up year-over-year and quarter-over-quarter, which we view as a sign of the strength of our offering.

Does that answer your question?

Our next question is from Marvin Fong with BTIG.

I'd like more color on PriceVantage. What type of dealers are signing up—franchise or independent? Are these competitive displacements of incumbent solutions or first-time users of a sophisticated inventory management tool? Any color would be helpful.

Marvin, thanks for the question. PriceVantage is different because it's a profit-maximization predictive tool. Competitors tend to offer risk-mitigation, look-back pricing to stem losses. We use consumer demand data to provide future-looking recommendations: what price to set for acquisition and retail to maximize profitability. We're selling to both independent and franchise dealers and have seen success in both segments. The outcomes are meaningful: improved turn times, a 47% increase in VDP views, and 117% faster sales relative to their top competitors. That drives gross profit per unit because dealers find the right balance between pricing and selling. In some cases, customers never had a pricing tool; in others, they had one but this product is materially different. The Chrome extension helps because it puts our signals directly into dealers' workflows; even if they have another tool, PriceVantage provides different predictability based on our consumer demand signals. Usage tripled quarter-over-quarter, and we expect continued growth as dealers adopt it to solve their main problem: acquiring inventory at the right price and selling it at the right price.

Got it. On stock buybacks: you've returned capital since 2022 and have $75 million remaining on the authorization after deploying $175 million this quarter. How should we think about the path going forward? Will you exhaust the remaining authorization this year, or is there appetite to reload authorization?

We have a plan in place and put plans in place that we hope to use. At the same time, we do not take an indiscriminate approach. Our philosophy is to be aggressive when we believe shares are underpriced but to balance that with funding product and technology investments and maintaining balance sheet strength. We've never hinted at what we might do in the future regarding expanding authorization. What we've shared is the $250 million authorization, of which we've deployed $175 million, leaving $75 million. That remaining amount will adhere to the same philosophy: we'll be more aggressive at prices we find compelling.

Our next question is from Joe Spak with UBS.

Following up on buybacks, the cash balance you finished the quarter at appears to be the lowest since 2020. You generate healthy cash flow, but could you give some indication of minimum cash levels you feel comfortable operating the business at?

Thanks, Joe. We clearly think about appropriate cash levels. We view cash usage across three categories: investing back in the business, M&A powder, and returning capital to shareholders. We are proud of our free cash flow conversion. From a minimum perspective, we consider cash on hand and cash we have ready access to. We have a line of credit that is easily accessible, which makes a hard floor more fluid. We also consider timing of working capital, which can produce large cash swings that reverse quickly. We control cash well, but if it dips due to timing, it typically comes back quickly. We balance risk mitigation with being aggressive when we think shares are underpriced.

I appreciate the commentary on AI and integration. If this is too early, say so, but are you able to see anything yet about conversion rates or acquisition cost for dealers as a result of these AI tools, or is it too early to measure?

I can't speak broadly to every dealer's experience because there's a wide range. For us, LLM-driven traffic remains a very small percent of overall traffic and leads, though it's growing quickly and tends to be high-quality. We show up well in those channels, but they are top-of-funnel and not a substitute for a marketplace. Users need a site to go through the workflow, build trust and confidence, compare pricing and deal ratings, and access validated, normalized inventory. People using LLMs often come to us to go through the full process. We're embracing presence in LLMs and building our own AI capabilities to stay ahead of horizontal LLMs.

There are no further questions at this time. I would like to turn the floor back over to Jason Trevisan for closing comments.

Thanks very much. I would like to thank everyone who tuned in this evening, and thanks to everyone who asked great questions. We particularly appreciate our shareholders, our customers and especially our employees for their passion and hard work that is helping us execute as well as we are today. So thank you very much, everyone. Have a great evening.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.