Earnings Call: Q1 2021

May 6, 2021

Greetings. Welcome to the CarGurus, Inc. 1st Quarter 2021 Earnings Results 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 conference over to your host, Josh Goldstein. Thank you. You may begin. Thank you, operator. Good afternoon, and welcome to the CarGurus' Q1 2021 earnings call. We'll be discussing the results announced 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 Scott Ferretto, Chief Financial Officer and Sam Zales, President and Chief Operating Officer. 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 Q2 2021, Management's expectations for our future financial and operational performance and innovation, our business and growth strategy, The future proposition of our Car Offer acquisition, the potential impact of the COVID-nineteen pandemic 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 available in our earnings press release distributed after market close today and in our most recent reports on Forms 10 ks 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 turn it over to Jason. Thank you very much, Josh, and thank you to all those joining us today. I'm thrilled to share that CarGurus generated strong results in the Q1 in both our core listings and digital retail businesses as well as the car offer business. Our strategy is producing results. We are leveraging our market leading automotive marketplace to continue expanding our digital retail capabilities as well as to Catapult Car Offers digital wholesale platform. Emerging from 2020, we are now a stronger, more efficient company And investing even more to build the single best digital platform for consumers and dealers to buy and sell cars. It's been a year since the pandemic initially impacted our industry. And in this past quarter, we've grown beyond where we were before COVID lockdowns. Not only have we returned to year over year growth, but we also believe we have a structurally more profitable business despite the larger We're making in our digital retail and wholesale growth pillars, which we expect to drive long term growth. Our Q1 results exceeded our own expectations. In particular, we are so impressed with the top line results and business model efficiency that Carr offer achieved in its Q1 as part of our business. I'll walk through our results in alignment with our 3 pillar strategy. 1st, our core U. S. Listings business exceeded our bookings and revenue plan, driving sequential growth and maintaining the remarkable efficiency of our marketing spend to produce both nominal growth in operating profit and expanded margins versus Q1 2020. I've often said that the core unit of value of our listings business is leads, And we're pleased to report that our U. S. Leads were up mid single digits versus Q1 2020 and leads to paying dealers were up 16.6% versus the same period last year. This speaks to our continuous efforts to drive value to our paying dealers by increasing targeted lower funnel traffic to our site and our product and engineering teams combined focus on improving conversion rates. We're particularly pleased with this lead growth as it was achieved while spending approximately $20,000,000 less in consumer marketing versus the same time last year. While the numbers of monthly average unique visitors and sessions, our top of funnel traffic KPIs are down year over year, CarGurus remains the most trafficked and engaged U. S. Automotive marketplace with 97% more monthly sessions than our nearest competitor and minutes per visitor 58% higher than our nearest competitor according to Comscore. Also, we saw great momentum in Q1 with Quarter over quarter sequential increases in the U. S. Of 7.6 percent for unique visitors and 10.1% for sessions. In the U. S, we had strong paying dealer additions in the quarter, up 4.37 from Q4 with growth across all of our dealer segments. We also saw improved quarterly average revenue per subscribing dealer or CarSid both year over year and quarter over quarter. The paying dealers added in Q1 came on to our listings marketplace at pricing that reflects our strong lead volumes and were a contributing factor to Carcin growth. Turning to our international markets. Despite the continued impact of COVID in Q1, we continue to deliver a high return on investment to our dealer partners in the U. K. And We did so through sustained investment in lead growth, persistent efficiency improvements, product innovation as well as financial support to dealers in the UK in the form of 100% subscription discount for February due to extended lockdowns. At the same time, we grew average monthly traffic quarter over quarter. Our international marketplaces attracted nearly 8,000,000 average monthly unique visitors We logged 18,200,000 average monthly sessions. We also grew total leads by 6% quarter over quarter and leads to that provides an even more robust consumer audience to dealers through a single subscription. Both our international markets surpassed our expectations in Q1, and we continue to see exciting progress in both markets trend toward profitability. Moving on to digital retail. We continue to see growing traction of our digital retail strategy. As a reminder, digital retail is not a single capability. Rather, digital retail brings various elements of the car purchase onto our site, so that consumers can execute any and all portions of the car buying process that they'd like online. For most consumers today, that means some combination of searching, financing, trade and valuation and adding other warranty and insurance products on our site, and then completing the purchase over the phone or in the dealership after a test drive. For a small but growing set, that will include completing the entire purchase with a few clicks. We offer many of these capabilities already and are seeing growth and adoption among both consumers and dealers. But we still intend to improve the experience, so we are increasing our efforts to offer the full spectrum of retail capabilities. As evidence of that growing adoption, The combined year over year revenue growth from Area Boost and Consumer Financing, 2 initial features of digital retail, was 70% in Q1. In addition, we recently announced the launch of our CG convert product, which brings many of these retail features into a single dealer package, as well as the hiring of Brad Rosenfeld as Executive Vice President of Digital Retail Commercialization. Brad joins us from Amazon, And we are confident he will help our dealers do the same. We know consumer sentiment continues to move in favor of digital retail. With the scale of our audience and inventory, we believe we are well positioned to help consumers and dealers facilitate more of the digital retail transaction online, And we expect to make considerable progress in this strategic initiative in 2021. Last, I'll discuss our wholesale pillar, which is led by the car offer business. What drew us to pursue this opportunity last year The strength of their incredible team, the share shift from physical to digital wholesale transactions, dealer benefits of an instant trading platform versus an and the capital efficiency and profit potential of Car Offer relative to other digital wholesale businesses. This is our Q1 with Car Offer in our financials as we closed the transaction on January 14 and we could not be more excited. And many dealers moving on to the car offer platform are exhibiting similar levels of excitement. Massimo Castelli, General Manager of Vision Hyundai in Canandaigua, New York recently sent this note to Bruce Thompson, Founder and CEO of Car Offer. I can tell you today the Car Offer platform is one of the greatest and most exciting things we have used in years. All of our managers find it not only easy to use, but are now making deals we never would have otherwise. We have made a lot of money with it and have been able to easily manage our aged inventory Without transportation costs and high fees, all while not losing any time on the lot, I only wish I had signed up sooner. We are so impressed with the execution of the Car Offer team in Texas, which is rapidly growing key metrics, including enrolled and installed dealers and transactions. CarOffer more than tripled revenue year over year in Q1, which is a testament to more dealers recognizing the benefits of a digital wholesale platform. Furthermore, the platform's growth year to date is arguably more impressive. Car Offer grew dealer counts and transaction volume in each month of Q1 and through April. Furthermore, we are just now starting to reap the benefits of our combined platforms As our CarGurus account management teams have introduced hundreds of CarGurus customers to CarOffer, and we are now surfacing wholesale matrix offers directly in our CarGurus pricing tool to dealers subscribe to both of our platforms. Thus far, over 1800 dealers can access wholesale offers in the CarGurus dashboard. And of those who have seen these initial offers, nearly 1 in 5 have clicked through to explore a transaction. What's more, 1 in 4 1 out of 4 wholesale offers have been within 5% of that dealer's retail price and 15% have been above the retail price. Soon, we anticipate these wholesale offers will be available to all CarGurus dealers, including those not yet on the CarOffer platform, potentially representing millions of instant offers made every day. We believe this is evidence of the combined power of our platforms, Intelligent use of data and the market liquidity of our large dealer network. These are just a few examples of synergies we expect to achieve between our platforms. Dealers like Danny Archibald of Archibald's in Kennewick, Washington are using the car offer matrix in tandem with the CarGurus marketplace. As Danny says, it's actually a fantastic integration. I use the CarGurus pricing tool daily to make my wholesale decisions, And I can see myself using this Car Offer integration a lot in the future to sell vehicles. Prior to Q1, Car Offer was already experiencing strong growth because the platform offers dealers efficient wholesale execution via instant trading platform. We believe this in turn creates a more capital efficient business model for CarOffer versus other more people intensive digital wholesale models that require dealers to frequently launch and monitor auctions. We also believe this efficiency is ultimately evidenced by the significant growth of CarOffers platform over the last year, while consuming very little capital. For further evidence of efficiency, in 2021, we've seen increasing velocity on car offer dealer acquisition and transactions And a growing backlog of dealers to onboard and yet car offers pro form a Q1 non GAAP operating income was positive, which we've illustrated in our investor slides. March was a record month for both dealers and transactions, and we exceeded those with new highs in every metric in April. While our consolidated results in Q1 exceeded our expectations, we were not surprised by the resiliency and strength of our listings business. The early enthusiasm and growing usage among both dealers and consumers of our digital retail features and the market's receptivity to CarOffers' highly effective platform. We've only just begun illustrating the combined power of listings, retail and wholesale and believe that dealers are recognizing it as well, Consumers will soon enjoy more benefits as a result. We do want to mention that we are witnessing the inventory and pricing volatility from the macroeconomic chip issue that is impacting many industries, including ours. While consumer demand was very strong in Q1 and has continued, Dealers are realizing higher gross margin per unit, but struggling to maintain inventory levels and may continue to face inventory challenges for several more months. With heightened demand and reduced inventory comes the potential for marketing spend headwinds by both dealers and OEMs. Despite those temporary issues, which we expect will normalize later this year, we are so pleased with the progress building the platform for dealers and consumers to buy and sell any automobile. As our pillars mature and gel, we will have a platform fueled by our market leading audience, industry leading dealer network and unrivaled data to inform intelligent retail and wholesale transactions. I want to end with a special note of gratitude to all our employees. As the absence of in person collaboration continues to weigh on us all, I continue to be amazed at the fortitude, Creativity, innovation and camaraderie shown every day by our 1,000 plus employees worldwide. True to our roots of disruption in the early days of our listings business, we continue to be pioneers pursuing our ambitious strategy of listings, digital retail and Digital wholesale in one integrated offering. With that, I'll turn it over to Scott to discuss our financials. Thank you, Jason. I'll provide a detailed overview of our Q1 performance, followed by our guidance for the Q2 of 2021. Before discussing the details of the quarter, I would like to address our results relative to our Q1 guidance. At the time of providing our Q1 guidance, we had not finalized our accounting policies for Car Offer. Through this process, We concluded that transportation and inspection revenues realized in Carrefour transactions should be recognized on a gross basis, meaning that the full consideration collected from the customer and the cost paid to third party vendors should be reflected in full and revenue and cost of revenue, respectively. At the time of providing Q1 guidance, this policy had not been finalized. So our Q1 guidance reflected the projected revenue for these services on a net rather than a gross basis. Our Q1 results reported today include the company's actual quarterly revenue for these services on a gross basis. Additionally, the company's earnings per share guidance for Q1 2021 was calculated based on a preliminary estimate of its Post car offer transaction share count, which was higher than the share count that the company subsequently used to calculate its Q1 EPS reported today. The company's Q1 EPS guidance took into account the potential dilution to its share count that would result from the exercise by Car Offer of a put right respecting the remaining 49% of Car Offer's stock. For accounting purposes, we had assumed that the company would use its own stock to purchase the remaining 49% stake in Carrefour, If Carrefour were to exercise its foot right, which would have had a dilutive effect on the company's share count. Upon finalizing its accounting policies, respecting the Car Ruffer transaction, however, the company concluded that as of March 31, 2021, There had not been a dilutive impact resulting from the car offer put right as it does not become effective until 2024. Accordingly, the actual share count that the company used to calculate its Q1 EPS was lower than the estimated share count on which it had based its Q1 EPS guidance. Now on to our results. Total first quarter revenue was $171,400,000 up 9% year over year and nearly $11,000,000 ahead of the high end of our guidance range. I would like to make it clear that only about half of that over performance against the high end of the guidance was due to the aforementioned accounting adjustment of gross revenue for delivery and inspections. Our total marketplace subscription revenue fell 2% versus the year ago period to 139,600,000 Other revenue in the Q1 grew 101% year over year to $31,800,000 which largely reflects the impact of car offer and also includes growth of our consumer financing products. Wholesale revenue includes transaction fees earned by Car Raffer Car Offer may also fulfill buy orders from dealers through the acquisition of vehicles at other marketplaces. In these instances, Car Offer collects a transaction fee from the buyer. Car Offer also charges buyers' fees for inspection and transportation services on all wholesale transactions. Our U. S. Business generated $132,000,000 in marketplace Our international business generated $7,500,000 in marketplace subscription revenue for the same period. The U. S. Accounted for 95% of total revenue in the Q1. U. S. Revenue increased 10% versus the year ago period to $163,000,000 while international revenue declined 14% year over year to 8,400,000 The growth in United States revenue is primarily related to a recent Car Offer acquisition. The decline in international revenue It's primarily related to a 9% decline in paying dealers as the UK in particular extended lockdowns during the pandemic. Turning to paying dealer count. We ended Q1 with 31,213 total paying dealers, representing an increase of 582 dealers from Q4 and a decrease of 2,047 versus the year ago period. In the U. S, we finished the quarter with 24,371 paying dealers, which is an increase of 437 dealers From the end of the Q4, in our international business, we finished the Q1 with 6,842 international paying dealers, up 145 from the end of the 4th quarter. Please note that these paying dealer counts as well as our other KPI metrics are exclusive of Karl Rahfer. In the Q1, U. S. Carcid was 5,466, representing a 3% increase compared to the prior quarter and a 7% increase compared to the year ago period. International Carcid was 11.13, representing a 5% increase compared to the prior quarter and a 6 percent decreased compared to the year ago period. Quarter over quarter car seat growth was driven by strong quarter over quarter revenue growth primarily in our core listings. I will discuss 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 losses attributable to redeemable non controlling interests. 1st quarter non GAAP gross margin was 86%, down roughly 6 70 basis points versus the year ago quarter. The contraction in gross margin percentage is attributed to the impact of the car offer business on our consolidated results as our Q1 consolidated gross margin, excluding car offer, was 93% versus 92.7% in Q1 2020. The gross margin on Car Offer in Q1 was approximately 16% on a non GAAP basis, which impacted the overall gross margin percentage of the company. As I described earlier, CarOffers' transportation and inspection revenue is treated on a gross basis, which has an impact to our overall gross margin percentage. Additionally, due to the significant volume of dealers being added to the Car Roper platform, There are onboarding resources and cost of revenue that should scale longer term and we expect to see leverage in Carrefour's gross margins. In the quarterly update on our Investor Relations website, you will find a non GAAP summary of Car Roper's financials, indicating a modest non GAAP operating loss in Q1 of $214,000 on $15,600,000 of revenue for the stub period since acquisition, which is January 14 through March 31. Total 1st quarter non GAAP operating expenses were $98,900,000 down 18% year over year. Non GAAP sales and marketing expense fell 28% year over year to $65,400,000 and represented 38.2 percent of revenue, down from 57.6 percent of revenue in the year ago period. The improved sales and marketing leverage is primarily the result Our 1st quarter non GAAP product, technology and development expenses grew 13% versus the year ago period to $19,400,000 The investments we are making in our technology team impact multiple initiatives, including supporting our core marketplace business both our domestic and international markets, in addition to our growing efforts in digital retail and wholesale, We continue to allocate resources as needed to manage near term business needs and support longer term growth initiatives. We generated non GAAP operating income of $48,500,000 representing a margin of 28% and roughly $12,000,000 ahead of the high end of our guidance range. Non GAAP diluted earnings per share attributable to common shareholders was $0.33 for the 1st quarter, dollars 0.10 above the high end of our guidance range. On a GAAP basis, we generated 1st quarter gross margin of 86% and incurred total operating expenses of $121,500,000 down roughly 9% year over year. The decline in operating expenses was primarily driven by a decrease in our variable consumer marketing expenses. 1st quarter GAAP operating income increased 115% year over year to 25,800,000 1st quarter GAAP net income attributable to common shareholders totaled $22,400,000 Geographically, Q1 U. S. GAAP operating income was $29,400,000 up 45% year over year. We had a GAAP operating loss of $3,600,000 in our international business compared to a $8,200,000 loss in the year ago quarter. We ended the Q1 with $240,700,000 in cash and investments, a decrease of $49,600,000 from the end of the 4th quarter. The decrease in our cash balance was driven primarily by our recent Car Ruffer acquisition. We generated $37,600,000 in cash from operations in the first quarter at $35,400,000 of non GAAP free cash flow, which includes capital expenditures and capitalized website development costs of $2,200,000 I'll close my prepared remarks with our outlook for the Q2 of 2021. We expect our 2nd quarter revenue to be in the range of $186,000,000 to $192,000,000 non GAAP operating income in the $35,500,000 to $39,500,000 and non GAAP earnings per share in the range of $0.23 to $0.25 As you update your models for the rest of the year, you should consider Jason's comments regarding the inventory issues in the industry facing the OEMs and our dealer partners. Although our Q2 revenue guidance is a considerable increase from Q1 results, we expect that the chip issues facing the automotive industry We'll continue to constrain inventory and potentially impact automotive marketing and advertising spend for several months. On behalf of Jason, Sam and our executive team, I'd like to thank all of the CarGurus and Car Ruffer employees for their continued hard work as we enter year 2 of remote work. With that, we'll open it up to the call for Q and A. Thank you. At this time, we will be conducting a question and answer session. Please note, we ask that you please limit yourself to one question and one follow-up question Our first question is from Dan Kurnos of The Benchmark Company. Please state your question. Great. Thanks. Good evening. Maybe just to follow-up on those final comments there, Scott and the initial comments from Jason just around the dealer potential dealer headwinds. Should we be thinking of that In terms of pricing, should we think of that in terms of dealer net add? And how do we think about kind of products Attach rate, forget our offer for a second. As the year started off on a very strong note, I guess that some guys probably re opts at higher meat volume prices, but I'm just I'm curious how we kind of think about That's Alan. Dan, hi, it's Sam Zales. Thanks for the question. It was a great quarter. We're thrilled with the results that accrued from what we think we're doing and always have been doing, which is driving Best ROI and the best low funnel shoppers at the highest volume to our dealer partners and that led to both the really strong Dealer acquisition results and also CarSid growing or how we describe the quarterly Annualized revenue per subscribing dealer. I think we saw that Carson number growing because We're driving great lead volume. We are getting dealers to renew with us and also to buy additional products, as you said, And we're increasing pricing as well. So all of those worked in the right direction. I think the industry issues with Inventory are real. They're obviously hurting new car and then obviously is a cascading effect to Used cars as well. So I think what you'll see is not the same kind of dealer adds, not the same kind of car seat growth. We'll be careful about doing things like renewals during a time that dealer inventories are down, so significantly. I do think the one thing that CarGurus or the Two things CarGurus relies on though when we think about our success even in tough markets like we did emerging out of COVID situation last year is, One, the ROI we're driving to those dealers allows us to have a different and what we think is the best ROI of all the marketing channels dealers use. We think we can still do well from a customer retention perspective and a CarSid perspective. We just won't be as aggressive at putting those Additional products or renewals into play, on that front. But number 2 is we now have Car Offer. And the partnership with Car We're solving the biggest pain point for dealers right now. And by providing packaged offerings of CarGurus listings And a solution like CarOffer to drive inventory sourcing in an automated way like customers have never seen before It's an incredibly powerful combination that we think will help us sustain during this tough issue in the industry. I'll also say just very quickly, you think of things like Area Boost, that's been a product that you've seen the growth on from a revenue perspective for CarGurus because we're helping dealers source Customers from outside their local markets. So I think for all those factors, it won't be the quarter that we just came out with from a dealer adds and Carsten perspective, but we think we can weather the storm better than other players in the market because of those factors. Got it. That's super helpful. So growth, but maybe not as much growth, I think, if I'm characterizing that right. And then Obviously, car offer out of the chute was, I don't know, at least 50% higher probably than where most of us thought it would come out even with Sub quarter. I guess maybe Scott, are you willing to kind of tell us what you think Car offer does in Q2, how much is embedded in that guide? And then to the extent That you guys are still trying to figure out exactly how you want to attack the market. Just any thoughts Competitive positioning against, say, an ACV that's in the market and obviously just gone public or Kind of how you think about attacking the consumer sourcing vehicle opportunity as potential add on there or just focusing on the main Car offering for now? Hey, Dan. I'll take the first part of the question and then turn over to Sam. We're not going to give any sort of specific guidance for Car RAV for this quarter, and I'm not sure We ever will, but we did in our investor deck actually highlight their performance through the year, including April, because they've had such A, such strong momentum and B, it's new to us and new to all of you covering us. So we felt it was worthwhile to be a bit more Transparent on the trends through the quarter and through April. So really great execution, as Sam mentioned, And I think he's going to talk a bit more about the other opportunities for growth for that business through these times. Dan, I'll follow on. Thanks, Scott. Well said. Dan, I can't be more excited about the car offer business and what they're bringing to the market. Number 1, they're an instant trading platform, which is completely different from all the players in the market, even the ones that you mentioned, newly public players. What they do is they don't require a buyer at a dealership to watch vehicles going across the screen Or figure out is that one I may want to buy, what was the price I want to put on that. It is built as an instant trading platform much like a stock exchange. Bids are in for buys, bids are in for selling. The automation is there completely for inspection, for transportation, for transactions. And what it's leading to right now is 100 and then many more than 100 of dealers saying, I've got to have this solution right now. It is solving the biggest problem in the marketplace and transactions going from 1,000 to many more than that on a monthly basis that are really driving the success of this business. It is exceeding all of our expectations and it's doing that just like the quote from our dealer partner is, I just have I've never seen anything like this in the marketplace. I wish I had it earlier, but just time that inventory is challenged. And it is growing that business tremendously, As I said, in multiples, as you'll see in the dealer presentation, Scott put together dealer acquisition going through the roof and even more so here in the quarter and transactions lifting that business from a revenue perspective even further. The one thing I'll say that you asked a good question on is Consumer transactions, I think our dealers are saying, if you can put this capability in front of consumers who want to sell their vehicles and we as dealers can Phase that you might think about as an incredible next stage of that business opportunity. Our next question is from Ralph Schackart of William Blair. Please state your question. Hi, Good evening. Thanks for taking the question. Maybe just staying on Car Roper for a second. I'm not sure if Sam is the right person for this, but give us a sense of Maybe how strategic or more strategic CarGurus is now in sort of the eyes of your dealership customers? I know in the short term with And the chip issues and coming out of COVID, things are tough on the renewals and trying to offer more products. But as we come out of the COVID tunnel, Give us a sense of your strategic relationship and perhaps how that grows with dealers. Thanks, Ralph. Sam Zales here. Yes, you got it right on. It is strategic not just because it is a platform that is solving the inventory better than any other solution out there in the marketplace. But when you think about it, the combination of CarGurus and Car Offer It's truly strategic and that you are accessing and leveraging the power of data. So we're providing to those dealers, Here is all the consumer transaction capability, the consumer search data, where are consumers looking, what are they focused on from a A geographical perspective, from a major model perspective, where are those searches growing in your local market? And then how do you think about Sourcing those vehicles by having the powerful combination of both retail data or instant market value data and what I can do with My matrix bids in the instant market instant trading platform at CarOffer. I know what I can do wholesale, what I can do retail. An example of that is us putting The price points now into the dealers CarGurus dashboard. So we're now opening up capability for dealers to see, I've got this product on the market today. It's at retail hoping to sell for this price point $20,000 Holy cow, it's been sitting on the lot for 40 days. I can get it, it's an instant transaction through car offer at 19.5%. Isn't that great for my business to quickly Reaped the kind of success that I wanted by looking at the data, seeing it in my dashboard, running both businesses, wholesale Retail out of 1 dashboard. It's a phenomenal success story. And I think when you think about that, you take it one step further to the last And Dan asked, which is how do consumers play in that again? Consumers are looking to trade in a vehicle and we know that $10,000,000 plus transact Consumer to consumer, here's another great way to say how does the dealer participate and compete with some of those big box retailers or some of the Other players in the marketplace to get action and get into the inventory a consumer is willing to sell to them. You put those pieces together and those are pillars of Our next question is from Jed Kelly of Oppenheimer. Please state your question. Hey, great. Thanks for taking my question. You had an interesting announcement a couple of weeks ago on Karru's conversion. Is this the first step in terms of potentially allowing dealers to operate on a pay per lead basis? And then with CarGurus conversion, I mean, how do you think about getting the larger franchise dealers to sign up? I mean, we've heard some skepticism that CardGurus would ultimately try to take some of the back end money and some of the insurance money. So can you just talk about that opportunity? Sure. Hey, Jed, it's Jason Travis in. Just confirming, you can hear me okay? Yes. Okay, good. I'm on sell And it's had some issues. So yes, I assume you're talking about CarGurus Convert, which is In fact, an expanded program that we're offering to dealers, which allows the consumer to do different of the transaction on our site, so that by the time they are in fact interacting with the dealer, they are a much more qualified shopper. And they have done things like get a trade in value estimation, do some financing and other F and I offered by the dealers, Get a penny perfect, numbers and economics for the deal and set an appointment. And we've had a ton of interest from dealers on that because as I said, what it does for the dealers is it saves them a lot of time. And what we've proven is that by marketing all of their products, they're able to cross sell As much as they can if the person were in the store and so they're made whole on it. So we have a lot of dealers who are signing up for it. We also have evidence now that consumers really want it because a very Good and growing percent of consumers interacting with that dealer's VDPs are going through different aspects of this convert Set of features. We've always said that we do this to make the dealer whole. And so much like our pre qual consumer finance product, where we make economics from the lenders because we're I would think of convert as the same way. We are giving this all of this sort of enhanced Lead capability to dealers for free and making them whole on it. So it really is a win for them. It's a win for consumers because it lessens, they're able to do more things earlier on our site versus Spending several hours in a dealership, and it helps us because it differentiates us from other marketplaces where you can't get Some of these features and as I said in my prepared remarks on digital retail, these are area boost and pre qualifications were Sort of Phase 1, the CarGurus convert is Phase 2, and then we're increasing our investment to bring more of those Purchase elements onto our site. And we're having interest sorry, one other point. You had said you Maybe heard there was concern among large franchises. We have very large national groups that are Eager to get on board with us with this. Great. That's helpful. And then just one more for me. It looks like the monthly new installed dealers in April were very strong. Is that coming mostly from dealers that were already using CarGurus or Are these dealers that were new to are these just new dealers that weren't didn't have relationships with CarGurus? So are you talking about installed dealers for car offer? Car offer, yes. So is it more of a cross sell or is it dealers totally new to your site? It's both. So if you think about the volume of dealers that we have in our installed base, It's which is well over half, you would imagine that there's a decent chance that if they're signing up for CarGurus, that they're also using CarGurus, but not necessarily by any means. What we're excited about is that Car offer is in fact growing the number of dealers that they're installing enrolling and installing Very quickly. And as Scott said earlier, if you look at just the year to date growth, it's pretty astounding how that's been accelerating. And we have only started to I mean, if you think about it, we closed January 14 on the deal, and it took us Several weeks to kind of get everything in order once the deal closed. And so we've only really begun passing Warm partners of ours, handing them to introduce them to Carr Offer for really only a couple of months. And so there's that sales and account management synergy and then there's the offers in the dashboard. And so that's also going to be a really big boost to introduce a lot more dealers who are not currently on copper to their product and to the power of their Instant Tray platform. One moment please while we poll for additional questions. Our next Question is from Doug Arthur of Hubert Research. Please state your question. Yes, thanks. Scott, I'm just trying to you threw a lot out there about the Accounting treatment for core offers. I'm trying to reconcile what appears to be pretty strong second quarter revenue guide. Now granted That includes core offer and sort of cautious adjusted operating profit guide, Because it seems to me if you don't if the dealers pull in their marketing spend, and that impacts you because of tight inventories, You'll have optionality on your sales and marketing spend as well, which we've seen in spades in the past. So I'm Our Q2 guide is really, really strong, coming off an extremely strong Q1. That momentum Really came in Q1. We had phenomenal bookings on our core business and car offers momentum, as you can see, has just been phenomenal Through the year with a record month in March and they expanded on that in April. So really great momentum. The thing that we wanted to caution about that the headwinds sort of turned a little bit in April with the inventory issue is marketing Spend may be reduced to the dealer and OEM level. And to your point, if that happens, Not unlike last year where we were able to flexibly flex on our marketing spend. We would do the same So that we are providing the right amount of traffic for the right amount of value that our dealers want to receive and pay for. So there's Yes. We're very conscious of that. We look at that almost weekly as to how much we're spending on Traffic acquisition and flexing accordingly to relative to what we're seeing in the market. Okay, got it. Thank you. We have reached the end of the question and answer session. I will now turn the call back over to Jason Trevisan for closing remarks. Thank you, Hillary. Thank you very much, everyone. I'd like to thank again all of those who joined us this evening. I'd also like to thank our employees globally for their hard work under these remote circumstances. I'd like to thank our customers for their business and their partnership. And then lastly, I'd like to thank our investors for your support and confidence in us. We're incredibly excited about our performance, but More importantly, we're very excited about our strategy and our future. Thank you very much and have a great evening. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.