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PRESS RELEASE: Paid content from Globe Newswire
Press release content from Globe Newswire. The AP news staff was not involved in its creation.

CarGurus Announces Third Quarter 2019 Results

November 5, 2019

Third Quarter Highlights:

-- Total revenue of $150.5 million, an increase of 26% year-over-year -- GAAP operating income of $9.7 million; non-GAAP operating income of $18.6 million -- GAAP net income of $10.4 million; non-GAAP net income of $15.5 million -- Adjusted EBITDA of $20.6 million

CAMBRIDGE, Mass., Nov. 05, 2019 (GLOBE NEWSWIRE) -- CarGurus, Inc. (Nasdaq: CARG), a leading global automotive marketplace, today announced financial results for the third quarter ended September 30, 2019.

“CarGurus delivered a strong third quarter featuring several important accomplishments. We grew our industry-leading U.S. audience and generated year-over-year U.S. leads growth of 13%, providing strong value to our dealers and aiding growth in our core listings business,” said Langley Steinert, Founder and Chief Executive Officer of CarGurus. “Our brand investments are driving more direct traffic, and our new “My Car, My Deal” campaign that launched in Q3 highlights CarGurus’ unique consumer benefits. Finally, our international business continues to deliver strong growth, evidenced by our highest total international net dealer additions and triple-digit year-over-year audience growth.”

Revenue

-- Total revenue was $150.5 million, an increase of 26% compared to $119.1 million in the third quarter of 2018. -- Marketplace subscription revenue was $135.5 million, an increase of 28% compared to $105.9 million in the third quarter of 2018. -- Advertising and other revenue was $14.9 million, an increase of 13% compared to $13.2 million in the third quarter of 2018.

Operating Income

-- GAAP operating income was $9.7 million, or 6% of total revenue, compared to $5.9 million, or 5% of total revenue, in the third quarter of 2018. -- Non-GAAP operating income was $18.6 million, or 12% of total revenue, compared to $11.4 million, or 10% of total revenue, in the third quarter of 2018.

Net Income & Adjusted EBITDA

-- GAAP net income was $10.4 million, or $0.09 per fully diluted share during the third quarter ended September 30, 2019, compared to $13.9 million, or $0.12 per fully diluted share during the third quarter ended September 30, 2018. -- Non-GAAP net income was $15.5 million, or $0.14 per fully diluted share during the third quarter ended September 30, 2019, compared to $11.3 million, or $0.10 per fully diluted share during the third quarter ended September 30, 2018. -- Adjusted EBITDA, a non-GAAP metric, was $20.6 million, compared to $12.7 million in the third quarter of 2018.

Balance Sheet and Cash Flow

-- As of September 30, 2019, CarGurus had cash, cash equivalents, and short-term investments of $164.3 million and no debt. -- The Company generated $23.8 million in cash from operations and $21.1 million in free cash flow, a non-GAAP metric, during the third quarter of 2019 compared to generating $10.8 million in cash from operations and $9.6 million in free cash flow during the third quarter of 2018.

Third Quarter Business Metrics

-- U.S. revenue was $141.6 million in the third quarter of 2019, an increase of 24% compared to $114.7 million in the third quarter of 2018. GAAP operating income in the U.S. was $20.0 million, an increase of 38% compared to $14.5 million in the third quarter of 2018. -- International revenue was $8.8 million in the third quarter of 2019, an increase of 98% compared to $4.4 million in the third quarter of 2018. GAAP operating loss in International markets was ($10.3) million, an increase of 20% compared to a loss of ($8.6) million in the third quarter of 2018. -- Total paying dealers were 35,199(1)at September 30, 2019, an increase of 15% compared to 30,593 at September 30, 2018. Of the total paying dealers at September 30, 2019, U.S. and International accounted for 28,692 and 6,507(1), respectively, compared to 27,128 and 3,465, respectively, at September 30, 2018. -- Average annual revenue per subscribing dealer (AARSD) in the U.S. was $16,967 as of September 30, 2019, an increase of 21% compared to $13,993 as of September 30, 2018. -- AARSD in International markets was $5,079(2) as of September 30, 2019, an increase of 5% compared to $4,820 as of September 30, 2018. -- Website traffic and consumer engagement metrics for the third quarter of 2019 were as follows: -- U.S. average monthly unique users were 38.1 million, an increase of 3% compared to 37.0 million in the third quarter of 2018. U.S. average monthly sessions were 103.5 million, an increase of 3% compared to 100.5 million in the third quarter of 2018. -- International average monthly unique users were 10.2 million(3), an increase of 129% compared to 4.4 million in the third quarter of 2018. International average monthly sessions were 26.2 million(4), an increase of 151% compared to 10.4 million in the third quarter of 2018.

(1) Includes paying dealers from the PistonHeads website.(2) Excludes AARSD from both the (i) PistonHeads website as it was acquired on January 8, 2019, and therefore, data for the trailing 12-month revenue calculation is not available and (ii) Italy website as it began earning marketplace subscription revenue in April 2019, and therefore, data for the trailing 12-month revenue calculation is not available.(3) Includes users from the PistonHeads website.(4) Includes sessions from the PistonHeads website.

Fourth Quarter and Full-Year 2019 Guidance

CarGurus anticipates total revenue, non-GAAP operating income, and non-GAAP earnings per share to be in the following ranges:

Fourth Quarter 2019:

• Total revenue $152.2 to $155.2 million • Non-GAAP operating income $17.1 to $19.1 million • Non-GAAP EPS $0.12 to $0.13

The fourth quarter 2019 non-GAAP earnings per share calculation assumes 113.8 million diluted weighted-average common shares outstanding.

Full-Year 2019:

• Total revenue $583.0 to $586.0 million • Non-GAAP operating income $63.6 to $65.6 million • Non-GAAP EPS $0.47 to $0.48

The full-year non-GAAP earnings per share calculation assumes 113.5 million diluted weighted-average common shares outstanding. Guidance for the fourth quarter and full-year 2019 does not include any potential impact of foreign currency exchange gains or losses.

CarGurus has not reconciled its non-GAAP operating income guidance to GAAP operating income, or its non-GAAP EPS guidance to GAAP EPS, because stock-based compensation and amortization of intangible assets, the reconciling items between such GAAP and non-GAAP financial measures, cannot be reasonably predicted due to, as applicable, the timing, amount, valuation and number of future employee equity awards, and the occurrence of acquisitions and therefore cannot be determined without unreasonable effort. For more information regarding the non-GAAP financial measures discussed in this release, please see the reconciliations of GAAP financial measures to non-GAAP financial measures and the section titled “Non-GAAP Financial Measures and Other Business Metrics” below.

Conference Call and Webcast Information

CarGurus will host a conference call and live webcast to discuss its third quarter 2019 financial results and fourth quarter and full-year 2019 financial guidance at 5:00 p.m. Eastern Time today, November 5, 2019. To access the conference call, dial (877) 451-6152 for callers in the U.S. or Canada, or (201) 389-0879 for international callers. The webcast will be available live on the Investors section of the Company’s website at https://investors.cargurus.com.

An audio replay of the call will also be available to investors beginning at approximately 8:00 p.m. Eastern Time on November 5, 2019, until 11:59 p.m. Eastern Time on November 19, 2019, by dialing (844) 512-2921 for callers in the U.S. or Canada, or (412) 317-6671 for international callers, and entering passcode 13694866. In addition, an archived webcast will be available on the Investors section of the Company’s website at https://investors.cargurus.com.

About CarGurus

Founded in 2006, CarGurus (Nasdaq: CARG) is a global, online automotive marketplace connecting buyers and sellers of new and used cars. The Company uses proprietary technology, search algorithms and data analytics to bring trust and transparency to the automotive search experience and help users find great deals from top-rated dealers. CarGurus is the most visited automotive shopping site in the U.S. (source: Comscore Media Metrix® Multi-Platform, Automotive – Information/Resources, Total Audience, Q3 2019, U.S. (Competitive set includes: CarGurus.com, Autotrader.com, Cars.com, TrueCar.com)). In addition to the United States, CarGurus operates online marketplaces in Canada, the United Kingdom, Germany, Italy and Spain. To learn more about CarGurus, visit www.cargurus.com. CarGurus® is a registered trademark of CarGurus, Inc.

© 2019 CarGurus, Inc., All Rights Reserved.

Cautionary Language Concerning Forward-Looking Statements

This press release includes forward-looking statements. All statements contained in this press release other than statements of historical facts, including, without limitation, statements regarding our future financial and business performance for the fourth quarter 2019 and full-year 2019, our business and growth strategy, including in international markets, and the ability of our brand awareness efforts to drive direct traffic, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “estimate,” “expect,” “guide,” “intend,” “likely,” “may,” “will” and similar expressions and their negatives are intended to identify forward-looking statements. We have based these forward-looking statements on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks and uncertainties, including, without limitation, risks related to our rapid growth and ability to sustain our revenue growth rate, our relationships with dealers, competition in the markets in which we operate, market growth, our ability to innovate and manage our growth, our ability to expand effectively into new markets, our ability to realize benefits from our acquisition of PistonHeads and successfully implement the integration strategies in connection therewith, our ability to operate in compliance with applicable laws, as well as other risks and uncertainties set forth in the “Risk Factors” section of our Quarterly Report on Form 10-Q, filed on November 5, 2019 with the Securities and Exchange Commission (SEC), and subsequent reports that we file with the SEC. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, we cannot guarantee future results, levels of activity, performance, achievements or events and circumstances reflected in the forward-looking statements will occur. We are under no duty to update any of these forward-looking statements after the date of this press release to conform these statements to actual results or revised expectations, except as required by law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to the date of this press release.

Unaudited Condensed Consolidated Balance Sheets (in thousands, except share and per share data) At At September3 December31 0, , 2019 2018 --------- --------- Assets Current assets Cash and cash equivalents $ 29,514 $ 34,887 Investments 134,808 122,800 Accounts receivable, net of allowance for doubtful accounts of $216 17,892 13,614 and $479 at September 30, 2019 and December 31, 2018, respectively Prepaid expenses and prepaid income taxes 8,381 10,144 Deferred contract costs 8,170 5,253 Other current assets 7,167 7,410 Restricted cash 250 750 - ------- - ------- Total current assets 206,182 194,858 Property and equipment, net 27,568 24,269 Intangible assets 3,982 — Goodwill 14,828 — Operating lease right-of-use assets 56,439 — Restricted cash 1,914 1,921 Deferred tax assets 44,200 38,886 Deferred contract costs, net of current portion 9,944 7,252 Other long–term assets 4,326 1,104 - ------- - ------- Total assets $ 369,383 $ 268,290 - ------- - ------- Liabilities and stockholders’equity Current liabilities Accounts payable $ 42,752 $ 34,345 Accrued expenses, accrued income taxes and other current liabilities 14,022 18,654 Deferred revenue 7,781 8,811 Operating lease liabilities 7,823 1,693 - ------- - ------- Total current liabilities 72,378 63,503 Operating lease liabilities 57,806 9,395 Deferred tax liabilities 289 — Other non–current liabilities 1,808 1,281 - ------- - ------- Total liabilities 132,281 74,179 Stockholders’ equity: Class A common stock, $0.001 par value per share; 500,000,000 shares authorized; 91,312,647 and 89,728,223 shares issued and outstanding 91 90 at September 30, 2019 and December 31, 2018, respectively Class B common stock, $0.001 par value per share; 100,000,000 shares authorized; 20,502,084 and 20,702,084 shares issued and outstanding 21 21 at September 30, 2019 and December 31, 2018, respectively Additional paid-in capital 199,228 184,216 Retained earnings 38,688 9,713 Accumulated other comprehensive (loss) income (926 ) 71 - ------- - ------- Total stockholders’ equity 237,102 194,111 - ------- - ------- Total liabilities and stockholders’ equity $ 369,383 $ 268,290 - ------- - -------

Unaudited Condensed Consolidated Income Statements(in thousands, except share and per share data)

Three Months Ended Nine Months Ended September 30, September 30, ----------------------------- ------------------------------ 2019 2018 2019 2018 ------------- ------------- ------------- ------------- Revenue $ 150,462 $ 119,125 $ 430,763 $ 327,996 Cost of revenue(1) 9,392 6,412 25,740 17,940 - ----------- - ----------- - ----------- - ----------- Gross profit 141,070 112,713 405,023 310,056 Operating expenses: Sales and marketing 100,133 82,708 293,238 229,948 Product, technology, and development 17,745 12,771 51,063 33,713 General and administrative 12,322 10,630 36,622 28,042 Depreciation and amortization 1,166 727 3,413 2,064 - ----------- - ----------- - ----------- - ----------- Total operating expenses 131,366 106,836 384,336 293,767 - ----------- - ----------- - ----------- - ----------- Income from operations 9,704 5,877 20,687 16,289 Other income, net: Interest income 759 639 2,247 1,571 Other income (expense), net 251 (38 ) 1,258 15 - ----------- - ----------- - ----------- - ----------- Total other income, net 1,010 601 3,505 1,586 Income before income taxes 10,714 6,478 24,192 17,875 Provision for (benefit from) income taxes 330 (7,404 ) (4,783 ) (34,845 ) - ----------- - ----------- - ----------- - ----------- Net income $ 10,384 $ 13,882 $ 28,975 $ 52,720 - ----------- - ----------- - ----------- - ----------- Net income per share attributable to common stockholders: Basic $ 0.09 $ 0.13 $ 0.26 $ 0.49 - ----------- - ----------- - ----------- - ----------- Diluted $ 0.09 $ 0.12 $ 0.26 $ 0.47 - ----------- - ----------- - ----------- - ----------- Weighted-average number of shares of common stock used in computing net income per share attributable to common stockholders: Basic 111,662,949 109,628,692 111,257,271 108,367,270 Diluted 113,364,775 113,601,415 113,389,695 113,351,150 (1) Includes depreciation and amortization expense for the three months ended September 30, 2019 and 2018 and for the nine months ended September 30, 2019 and 2018 of $952, $581, $2,246 and $1,701, respectively.

Unaudited Condensed Consolidated Statements of Cash Flows(in thousands)

Three Months Ended Nine Months Ended September 30, September 30, --------------------- ------------------------ 2019 2018 2019 2018 --------- -------- ---------- ---------- Operating Activities Net income $ 10,384 $ 13,882 $ 28,975 $ 52,720 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,118 1,308 5,659 3,765 Currency gain on foreign denominated transactions (87 ) (37 ) (927 ) (56 ) Deferred taxes 291 (7,443 ) (5,025 ) (34,543 ) Provision for doubtful accounts 327 524 695 1,246 Stock-based compensation expense 8,761 5,528 25,390 14,951 Amortization of deferred contract costs 2,163 1,054 5,797 2,355 Changes in operating assets and liabilities: Accounts receivable (1,146 ) (1,741 ) (4,984 ) (1,168 ) Prepaid expenses, prepaid income taxes, and other assets 1,200 (4,336 ) (871 ) (8,648 ) Deferred contract costs (3,674 ) (3,213 ) (11,442 ) (9,715 ) Accounts payable 4,708 4,124 10,740 11,462 Accrued expenses, accrued income taxes, and other current (738 ) (973 ) (2,047 ) (2,964 ) liabilities Deferred revenue (695 ) 66 (1,027 ) 3,381 Lease obligations (2 ) 1,900 (1,882 ) 1,466 Other non-current liabilities 212 108 500 347 - ------- - ------ - -------- - -------- Net cash provided by operating activities 23,822 10,751 49,551 34,599 - ------- - ------ - -------- - -------- Investing Activities Purchases of property and equipment (2,181 ) (892 ) (10,765 ) (1,873 ) Capitalization of website development costs (547 ) (253 ) (2,074 ) (978 ) Cash paid for acquisition — — (19,139 ) — Investments in certificates of deposit (38,281 ) — (134,808 ) (130,000 ) Maturities of certificates of deposit 22,800 40,000 122,800 110,000 - ------- - ------ - -------- - -------- Net cash (used in) provided by investing activities (18,209 ) 38,855 (43,986 ) (22,851 ) - ------- - ------ - -------- - -------- Financing Activities Proceeds from exercise of stock options 368 676 1,456 3,061 Financing cash flows from finance leases (9 ) — (21 ) — Payment of initial public offering costs — — — (1,142 ) Payment of withholding taxes and option costs on net share settlement of restricted stock units and stock (4,192 ) (4,379 ) (12,783 ) (21,867 ) options - ------- - ------ - -------- - -------- Net cash used in financing activities (3,833 ) (3,703 ) (11,348 ) (19,948 ) - ------- - ------ - -------- - -------- Impact of foreign currency on cash, cash equivalents, and (114 ) 29 (97 ) (54 ) restricted cash Net increase (decrease) in cash, cash equivalents, and 1,666 45,932 (5,880 ) (8,254 ) restricted cash Cash, cash equivalents, and restricted cash at beginning 30,012 35,366 37,558 89,552 of period - ------- - ------ - -------- - -------- Cash, cash equivalents, and restricted cash at end of $ 31,678 $ 81,298 $ 31,678 $ 81,298 period - ------- - ------ - -------- - --------

Unaudited Reconciliation of GAAP Operating Income to Non-GAAP Operating Income and GAAP Operating Margin to Non-GAAP Operating Margin(in thousands, except percentages)

Three Months Ended Nine Months Ended September 30, September 30, -------------------- -------------------- 2019 2018 2019 2018 -------- -------- -------- -------- GAAP operating income $ 9,704 $ 5,877 $ 20,687 $ 16,289 Stock-based compensation expense 8,761 5,528 25,390 14,951 Amortization of intangible assets 167 — 486 — - ------ - ------ - ------ - ------ Non-GAAP operating income $ 18,632 $ 11,405 $ 46,563 $ 31,240 - ------ - ------ - ------ - ------ GAAP operating margin 6 % 5 % 5 % 5 % Non-GAAP operating margin 12 % 10 % 11 % 10 %

Unaudited Reconciliation of GAAP Net Income to Non-GAAP Net Income (in thousands, except per share data)

Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ---------------------- 2019 2018 2019 2018 --------- --------- --------- --------- GAAP net income $ 10,384 $ 13,882 $ 28,975 $ 52,720 Stock-based compensation expense, net of tax(1) 6,921 4,367 20,058 11,811 Change in tax provision from stock-based compensation (1,943 ) (6,970 ) (9,632 ) (35,912 ) expense(2) Amortization of intangible assets 167 — 486 — - ------- - ------- - ------- - ------- Non-GAAP net income $ 15,529 $ 11,279 $ 39,887 $ 28,619 - ------- - ------- - ------- - ------- Non-GAAP net income per share: Basic $ 0.14 $ 0.10 $ 0.36 $ 0.26 - ------- - ------- - ------- - ------- Diluted $ 0.14 $ 0.10 $ 0.35 $ 0.25 - ------- - ------- - ------- - ------- Shares used in non-GAAP per share calculations Basic 111,663 109,629 111,257 108,367 Diluted 113,365 113,601 113,390 113,351 (1) The stock-based compensation amounts reflected in the table above are tax effected at the U.S. federal statutory tax rate of 21%. (2) This adjustment reflects the tax effect of differences between tax deductions related to stock compensation and the corresponding financial statement expense.

Unaudited Reconciliation of GAAP Gross Profit to Non-GAAP Gross Profit and GAAP Gross Profit Margin to Non-GAAP Gross Profit Margin(in thousands, except percentages)

Three Months Ended Nine Months Ended September 30, September 30, ---------------------- ---------------------- 2019 2018 2019 2018 --------- --------- --------- --------- Revenue $ 150,462 $ 119,125 $ 430,763 $ 327,996 Cost of revenue 9,392 6,412 25,740 17,940 - ------- - ------- - ------- - ------- Gross profit 141,070 112,713 405,023 310,056 Stock-based compensation expense included in Cost of 92 83 268 264 revenue - ------- - ------- - ------- - ------- Non-GAAP gross profit $ 141,162 $ 112,796 $ 405,291 $ 310,320 - ------- - ------- - ------- - ------- GAAP gross profit margin 94 % 95 % 94 % 95 % Non-GAAP gross profit margin 94 % 95 % 94 % 95 %

Unaudited Reconciliation of GAAP Expense to Non-GAAP Expense(in thousands)

Three Months Ended September 30, --------------------------------------------------------------------------------------- 2019 2018 -------------------------------------------- ---------------------------------------- Amor Amortiz tiza Stock-base ation Stock-base tion GAAP d of Non-GAAP GAAP d of Non-GAAP expense compensati intangi expense expense compensati inta expense on ble on ngib expense assets expense le asse ts --------- --------- ------ --------- --------- --------- --- --------- Cost of revenue $ 9,392 $ (92 ) $ — $ 9,300 $ 6,412 $ (83 ) $ — $ 6,329 S&M 100,133 (2,520 ) — 97,613 82,708 (1,216 ) — 81,492 P,T&D(1) 17,745 (3,938 ) — 13,807 12,771 (2,584 ) — 10,187 G&A 12,322 (2,211 ) — 10,111 10,630 (1,645 ) — 8,985 Depreciation & 1,166 — (167 ) 999 727 — — 727 amortization - ------- - ------- - ---- - ------- - ------- - ------- - - - ------- Operating expenses(2) $ 131,366 $ (8,669 ) $ (167 ) $ 122,530 $ 106,836 $ (5,445 ) $ — $ 101,391 - ------- - ------- - ---- - ------- - ------- - ------- - - - ------- Total expenses $ 140,758 $ (8,761 ) $ (167 ) $ 131,830 $ 113,248 $ (5,528 ) $ — $ 107,720 - ------- - ------- - ---- - ------- - ------- - ------- - - - ------- (1) Product, Technology, & Development (2) Operating expenses include S&M, P,T&D, G&A, and depreciation & amortization Nine Months Ended September 30, --------------------------------------------------------------------------------------- 2019 2018 -------------------------------------------- ---------------------------------------- Amor Amortiz tiza Stock-base ation Stock-base tion GAAP d of Non-GAAP GAAP d of Non-GAAP expense compensati intangi expense expense compensati inta expense on ble on ngib expense assets expense le asse ts --------- --------- ------ --------- --------- --------- --- --------- Cost of revenue $ 25,740 $ (268 ) $ — $ 25,472 $ 17,940 $ (264 ) $ — $ 17,676 S&M 293,238 (7,392 ) — 285,846 229,948 (3,762 ) — 226,186 P,T&D(1) 51,063 (11,118 ) — 39,945 33,713 (6,903 ) — 26,810 G&A 36,622 (6,612 ) — 30,010 28,042 (4,022 ) — 24,020 Depreciation & 3,413 — (486 ) 2,927 2,064 — — 2,064 amortization - ------- - ------- - ---- - ------- - ------- - ------- - - - ------- Operating expenses(2) $ 384,336 $ (25,122 ) $ (486 ) $ 358,728 $ 293,767 $ (14,687 ) $ — $ 279,080 - ------- - ------- - ---- - ------- - ------- - ------- - - - ------- Total expenses $ 410,076 $ (25,390 ) $ (486 ) $ 384,200 $ 311,707 $ (14,951 ) $ — $ 296,756 - ------- - ------- - ---- - ------- - ------- - ------- - - - ------- (1) Product, Technology, & Development (2) Operating expenses include S&M, P,T&D, G&A, and depreciation & amortization

Unaudited Reconciliation of GAAP Net Income to Adjusted EBITDA(in thousands)

Three Months Ended Nine Months Ended September 30, September 30, -------------------- --------------------- 2019 2018 2019 2018 -------- -------- -------- --------- GAAP net income $ 10,384 $ 13,882 $ 28,975 $ 52,720 Depreciation and amortization(1) 2,118 1,308 5,659 3,765 Stock-based compensation expense 8,761 5,528 25,390 14,951 Other income, net (1,010 ) (601 ) (3,505 ) (1,586 ) Provision for (benefit from) income taxes 330 (7,404 ) (4,783 ) (34,845 ) - ------ - ------ - ------ - ------- Adjusted EBITDA $ 20,583 $ 12,713 $ 51,736 $ 35,005 - ------ - ------ - ------ - ------- (1) The Company did not have intangible assets prior to the closing of the PistonHeads acquisition on January 8, 2019. The Company recorded amortization expense related to intangible assets of $167 and $486 for the three and nine months ended September 30, 2019, respectively.

Unaudited Reconciliation of GAAP Net Cash Provided by Operating Activities to Non-GAAP Free Cash Flow(in thousands)

Three Months Ended Nine Months Ended September 30, September 30, -------------------- --------------------- 2019 2018 2019 2018 -------- -------- --------- -------- GAAP net cash provided by operating activities $ 23,822 $ 10,751 $ 49,551 $ 34,599 Purchases of property and equipment (2,181 ) (892 ) (10,765 ) (1,873 ) Capitalization of website development costs (547 ) (253 ) (2,074 ) (978 ) - ------ - ------ - ------- - ------ Non-GAAP free cash flow $ 21,094 $ 9,606 $ 36,712 $ 31,748 - ------ - ------ - ------- - ------

Non-GAAP Financial Measures and Other Business Metrics

To supplement our consolidated financial statements, which are prepared and presented in accordance with Generally Accepted Accounting Principles in the United States (GAAP), we provide investors with certain non-GAAP financial measures and other business metrics, which we believe are helpful to our investors. We use these non-GAAP financial measures and other business metrics for financial and operational decision-making purposes and as a means to evaluate period-to-period comparisons. We believe that these non-GAAP financial measures and other business metrics provide useful information about our operating results, enhance the overall understanding of past financial performance and future prospects and allow for greater transparency with respect to metrics used by our management in its financial and operational decision-making.

The presentation of non-GAAP financial information and other business metrics is not meant to be considered in isolation or as a substitute for the directly comparable financial measures prepared in accordance with GAAP. While our non-GAAP financial measures and other business metrics are an important tool for financial and operational decision-making and for evaluating our own operating results over different periods of time, we urge investors to review the reconciliation of these financial measures to the comparable GAAP financial measures included above, and not to rely on any single financial measure to evaluate our business.

We define Adjusted EBITDA as GAAP net income, adjusted to exclude: depreciation and amortization, stock-based compensation expense, other income, net, the (benefit from) provision for income taxes, and certain one-time, non-recurring items, if and when applicable. We have presented Adjusted EBITDA because it is a key measure used by our management and board of directors to understand and evaluate our operating performance, generate future operating plans, and make strategic decisions regarding the allocation of capital. In particular, we believe that the exclusion of certain items in calculating Adjusted EBITDA can produce a useful measure for period-to-period comparisons of our business.

We define Free Cash Flow as cash flow from operations, adjusted to include purchases of property and equipment and capitalization of website development costs. We have presented Free Cash Flow because it is a measure of the Company’s financial performance that represents the cash that the Company is able to generate after expenditures required to maintain or expand our asset base.

We also monitor operating measures of certain non-GAAP items including non-GAAP gross margin, non-GAAP expense, non-GAAP operating income, non-GAAP operating margin, non-GAAP net income and non-GAAP net income per share. These non-GAAP financial measures exclude the effect of stock-based compensation expense and amortization of intangible assets. Non-GAAP net income and non-GAAP income per share also exclude the change in tax provision from stock-based compensation expense. 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 with respect to metrics used by our management in its financial and operational decision-making.

While a reconciliation of non-GAAP guidance measures to corresponding GAAP measures is not available on a forward-looking basis without unreasonable effort as a result of the uncertainty regarding, and the potential variability of, stock-based compensation expenses and amortization of intangible assets that we may incur in the future, we have provided a reconciliation of non-GAAP financial measures and other business metrics to the nearest comparable GAAP measures in the accompanying financial statement tables included in this press release.

We define a paying dealer as a dealer, based on a distinct associated inventory feed, that subscribes to one of our paid listing or display products at the end of a defined period.

We define AARSD, which is measured at the end of a defined period, as the total marketplace subscription revenue during the trailing 12 months divided by the average number of paying dealers during the same trailing 12-month period.

For each of our websites, we define a monthly unique user as an individual who visited such website within a calendar month, based on data as measured by Google Analytics. We calculate average monthly unique users as the sum of the monthly unique users in a given period, divided by the number of months in that period. We count a unique user the first time a computer or mobile device with a unique device identifier accesses one of our websites during a calendar month. If an individual accesses one of our websites using a different device within a given month, the first access by each such device is counted as a separate unique user.

We define monthly sessions as the number of distinct visits to our websites that take place each month within a given time frame, as measured and defined by Google Analytics. We calculate average monthly sessions as the sum of the monthly sessions in a given period, divided by the number of months in that period. A session is defined as beginning with the first page view from a computer or mobile device and ending at the earliest of when a user closes their browser window, after 30 minutes of inactivity, or each night at midnight (i) Eastern Time for our United States and Canada websites, (ii) Greenwich Mean Time for our UK websites and (iii) Central European Time (or Central European Summer Time when daylight savings is observed) for our Germany, Italy and Spain websites, as applicable. A session can be made up of multiple page views and visitor actions, such as performing a search, visiting vehicle detail pages, and connecting with a dealer.

We define leads as user inquiries via our marketplace to dealers by phone call, email, or managed text and chat.

Investor Contact: Rodney NelsonHead of Investor Relations, CarGurus888-508-1190 investors@cargurus.com