CarGurus, Inc. (CARG) Earnings

Management highlights

### Overall Financial Performance - Q2 2026 revenue grew 13% year-over-year to $251 million, above the midpoint of prior guidance. Adjusted EBITDA grew 7% year-over-year to $85 million, hitting the high end of guidance with a 34% margin. Free cash flow conversion was 103% of adjusted EBITDA ($88 million), with ending cash and cash equivalents of $122 million, up $50 million from Q1 2026. - Non-GAAP gross profit grew 12% year-over-year to $231 million with a 92% gross margin (down 90 bps YoY); adjusted net income per diluted share grew 16% year-over-year to 66 cents. ### Strategic Direction Management has anchored the company's long-term strategy around three core value creation drivers: - Expand into integral parts of the dealer workflow across four mutually reinforcing pillars: inventory, marketing, lead conversion, and data. - Transform car shopping into a trusted, AI-led end-to-end consumer journey from research through purchase. - Deploy capital with discipline to grow long-term earnings power and deliver stockholder value. ### Operational Product Highlights (Dealer Workflow) - Dealer engagement grew 28% year-over-year in Q2, driven by expanded AI functionality. Top-quintile engaged independent dealers deliver 78% higher leads per unit than bottom-quintile engaged dealers. - *Inventory Pillar*: PriceVantage bookings grew over 50% sequentially, with a higher average order size; adopting dealers saw a median 15% lift in vehicle display pages (VDPs) and 9% lift in leads per listing after adoption. - *Marketing Pillar*: New AI-powered product VinMax, which dynamically boosts high-potential underperforming VINs, has delivered 23% faster sell-through and 34% more daily leads for promoted listings compared to comparable non-promoted listings since early access launch in February. - *Conversion Pillar*: Added a new competition filter to shopper signals that lets dealers assess shopper urgency and allocate sales resources more effectively. - *Data Pillar*: Weekly Competitive Digest emails have an 80%+ open rate, providing dealers with competitive benchmarking for performance metrics. ### Operational Product Highlights (Consumer Journey) - Launched Guru, the unified consumer-facing AI brand for all CarGurus AI capabilities, available as an AI-native experience and a seamless overlay to the existing platform. Guru-driven leads grew 60% sequentially in the U.S., and the conversational AI experience has launched in the UK and Canada. - Sell My Car gained traction after experience improvements that increased funnel conversion and delivered incremental inventory access for dealers, a top dealer priority amid ongoing used vehicle acquisition challenges. - Consumer engagement with in-dealership mode in the CarGurus mobile app more than doubled in Q2, putting transparent pricing and AI tools directly in shoppers' hands on dealer lots. ### Capital Allocation - Increased 2026 investment in product/technology to accelerate AI innovation, and in sales/marketing to support new product adoption and consumer AI awareness. - Maintains flexibility for disciplined strategic M&A to accelerate expansion. - Remains committed to share repurchases: bought back $29 million in shares in Q2, bringing year-to-date 2026 repurchases to $204 million of the $250 million 2026 authorization; $46 million remained available as of Q2 end. Since 2022, ~$925 million in shares have been repurchased, representing ~30% of outstanding shares.

Guidance

- Q3 2026 revenue is guided to a range of $253.5 million to $258.5 million, representing 9% to 12% year-over-year growth, reflecting ongoing temporary slowed dealer decision-making. - Q3 2026 non-GAAP adjusted EBITDA is guided to a range of $82 million to $90 million, with non-GAAP EPS expected between $0.63 and $0.69. - Full-year 2026 revenue growth guidance is unchanged, maintained at 10% to 13% year-over-year growth. - Management raised the full-year 2026 profitability outlook: now expects non-GAAP adjusted EBITDA margins to compress 50 to 150 basis points relative to 2025, an improvement from the prior expected larger compression, driven by more efficient execution of the 2026 investment plan while still investing in high-priority growth opportunities.

Segment performance

The company operates across two core segments: U.S. Domestic and International. In Q2 2026, total company revenue was $251 million, growing 13% year-over-year. The U.S. segment contributed approximately 78.9% of total revenue at ~$198 million, with U.S. car SID growing 8% year-over-year and 673 net new paying U.S. dealers added year-over-year. The OEM sub-segment within the U.S. outperformed expectations, driven by consumer demand for certified pre-owned vehicles amid new car affordability challenges. Add-on product adoption was the largest driver of U.S. revenue growth, followed by listing upgrades, like-for-like price increases, and higher lead quantity/quality. The International segment contributed approximately 21.1% of total revenue, with Q2 2026 revenue of ~$53 million, growing 28% year-over-year. Growth was driven by strengthened listings and Sell My Car performance in Canada, and increased OEM advertising in the UK.

Risks & headwinds

- Current macro and industry pressures: Dealer margin pressure, reduced days on lot, and the new FTC-mandated all-in price transparency requirements have led to slower, more deliberate incremental dealer spending decisions, which are near-term headwinds to revenue growth. Management characterizes these factors as temporary rather than structural, but actual results may differ from expectations. - Forward-looking statements are inherently subject to risks and uncertainties that could cause actual results to differ materially from projected outcomes, as detailed in the company's SEC filings.

Analyst Q&A

• Q: What is driving current slow dealer spending decisions, is there any recent improvement in the trend, and what impact is AI natural language search having on the consumer experience?

  A: Units and prices are up at dealers while days on lot are down, so dealers rely less on marketing amid existing margin and operating cost pressure, with new FTC transparency rules adding further caution. Some of these headwinds improved over the course of H1 2026, and CarGurus continues to gain market share and grow platform engagement. Deep engagement with AI search drives much higher conversion rates, while conversational interactions generate richer consumer preference data that improves search results for users and delivers higher quality leads that convert better for dealers, increasing platform value for both sides with no incremental incremental incremental costs.

• Q: What is the adoption profile of PriceVantage, and are you planning to monetize AI search separately from core platform activity?

  A: PriceVantage adoption is broadly based across independent and franchise dealers of all sizes, as its predictive inventory pricing analytics deliver improved dealer profitability regardless of segment. This broad appeal confirms the large standalone market opportunity for new data-driven dealer products. AI is integrated into CarGurus' core user experience rather than offered as a separate offering. Improved AI functionality increases conversion across all searches rather than requiring separate monetization, with AI-driven search volume growing significantly sequentially.

• Q: What drove the improved efficiency that allowed you to raise full-year profitability guidance, and what types of M&A opportunities are you targeting?

  A: Efficiency gains have come from infusing AI and AI agents into internal workflows across the organization, boosting product velocity and productivity across product, engineering, and non-technical functions including customer support. These gains have reduced costs versus original plans without slowing the pace of new product introductions. Most targeted M&A opportunities are small point solution dealer-focused software that will accelerate CarGurus' expansion across its four dealer workflow pillars, helping the company reach its strategic goal of a unified data-driven dealer platform faster.

• Q: Is PriceVantage differentiated from existing market solutions, and does this open opportunity for long-term product expansion into other legacy dealer product segments?

  A: PriceVantage is unique because it leverages CarGurus' proprietary real-time data on retail demand, pricing, and inventory trends from its marketplace to deliver predictive, actionable insights for dealers, unlike disconnected reactive legacy solutions. CarGurus can bring this same data advantage to all four dealer workflow pillars, which collectively represent a $1+ billion addressable market in the U.S. alone. Every new product leverages the unified marketplace data layer to deliver coordinated insights, with visible near-term performance results that build dealer trust and drive platform engagement growth.