CarGurus, Inc. (CARG) Q4 2021 Earnings Call Transcript

CarGurus, Inc. (CARG -0.55%)
Q4 2021 Earnings Call
Feb 24, 2022, 5:00 p.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Greetings and welcome to the CarGurus Inc, fourth quarter and full year 2021 earnings results conference call. At this time, all participants are listen only mode. A question and answer session will follow the formal presentation. [Operator instructions].

As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Kirndeep Singh, vice president of investor relations.

Kirndeep Singh -- Vice President, Head of Investor Relations

Thank you, operator. Good afternoon. I'm delighted to welcome you to CarGurus' fourth quarter 2021 earnings call. We will be discussing the results announced in 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 Fredo, chief financial officer; Sam Zales, president and chief operating officer; and Bruce Thompson, founder and chief executive officer of CarOffer. 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 first quarter 2022. Management's expectations for our future financial and operational performance and innovation, our business and growth strategies. Our expectations for our core offer business and anticipated acquisition synergies.

Our expectations for CarGurus Instant Max Cash Offer, the value proposition of our current product offerings and other product opportunities, the potential impact of the COVID-19 pandemic, the semiconductor chip shortage 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 is available in our earnings press release distributed after market close today and in our most recent reports on Form 10-K and 10-Q, which, along with our other SEC filings, can be found on the SEC 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 gap to non-GAAP measures is included in our press release issued today, as well as in our updated investor presentation, which can be found on the investor relations section of our website. With that, I'll turn it over to Jason.

Jason Trevisan -- Chief Executive Officer

Thank you, Kirndeep. And thank you to all those joining us today. It has been a year since I assumed the CEO role in 2021 was nothing short of revolutionary. In 2006, CarGurus set out on a mission to build the world's most trusted and transparent automotive marketplace.

Over the last 15 years, CarGurus has delivered on that mission and has helped millions of consumers and our dealer partners connect and transact offline while garnering trust and transparency. Along this journey, our business model has evolved to meet the growing and ever changing needs of consumers and our dealer partners. As such, we believe our mission statement should evolve as well to more accurately reflect our business today and where we are going. That is why I'm pleased to share our new mission statement with you today, CarGurus gives people the power to reach their destination.

For consumers, this means empowering them with the tools and information necessary to confidently shop, buy, finance and sell from the largest network of dealers and their inventory in the US. For dealers, it means continuing to provide innovative, forward-looking solutions by giving them the resources and capabilities they need to grow their businesses efficiently and profitably. A consumer and dealer solutions and our combination of lifting digital retail and digital wholesale that we are able to create a differentiated value proposition as the only full end-to-end transaction-enabled marketplace. 2021 was a transformative year for CarGurus, as we evolved from a listings business to a transaction-enabled marketplace, providing valuable cross-platform synergies to both our dealer partners and our industry leading consumer audience.

This is made possible with the acquisition of CarOffer. The launch of CarGurus Instant Max Cash Offer and the progression of our digital retail capabilities. These milestones were integral to the development of our end-to-end transaction-enabled marketplace. I'm thrilled to share that with these sizable new growth vectors and through the remarkable resiliency of our foundational listings business, CarGurus achieved exceptional results and exceeded our forecasted guidance for the fourth quarter and full year 2021.

We formally closed on the acquisition of CarOffer on January 14th, 2021, and could not be more pleased with this exceptional growth and performance this past year. The pandemic and the resulting semiconductor chip shortage created immense inventory challenges for dealers. Fortunately, CarOffer is the industry's first instant trading platform to help dealers navigate these unprecedented times. The wholesale solution allows dealers to source and/or sell inventory 24/7 without the need for time-intensive auctions.

The demand for inventory, the innovative CarOffer solution and the integration with CarGurus has resulted in remarkable growth. In the fourth quarter, CarOffer generated revenue of approximately $179 million, growing over 1,000% since the acquisition closed in Q1. In the year we acquired CarOffer and not only became a profitable business, but also grew adjusted EBITDA, a non-GAAP metric to $33 million in Q4. CarOffer Novel Solution for wholesale inventory, coupled with CarGurus' largest consumer audience and vast dealer network create synergies that are unavailable elsewhere.

It is through our collective offering that the combined CarGurus and CarOffer sales team enrolled another 2,100 dealer rooftops in Q4 for approximately 9,100 enrolled dealer rooftops on the platform by the end of the year. Approximately 37% of these newly enrolled rooftops this quarter were attributable to the kangaroo sales team, demonstrating the success of the cross-functional partnerships between our combined sales forces. Moreover, as we announced last week, CarOffer reached 10,000 enrolled dealer rooftops on the platform, growing approximately 180% since Q1, an incredible achievement in a short period of time. The benefits of CarOffer have attracted a broad array of dealers, ranging from independent and franchised dealers to nationwide rental fleets who require the same, if not more, access to inventory as a typical dealership.

As we enroll more dealers, the CarOffer buying matrix continues to grow in both diversity and liquidity of vehicles transacting on the platform. Industrywide supply and demand constraints are not the only challenges we face this year. While seasonality typically impacts the retail and wholesale business, in the latter half of the year, we were pleased to see the CarOffer momentum continue and outpace typical seasonality. CarOffer revenue from the dealer-to-dealer business was $94 million, growing approximately 63% quarter over quarter and an incredible 506% since the acquisition closed in Q1.

Strong revenue growth this quarter was driven by record-breaking transaction volumes month over month in Q4, further highlighting the power of the CarOffer Matrix as more dealers enroll on the platform and begin to transact at scale. Gross-merchandise sales increased quarter over quarter by 163% to $2.3 billion, as a result of higher transaction volumes. Adoption of ancillary products and increased average selling-prices as used vehicle demand remains at an all-time high. A key component to creating our end-to-end transaction-enabled marketplace is the ability for consumers to not only shop for a vehicle on our site but to trade in their existing vehicle as well.

The combination of CarOffer and CarGurus allowed us to launch CarGurus' Instant Max Cash Offer or Instant Max for short. While Instant Max has been a part of the original vision for the platform, the effects of COVID-19 pandemic and the semiconductor chip shortage caused inventory challenges for dealers, resulting in limited inventory and thus dealers making compelling offers on used vehicles. As a result, consumers are eager to sell their used vehicles at significantly higher prices than where they were just a year ago. As this dynamic persists, we will leverage this opportunity to capitalize on Instant Max's growth and provide dealers a fresh new source of inventory while simultaneously offering our vast consumer audience the only platform of its kind with the most competitive real-time offers from thousands of dealers.

This quarter, the remaining $84 million of CarOffer revenue was associated with Instant Max. More than doubling the high end of our forecast and guidance. Instant Max saw tremendous growth, with transaction volumes growing over 1300% quarter over quarter. Growth and Instant Max this quarter was driven by wider adoption in existing geographies, as well as expansion into new geographies.

We ended the year, which was only five months after our initial launch, covering 22 states and D.C., which represented 58% coverage of the US population. Since then, we've expanded into California, bringing our U.S. population coverage to approximately 70%. With each expansion effort, we take our learnings to further improve and optimize our offering and the consumer experience.

In the fourth quarter, we launched on-site merchandizing, enabling consumers visiting cargurus.com in one of the 23 currently participating states to sell their vehicle right from our homepage, which has driven significant traffic. With 50% of car shoppers looking to trade-in or sell a vehicle are 29 million unique average monthly high intent visitors in the U.S. can both purchase and sell a vehicle seamlessly through our platform. Moreover, we continue to take steps to enhance the user experience and post-offer conversion rates.

For example, we recently added online-scheduling capabilities for vehicle pickups. It is through a combination of our expansion efforts and continued conversion rate optimization that average saved offers per month increased 293% quarter over quarter, and monthly average sellers submitting complete documents increased 489% quarter over quarter. With each expansion effort, we are focused on ensuring we deliver an excellent customer experience and intend to utilize our learnings to improve upon our existing capabilities before expanding our footprint further. While critical, improvements to our product in the form of dealer and consumer experience is only one component of our growth story in 2021.

Significant efficiency in our marketing efforts has complemented our product improvement in driving increased revenue. For every dollar spent on marketing for Instant Max, we also returned $0.17 in revenue for our listings business, representing remarkable cross-product efficiency in our marketing spend. Even more impressive, greater than 20% of consumers who save an offer utilizing Instant Max also submit a lead for a new vehicle purchase. Not only are we leveraging marketing efforts across the platform, we have also improved the efficiency and conversion rates and our paid-search-engine marketing, which has seen an approximate 3.5 times improvement in efficiency with greater than five times growth in conversion volume since the launch of Instant Max.

As we plan for a national release, increased marketing and brand awareness with consumers will be key areas of focus to drive growth. Capitalizing on the exceptional progress of Instant Max to date. In addition to our digital wholesale progress in 2021, we made tremendous progress on our digital-retail product pipeline as well. We not only improved upon our existing capabilities, but in October we announced three additional pilots for delivery, deposits and hard pull financing that, when pieced together with CG convert, creates a near complete digital experience for consumers.

Throughout the quarter, we continued to make progress on these pilots and are pleased with the early feedback from both consumers and dealers. We're seeing consumers utilize multiple elements of the digital-retail suite to locate vehicles outside of their geographic region using Area Boost, get to a near penny-perfect transaction using CG Conver, place a deposit to secure the vehicle and/or ultimately take delivery through the platform. In an effort to further streamline and empower consumers, we've began to pilot a Buy Now function directly on our website. Clicking this allows the consumer to place a $500 deposit on the vehicle for 72 hours, holding their vehicle of choice as they complete final purchase steps, including financing with the dealership.

Dealers who have enabled this functionality have seen a greater than 70% close rate from these high-intent shoppers. As a result of this increase, the Buy Now feature has proven to generate our lowest final, highest content leads to date. Consumers who are ready to take the final steps of purchasing their vehicle through our platform can do so by submitting a credit application to receive approved offers from a dealer's preferred lender group directly in the a converted checkout process, allowing consumers to feel confident in the total purchase price of the vehicle. Since enabling this option in the fourth quarter, submitted applications increased 100% from November to December and accepted loans increased 167% during the same period.

We serve a broad array of consumers with varying degrees of readiness to purchase their cards for those customers that want to see their financing options prior to performing a hard credible. We have a pre-qualified financing option within CG Convert as well. This gives consumers the ability to get pre-qualified with participating lenders later in any of the dealerships F&I products and get to a near perfect offer. With the ability to see these offers easily and early in the buying process and with little to no downside to the buyer, we have seen consumers become 77% more likely to submit hard credit pulls in dealerships within 60 days.

With easier financing options and deposits, driving additional, high-quality consumers to dealers, online dealers are looking to expand their geographic reach to meet the demands of the consumer beyond just their local reach, dealers are utilizing features like Area Boost and adopting or delivery program. Dealers participating in our delivery pilot are shipping vehicles on average 1500 miles away, highlighting both the need for delivery programs and the potential for geographic arbitrage. This has enabled dealers to further tap into markets beyond city and state line and attract CarGurus' 29 million average monthly unique U.S. visitors as of the fourth quarter to their local lots in inventory.

We're pleased with the feedback we're receiving from both consumers and dealers on our digital-retail pilots. Consumers prefer the optionality to do more digitally, which is evidenced by NPS scores increasing 24% on CG Convert quarter over quarter. We will continue to optimize and enhance the pilot programs before we fully commercialized the end-to-end platform, which we expect to do later this year. Our solution will allow our vast network of dealers to conveniently offer consumers a self-selected journey with a seamless online- to-offline transition, all while providing trust, transparency and freedom of choice from the largest selection of inventory in the U.S.

We believe our digital-retail capabilities level the playing field for our dealer partners, who are unable to provide these solutions to consumers on their own and or wish to utilize our largest consumer audience to sell additional inventory through the CarGurus' digital-retail platform to drive greater profitability. As we expand our capabilities and continue to offer our dealer partners more solutions through digital retail and digital wholesale, our high-margin-listings business remains the foundation of our evolution supporting our growth initiatives. Despite the semiconductor-chip-shortage weighing on the automotive industry, our foundational listing's business demonstrated a remarkable resiliency in 2021. Our listings business exceeded our forecasted marketplace revenue this quarter and in the quarter, with 30,630 paying dealers globally and remaining relatively flat year over year.

Additionally, our international business had a similarly positive year. We ended the year with 6,770 paying dealers, up 1% year over year. Canada became profitable this year, and the UK continued to exceed our expectations. In December, inventory on piston heads crossed the 200,000 unit mark for the first time, further highlighting the unified gurus and piston heads value proposition continues to resonate with dealers as we continue to further penetrate that market.

Internationally, we saw quarterly average revenue per subscribing dealer or QARSD, grow by 46% to $1,546 year over year as a result of net new dealer ad mix. Revenue expansion and in part due to the free services provided to paying dealers in December of 2020 due to continued COVID-19 lockdowns, the U.S. ended the year with 23,860 paying dealers, down less than 1% year over year. 2021 marked a year of record profits for many dealers as demand and prices for vehicles remained at all-time highs and inventory remained low.

These combined factors led dealers to pull back on marketing and advertising spend in aggregate to ease dealer wariness. We pause renewals earlier in the year. Well, we have since resumed very select renewals. We remain thoughtful with our efforts, recognizing dealers continue to face inventory challenges, and the chip shortage has not yet abated.

This year, US QARSD grew 6% to $5,633. QARSD growth was primarily driven by product upgrades, increase product adoption, as well as new enrollments from higher paying franchise dealers at the end of Q3. As the chip shortage continues to weigh on the industry, we expect QARSD growth to come from new product sales and upsell pricing or packaging with respect to paying dealers. We expect some new client acquisition depending on market conditions.

This year, our listings business yielded strong profitability as we continue to recognize marketing efficiencies and added valuable new features to our listings experience, which contributed to strong dealer retention. With increased demand and less inventory, we were able to pull back marketing spend along with the rest of the industry. Despite our reduction in marketing, this year, we delivered over 60 million connections in approximately 36 million lives in the US, representing only a modest decline year over year, which further demonstrates the stickiness of our platform with consumers while the market remains challenged with limited supply. Similarly, despite the macroeconomic headwinds and inventory challenges faced by dealers, we delivered an equivalent number of average leads per inventory unit for paying dealers in the US for Q4 year over year, further highlighting our ability to bring lower final, high intent shoppers to our site and deliver what we believe is industry leading ROI for our paying dealers.

As we enter 2022, we plan to increase marketing spend to bring high intent shoppers to our site and deliver the highest ROI to our dealer partners who continue to navigate through the challenges of the semiconductor-chip shortage. We are pleased with our fourth-quarter, full-year results, while the automotive industry faced numerous challenges and unknowns in 2021 due to the semiconductor-chip shortage. We remain nimble and quickly provided solutions to help combat the difficulties our dealer partners and consumers face. We are thrilled that 2021 marked a year of evolution and allowed us to combine our foundational listings business with digital, wholesale and digital retail, to ultimately provide the industry an unmatched end-to-end-automotive-transaction-enabled marketplace.

The synergies across our platforms, such as IMV pricing data in CarOffer's wholesale matrix, retail prices next to wholesale offers in the CarGurus' dealer dashboard, access to a new source of inventory via Instant Max Cash Offer and trade advisor competitive Intel are just a few early examples demonstrating that the sum of the parts is greater than the stand-alone components. But we have come so far since our inception, this is still just the beginning of our journey. And I'm excited for CarGurus to become the one-stop shop for consumers to transparently shop, buy, finance and sell from the largest network of dealers in the US and their inventory, and for dealers to efficiently source, market and sell to the largest and highest in 10 consumer audience in the US. In 2021, we achieved many significant milestones which would not have been possible without our incredible employees globally, who throughout all the challenges continue to innovate and drive toward our evolution of an end-to-end-transaction-enabled marketplace.

Is there commitment and dedication for our vision? That gets me excited about our next chapter. With that, I'll turn it over to Scot to discuss our financial results.

Scot Fredo -- Chief Financial Officer and Treasurer

Thank you, Jason. As Jason mentioned, 2021 has been a transformative year for our business. And we believe that our financials should reflect the evolution of our business and the press release issued today and our 2021 Form 10-K, the income statement has been disaggregated to reflect revenues and cost of sales between the marketplace, wholesale and product components of our business. We believe the disaggregation of our revenue and the associated cost of revenue provides greater transparency and more accurately reflects our revenue streams from our new growth vectors.

I'll provide further details regarding this approach, as well as a detailed overview of our fourth quarter and full year performance, followed by our guidance for the first quarter of 2022. Our fourth quarter revenue was $339.3 million, up 124% year over year and nearly $54 million ahead of the high end of our guidance range. Marketplace revenue was $166.8 million for the fourth quarter, up 6% from one $151.6 million in the prior year. For the full year 2021, marketplace revenue was $636.9 million, up 16% from $551.5 million in the prior year.

Marketplace revenue and its associated cost of revenue are inclusive of dealer subscriptions to our listings packages and real-time-performance-marketing-digital advertising suite, coupled with the addition of Area Boost marketplace revenue also includes advertising and finance partnership figures that were previously disclosed within our wholesale and other or advertising and other line items in prior periods. The growth in our fourth-quarter marketplace revenue year over year is primarily due to product upgrades within our foundational listings business, as well as new dealers enrolled within the franchise dealer segment. At the end of the previous quarter, product revenue was $96 million for the fourth quarter and $119.3 million for the full year 2021, product revenue encompasses certain revenue earned from our Instant Max Cash Offer product offering. Specifically, the revenue includes the price of the vehicle sold by consumers, which is accounted for on a gross basis, as well as dealer by fees.

Product revenue also includes revenue from vehicles that move through CarOffer's arbitration process where we temporarily take back ownership of the vehicle and then subsequently sell the vehicle at auction. This revenue is recognized on a gross basis, with the associated costs reflected in the product cost of revenue line items on the income statement. Separately, as it relates to the guidance we provided on Instant Max Cash Offer in the fourth quarter, we were thrilled to see the incredible growth with approximately $84 million of revenue outperforming the high end of our most recent guidance range by $44 million. The outstanding growth, compared to $5 million in the previous quarter, is due to continued growth in existing markets, as well as the geographic expansion that Jason previously mentioned.

Lastly, wholesale revenue was $82.6 million for the fourth quarter and $195.1 million for the full year 2021 compared to the previous quarter. Wholesale revenue grew 83% in the fourth quarter as a result of increased transactions and dealer adoption on the CarOffer platform. Our wholesale revenue encompasses multiple components of the CarOffer wholesale business. Wholesale revenue is representative of transaction fees that are accounted for at the point of sale and net of cost.

These transaction fees include buyer and seller fees for vehicles purchased between dealers and fees for vehicles sold that were purchased by CarOffer's buy center from other marketplaces. Transaction fees from vehicles that are arbitrated and rematched are also included within the wholesale-revenue-line item. Additionally, wholesale revenue includes revenue from all transportation and inspection services, ancillary services such as offer guard and 45-day-guarantee bid and revenue generated from consumer land. All of these services are recognized on a gross basis and their associated costs are within the wholesale cost of revenue line on the income statement.

In all, we are thrilled with CarOffer's contribution to the car to portfolio. Total fourth quarter revenue of $178.6 million. The sum of our wholesale and product-revenue-line items demonstrates the superb growth of our dealer-to-dealer and consumer-to-dealer businesses. In the years since we acquired CarOffer, it became a profitable business, grew and rolled dealers to approximately 9100 rooftops and grew revenue an astounding 1,047% since Q1, demonstrating incomparable growth and poised to acquire even greater market share in 2022.

Our business generated $327.9 million of revenue in the fourth quarter, and our international business generated $11.5 million of revenue, up 128% and 45%, respectively, compared to the prior year. International revenue continues to increase as dealers in the UK and Canada returned to the platform after a year of market constraints related to the pandemic, coupled with increased product offerings leading to expansion of per-dealer revenue. Turning to paying dealer count, we ended Q4 with 30,630 total paying dealers, representing a decrease of 124 dealers from Q3 and a decrease of one dealer versus the year-ago period. In the US, we finished the quarter with 23,860 paying dealers, which is a decrease of 119 dealers from the end of the third quarter and a decrease of 74 dealers from the year-ago period.

The decrease in paying-dealer count is primarily due to the continued impact of the semiconductor chip shortage as dealers continue to see strong consumer demand against limited inventory. In our international business, we finished the fourth quarter with 6,770 international paying dealers, a decrease of five dealers from the end of the third quarter and an increase of 73 dealers from the year-ago quarter. The increase in international paying dealers from the prior year depicts continued recovery from the pandemic. In the fourth quarter, US QARSD was $5,633, representing a one percent increase compared to the prior quarter and a six percent increase compared to the year-ago period.

International QARSD was 1,546, representing a one percent increase compared to the prior quarter and a 46% increase compared to the year-ago period. The increase in our international QARSD versus the prior year is in part due to the free services provided to UK-paying dealers in December of 2020 due to continued COVID-19 lockdowns. I will now discuss our expenses and profitability on a non-GAAP basis, which backs out our stock-based compensation expense, amortization of acquired intangible assets, restructuring expenses, acquisition related expenses and net loss or income attributable to redeemable noncontrolling interests. Fourth quarter non-GAAP gross margin was 59%, compared to 73% in the prior quarter and 92% in the year ago quarter.

The change in non-GAAP gross margin quarter over quarter is primarily due to the revenue recognition of Instant Max cash offer transactions, which are accounted for on a gross-revenue basis. Total fourth quarter non-GAAP operating expenses were $124.3 million, up 33% year over year. Non-GAAP sales and marketing expense increased 34% compared to the previous quarter and 32% year over year to $85.9 million. Non-GAAP sales and marketing expense represented 25% of revenue, down from 43% of revenue in the year-ago period.

The 32% increase in marketing expenses over year speaks to the beginning of our strategic marketing plan to increase spend for our core business in addition to increased spend as we look to gain market share and brand awareness in our new product offerings, such as Instant Max Cash Offer. Our fourth quarter non-GAAP product technology and development expenses grew 48% versus the year-ago period to $22.4 million. The increase is primarily due to an increase in employee-related costs as a result of a 37% increase in headcount during 2021 and continued investment in our technology teams to grow our new areas in digital, wholesale and digital retail in the coming year. We expect this expense to continue to increase as we continue to develop and grow our expanded product offerings.

We generated non-GAAP operating income of $76.3 million, representing an operating margin of 22% and roughly $26 million ahead of the high end of our guidance range. Non-GAAP diluted earnings per share attributable to common shareholders were $0.43 for the fourth quarter, $0.13 above the high end of our guidance range. On a GAAP basis, we generated fourth-quarter gross margin of 53%, compared to 92% in the year-ago period. The contraction in GAAP gross margin is primarily due to the impact of Instant Max Cash Offer, as well as an accounting reclassification of approximately $21 million for acquired develop technology amortization from operating expense to cost of goods sold.

This is a one-time reclassification that records technology amortization in a manner similar to that of other revenue generating assets. Future amortization of the acquired technology will be recorded to cost of goods sold until the end of its useful life. Total operating expenses were $135.8 million in the fourth quarter, up roughly 27% year over year. The increase in operating expenses was primarily driven by increases in headcount and other people related expenses pertaining to the CarOffer acquisition.

Fourth-quarter GAAP operating income increased 31% year over year to $43.9 million. Fourth quarter GAAP net income attributable to CarGurus Inc totaled $29.6 million in fourth quarter GAAP. Net loss attributable to common shareholders totaled $79.8 million, primarily due to the accretion of redeemable noncontrolling interest to the redemption value of $109.4 million in the fourth quarter. And the US fourth-quarter GAAP operating income was $47 million, up 21% year over year.

Our international business had a GAAP-operating loss of $3.1 million compared to a $5.3 million loss in the year-ago quarter. We ended the fourth quarter with $321.9 million in cash and investments, a slight increase of $0.9 million from the end of the third quarter. The increase in our cash balance was driven primarily by the profitability of the business, offset by the increased receivable and inventory balances related to CarOffer during the quarter. We utilized $36.8 million in cash from operations in the fourth quarter and $41.6 million of non-GAAP free cash flow, which includes capital expenditures and capitalized website development costs of $4.8 million.

I'll close my prepared remarks with our outlook for the first quarter of 2022. We expect our first-quarter revenue guidance to be in the range of $390 million to $410 million non-GAAP operating income in a range of $59 million to $65 million and non-GAAP earnings per share in the range of $0.31 to $0.33. Further, in keeping with the previous quarter, we are also providing first-quarter revenue guidance for Instant Max Cash Offer, which we anticipate to be in the range of $133 million to $148 million. Additionally, as stated in our 2021 Form 10-K, effective and Q1, we plan to adjust our reporting segments from two reportable segments the United States and International to one reportable segment.

Previously, the financial profile of our international segment was showing material operating losses relative to its scale, which was very different from the US business this past year. Our business in Canada became profitable, and the UK is not far behind as we continue to grow via digital, wholesale and invest for growth in digital retail. The international business becomes a much smaller piece of our consolidated financials. As such, we believe it makes sense to report on a combined business going forward.

With that, we'll open up the call for Q&A.

Questions & Answers:

Operator

Thank you, ladies and gentlemen. Today, we will now be conducting a question and answer session. [Operator instructions] Our first question comes from Dan Kurnos with Benchmark Company. Please proceed.

Dan Kurnos -- The Benchmark Company -- Analyst

Great, thanks. Good evening. First, just on Instant Max like in the quarter versus the tide, you know, obviously, Scot, you gave some commentary just on it being a combination of both existing and new. And Jason, in your prepared remarks, you talked about some significant efficiencies that you were seeing because of INCO, whether it's lead being submitted for the search marketing benefits.

Can you just kind of walk through, you know, on what we suspect was, there was clearly some marketing, but probably not to what you would consider a full scale. You know why you got such traction, where the sort of incremental outperformance came from a little bit more granular. And as we look out next year, clearly you want to advertise behind the whole product. But if you're getting some initial marketing efficiencies, just how do we think about the balance between, those marketing efficiencies continuing to scale versus how much you'll stand against that as you kind of ramp the whole product?

Jason Trevisan -- Chief Executive Officer

Sure. Thanks for the question, Dan, before I answer that and jump in, I would just like to mention that and take a moment to acknowledge that the in a very apolitical way, the danger and potential losses that people in the Ukraine are finding themselves facing right now. We have colleagues and partners based there, and we want to emphasize that the safety of our colleagues is unequivocally our highest priority. So our thoughts are with those who may be affected.

As to your question, then yeah, there are -- I would think of a couple of different angles to what you asked. The first is efficiencies in the form of synergies with our dealer-to-dealer wholesale business and our listings business. And then I would also think about efficiencies in the form of sort of ongoing optimization. So from a synergy-efficiency perspective, driving more Instant Max volume is a huge benefit and differentiator to our dealer-to-dealer wholesale business.

As we scale volume there, it becomes really the only channel that a lot of dealers will be able to have access to get consumer cars. So we think that really helps the CarOffer wholesale business stand out from the listings business. Many consumers who are selling their car need to buy a car, and so we gave some statistics there that show that many of them become leads and digital-retail candidates and are then using our marketplace to shop for inventory. From an ongoing optimization perspective.

There is, I think, of it as maybe three different buckets. There's ongoing optimization in the marketing that we're doing, we have really only just begun this a few months ago and marketing, for Instant Max specifically has not scaled all that much. It's starting to now as we scale that and get some scale benefits. We also just get a lot smarter and better at it.

And so our cost-per-acquisition is dropping pretty rapidly. The second form is that we're using site real estate more intelligently and owned channels, so we have access to and relationships with tens of millions of consumers every month and how we use our site, real estate, our email and other ways in which we're interacting with consumers to identify those who are relevant for Instant Max and getting them to Instant Max keeps getting better and better. And then the final one is just efficiency within the funnel. The act of selling a car with us is quite easy on a relative basis, but selling a car in and of itself requires collecting some documents, answering questions, and we continue to get much better and much more efficient at both ensuring a high NPS, but also helping consumers convert more cost effectively.

So we continue to or we expect very much expect to continue to see efficiencies. And we also certainly expect to see growing synergies across. If you think about it, the three businesses Instant Max to fueling deal-to-deal -- dealer-to-dealer, as well as Instant Max fueling our listings business.

Dan Kurnos -- The Benchmark Company -- Analyst

Got it, that's helpful, and then maybe a follow up just for either you or Sam as he was on the call, just -- and I feel like I am almost every call. But just in terms of the go to market, given the strength that I started, finish the year and sort of the strength you're forecasting for Q1. How do we think about, going back out to the dealer base where you've begun? As Jason said, I think selective renewals, Scot, but you just how do we think about -- going back to them and saying, Hey, look, now we've got 70% pop coverage, obviously, CG Convert expanding. You've talked about pricing and bundling like, business, how does this change at all with anything sort of your go to market and sort of your outlook for your ability to kind of up and cross-sell?

Sam Zales -- President and Chief Operating Officer

Hey, thanks, Dan. It's Sam Zales. I think it's the synergies that Jason talked about that will lean on first, it's not it's not price increases. It's getting the most out of the varied elements of our value proposition across the bay.

So you saw how many customers were enrolled at CarOffer from the CarGurus' platform in the last quarter. We're going to continue to do that. IMCO, as Jason says, is just its unique value proposition, saying I'm getting access to inventory. I couldn't find anywhere else where the packaging and benefits of having our dealers get on to the CarOffer platform and get access to those vehicles.

Likewise, there are some CarOffer customers that we haven't signed to our listings package. So how do we do that with pricing and packaging, as you just said? I think we'll continue to look at products like Consumer Lane, which is the Instant Max Cash Offer in a box, if you will, right on the dealer's website and you'll see us get more aggressive about that packaging and pull that together into our -- into our roadmap. So I think it's less price increases. It's more seeing this value.

As Jason mentioned in his prepared remarks, seeing offers in your dashboard to be able to sell wholesale versus retail IMV capabilities where more and more car offer customers are now using instant IMV. The CarGurus' retail pricing to set their pricing in the wholesale arena. You're just going to see more and more of that going forward. I think the packaging will drive more and more product adoption across our platforms, and digital retail is just the next one.

When you think of a consumer being able to trade in and then buy and finance will have an entire package end-to-end and probably the only marketplace out there to give that end-to-end solutions. I think you'll see a lot more of that in our packaging going forward.

Operator

Our next question comes from Chris Pierce with Needham and Company. Please proceed.

Chris Pierce -- Needham and Company -- Analyst

Hey, just good afternoon following up on Dan's question. I think you mentioned 37% as a specific figure of new CarOffer dealers that came from the car's dealer community. Should we be thinking about that? Other 63% is somewhat low-hanging fruit to come on the subscription platform. Just kind of curious because you talk about the collective offering and I see the benefits of having both sides.

So just kind of talk me through why a dealer would kind of only be on CarOffer and how you kind of position both products for them?

Sam Zales -- President and Chief Operating Officer

Thanks, Chris. It's Sam Zales, the mentioned in the remarks was that 37% of the newly enrolled rooftops this last quarter were attributable to were attributable to the CarGuru's sales team driving those themselves. So you've got a car sales team that's there selling our core listings package, obviously now selling digital retail as we build more of these capabilities into the marketplace long term. Those were the enrollments that came from our base, from our sales team initiating those to the CarOffer sales team.

So our effort will be to continue to take that large base of customers that are not yet on the car off our platform and continue to feed those over to the CarOffer team. But I'm thrilled with the CarOffer team doing so on their own. They're experts at selling that product. And so the majority of their sales came from their terrific sales team, selling to -- selling to customers on their own.

So it wasn't about the customer base they're bringing in. Some of those that CarOffer sales are already on the CarGuru's platform, but we will do -- will be doing more of that as we integrate these packages and incentive dealers to say the more transactions you do on the CarOffer platform, that's a benefit to our overall business. Let's incent that. Likewise, for any CarOffer customer that's not on the CarGuru's platform will be doing the same.

So that just that that reflected how many of those enrollments came from the CarGuru's sales force selling those directly. Hope that answered your question.

Chris Pierce -- Needham and Company -- Analyst

That does. Thank you for clarifying. And then I think Jason mentioned rental car companies in CarOffer. Can you talk to me about how that kind of process comes together and you know where you're at as far as penetration? And is it safe to assume these are mostly sellers on the platform?

Jason Trevisan -- Chief Executive Officer

Thanks for that question Chris, because I can start it and then sorry, Sam, are you doing that?

Sam Zales -- President and Chief Operating Officer

No, go ahead, Jason.

Jason Trevisan -- Chief Executive Officer

I was going to say I can start it and then Chris, if you want to add color. Yeah, as rental car companies depleted their stock, their fleets during COVID, they then, were looking to build them back up and absent the OEM channel producing a lot of new cars. Some of the rental car companies came into the used-wholesale arena for the first time and in the last quarter. And, the one of the many beauties of the CarOffer platform is its efficiency and its scalability.

And so, you know, any large buyer like a rental fleet, you would just see tremendous value in CarOffer. So we did have them as customers. We haven't commented on specific share numbers, but they were certainly, very compelled by the -- by the product and the platform. Bruce do you want to --

Bruce Thompson -- Founder and Chief Executive Officer of CarOffer

Yeah, I reiterate that, Jason, and also we had -- we see them coming in as buyers and sellers. I will say that 82% of our sales come from dealers that would be outside of our top 40. So we really have a lot of resiliency and a lot of back up offers within the matrix. It's very at this point in time, it's very resilient in terms of the number of buyers with the number of dealers that we have on it.

But yes, a real car companies and fleet companies is very efficient, probably the most efficient platform, I think, in the country for them to source inventory. And then also sell.

Operator

Our next question comes from Marvin Fong with BTIG. Please proceed.

Marvin Fong -- BTIG -- Analyst

Good evening. Thanks for taking my questions. I guess, I'll start with one that just put you on the spot. I mean, if you saw the news that Carvana was acquiring ADESA from car, do you have an initial thought on how this might, help or hurt profits business? I mean, it would seem to me that that this would send dealers kind of looking elsewhere for inventory, but we appreciate your thoughts on that.

And then also just a little more detail on CarOffer in the quarter is that, the average purchase price or the average transaction price go about $20,000 or better than $20,000 or is the ASP that you're seeing changing on the dealer --the dealer side and how is ASP on the -- on the Instant Max Cash Offer side looking? Thanks.

Jason Trevisan -- Chief Executive Officer

Sure, happy to take that. Hey, Marvin, it's Jason. So on the Carvana car transaction. We continue to be focused on technology platforms and asset light services.

And as I think about or as we think about this fresh news, but the impact it may have for our dealer-to-dealer wholesale business, I don't think it changes much, to be honest. If anything, as you pointed out, it could benefit us. There has been a consistent shift from physical, offline, auction to digital, and we believe furthermore, within digital, that CarOffer continues to gain share. And so we think both of those trends, certainly the physical, the digital will continue.

And don't think that this would change it. You know, I think as a as a front line retailer of cars, as a dealer, Carvana owning a wholesale platform, as you point out, could create some channel conflict if they also owned the auction piece of the value chain because they may have conflicting interests as both a wholesale buyer, as well as a retailer. But that's not for us to decide. In terms of the AFPs, Yes, they have held pretty steady there, both in the high 20,000s -- both the dealer-to-dealer Insta Max.

Marvin Fong -- BTIG -- Analyst

Yep. Got you.

Jason Trevisan -- Chief Executive Officer

That's great. Thanks so much.

Operator

Our next question comes from Jed Kelley with Oppenheimer. Please proceed.

Jed Kelly -- Oppenheimer and Company -- Analyst

Hey, great, great. Thanks for taking my question. You're cutting back on CarOffer, just relative to other wholesale platforms that might go further down the value chain or service lower-priced cars. Do you see yourself wanting to service cars or for CarOffer that better below like that one $20,000 price? How should we think about that?

Bruce Thompson -- Founder and Chief Executive Officer of CarOffer

I'll take this one, this is Bruce. Yeah, we think we really found a niche with the -- the high $20,000 vehicles that -- that really transact on our system, the efficiency of our platform -- the reason that we're profitable, is we don't have to have a staff of thousands of inspectors across the United States. We leverage third parties. And so the way our system works is it's automated, works like the stock market.

It offers are available for sellers and on a continual basis, they go and they click the button when they accept an offer. Then we dispatch a third party inspector post that acceptance. And a lot of our dealerships right now, or I'd say 99%, 85%, 90% are franchised stores. So, you know, we like the niche.

We're very efficient at it. We believe it keeps our arbitration rates low and also allows us to feel that need for the franchise to work.

Jed Kelly -- Oppenheimer and Company -- Analyst

Got it. And then the summer subscription, or any way how we should be thinking about? Maybe subscription pricing, as you marry in IMCO, but the potential to--from IMCO to send dealers higher targeted leads. Should we ever see a subscription bump from that, or how should we think about that?

Bruce Thompson -- Founder and Chief Executive Officer of CarOffer

Jed, sorry, repeat the question if you could. Sorry, IMCO driving --

Jed Kelly -- Oppenheimer and Company -- Analyst

Yeah, just IMCO driving higher targeted leads and how should we think about that benefiting substantially -- benefiting the subscription product?

Bruce Thompson -- Founder and Chief Executive Officer of CarOffer

I think what you're going to see is that more and more dealers want to get on the listings platform and the CarOffer platform, the D2D platform to get access to those consumer purchases. So I think what you're going to see is that you're bringing in unique inventory, you're bringing in an opportunity for those dealers to say, I've got to be on the CarOffer platform and it will drive further penetration of our base to get on both platforms. What we may see in the future, I don't think you'll see anything from a subscription basis on the -- on the CarOffer platform. The transaction fees are the core element of the revenue model there.

But you may see us having opportunities to package and scale bundled programs and drive our listings' pricing long-term. We certainly want to grow IMCO. And if we do that, it makes more difference for all of the thousands of dealers on our platform, giving them access to this program. And we might see a bundled package longer term that says the more you do on both packages, the more access you get, and that will be a way to drive the revenues up further as we go forward.

So I think you're thinking correctly about where that business goes. But to do that, we're going to keep investing in this IMCO business to grow scale, impact all of those dealers and have the synergies of a car whose listings package the D2D wholesale platform and IMCO, all working in concert to drive the overall revenue-per-dealer up.

Marvin Fong -- BTIG -- Analyst

Thank you.

Jason Trevisan -- Chief Executive Officer

If I can add – thanks. Sam, if I can add to that because I think you've you hit on another concept, that's an important one. If I understood the question correctly, it was Instant Max Cash Offer is driving higher quality leads to dealers. And the answer is that it is just like many of our digital retail features are.

So if we're delivering a lead to a dealer and that consumer has put down a deposit or they've done a hard pull financing or they've bought other F&I products from the dealer or we know they've just sold their car. Those are all much lower funnel leads and they are absolutely of higher value. And so as we are able to fulfill more of these transaction elements for consumers, whether it's steps toward buying a car or in this case, the step of selling their car, we know that we're delivering more value to dealers. And then, as Sam said, as that starts to get bundled between Instant Max Cash Offer and CarOffer with our listings business, with our forthcoming digital retail components, you're hopefully seeing the picture of the incremental value that we're delivering to dealers.

Jed Kelly -- Oppenheimer and Company -- Analyst

Thank you.

Operator

Our next question comes from Doug Arthur with Huber Research. Please proceed.

Doug Arthur -- Huber Research -- Analyst

Yeah, thanks. I think I just answered my own question. But the -- Scot, you talked about the one-time adjustment in amortization. I think of technology software, obviously that accounts for the GAAP negative $11.5 million D&A, it looks like there was around a $13 million plus adjustment.

Is that -- in the adjusted expenses, you've got a $13 million item there, so just trying to get a sense of what the -- what the actual run rate was in the fourth quarter. Sort of a profile.

Sam Zales -- President and Chief Operating Officer

Yeah, yeah, Doug. I think that was -- yeah, because it was a catch up that we request from prior periods. So we obviously didn't restate prior periods, but the catch up adjustment, moving it from opex to cost of goods sold. And I believe the run rate is in the $5 million zone.

Doug Arthur -- Huber Research -- Analyst

By $5 million. OK, and then you made some comments on marketing expenditures for the rest as you roll out these products and ramped up marketing and product to consumer awareness. I mean, how should we think about the canes of marketing in 2022, quarterly?

Scot Fredo -- Chief Financial Officer and Treasurer

I'll take that and if Sam or Jason wants to jump in. So, we've been talking about marketing expense for a while, like, I mean that we need to invest more and part of it being market driven. And now we have the instant Max product in addition to the core listings business that we're going to invest in marketing. So on the core business we saw in Q4, the cost of traffic got a bit more expensive.

So bringing leads to dealers is getting more expensive than it was, especially in Q2 and Q3 of last year. So we saw that in Q4 and expect that to be, similar rates of investment, potentially more through the course of '22. And then, you know, we're in the very early innings of starting to market Instant Max. We're leveraging.

And you know, I think Jason mentioned this earlier, leveraging existing channels, we've got the 30 million uniques coming looking for cars that we're leveraging that as best as possible. But also we want to get active with brand and build more of an audience with consumers knowing that two-thirds of car shoppers are likely looking to trade in a car. And so that's a huge opportunity so we can capture them when they come to our site. But we also want to create more brand awareness for Instant Max.

So that's an additional part of our marketing spend for 2022.

Doug Arthur -- Huber Research -- Analyst

OK, great. Yeah.

Jason Trevisan -- Chief Executive Officer

I think that's what well, said, Scot, and that – this is Jason. And the one thing I'd add to put a little more teeth into the sort of reality of it is that consumers have now been educated either through experience or through popular press about the high prices of used cars right now. So, they know that the car prices are high. Now's not a great time to buy a car on a like-for-like price basis versus a year ago.

And inventories down so selections down. Prices are up. And as a result, those are some of the factors that, give evidence to what Scot said before about the cost of audience acquisition being higher today than it was, say, six months ago.

Doug Arthur -- Huber Research -- Analyst

But just as a quick follow up on that, I mean, you know, you've commented in the past that the ability to sell cars to IMCO is not that well-known nationally yet. So -- and you're having great success. So I guess the question is of the consumer brand awareness was greater that could, you know, substantially increase the available TAM, so to speak.

Jason Trevisan -- Chief Executive Officer

Oh, my gosh, of course, yeah. I'm talking about marketing. Sorry, I should have been more specific. I was talking about marketing for our listings, driving leads for our listings business.

Yes, 100%. I mean, we -- to your point, we firmly believe that we have a better value proposition and a better mousetrap and a better business model for our Instant Max Cash Offer than any single dealer who is offering to buy a consumer's car because the simple fact that we are presenting the consumer, our consumer with the highest offer from hundreds or maybe thousands of dealers who are bidding on that car. So we absolutely agree with you that as we get more brand awareness, both simply for the fact that you can sell your car on our site and then furthermore, you know, supported by the evidence that you're likely to get a better offer because of our business model that the TAM is said -- we think the TAM for into maxes is close to $500 billion market. There are 30 million cars sold by consumers every year.

So enormous TAM, we think we have a better -- a better mousetrap and so we are very eager to get the word out.

Scot Fredo -- Chief Financial Officer and Treasurer

So I think I think that that was it for questions, so again, I would just like to thank everyone very much for your interest and for tuning in. We're incredibly excited about how our business is evolving. And we think the really strong performances last quarter is evidence of that both a sound strategy as well as really strong execution. And we're equally if not more excited about 2022.

So thanks again, and we hope everyone has a great evening.

Operator

[Operator signoff]

Duration: 64 minutes

Call participants:

Kirndeep Singh -- Vice President, Head of Investor Relations

Jason Trevisan -- Chief Executive Officer

Scot Fredo -- Chief Financial Officer and Treasurer

Dan Kurnos -- The Benchmark Company -- Analyst

Sam Zales -- President and Chief Operating Officer

Chris Pierce -- Needham and Company -- Analyst

Bruce Thompson -- Founder and Chief Executive Officer of CarOffer

Marvin Fong -- BTIG -- Analyst

Jed Kelly -- Oppenheimer and Company -- Analyst

Doug Arthur -- Huber Research -- Analyst

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