CarGurus Inc

NASDAQ:CARG

Earnings Call Analysis

CarGurus Q3: Mixed Performance, UK Profitable

In the third quarter, CarGurus’ total revenue hit $219.4 million, down 49% year-over-year but at the top end of guidance. The marketplace segment, however, saw an 8% increase in revenue to $177.9 million, representing their highest growth since Q1 2020. This uptick was attributed largely to a 9% increase in car listings. Wholesale revenue declined to $21.7 million, a 54% year-over-year drop due to operational improvements and challenging market conditions. Gross merchandise sales stood at $350 million. Non-GAAP gross margin improved significantly to 77%, and non-GAAP EPS was $0.34, $0.07 above projections. Despite overall declining revenue, the UK business achieved profitability. The company anticipates continuing development of its end-to-end transaction platform and market normalization for future growth.

The Strategic Integration of CarOffer Sets the Stage for Growth

The company has made a significant move by accelerating the purchase of the remaining equity interest in CarOffer. This proactive decision is aimed at pioneering new product opportunities, enhancing operational improvement, and delivering a superior experience for both consumers and dealers. With Bruce Thompson stepping down, Zach Hallowell has been selected to spearhead CarOffer, leveraging his extensive industry experience to propel the company's next phase of growth.

Solidifying Global Presence Amidst Challenging Conditions

Despite a tough macroeconomic and automotive environment, the company has posted notable milestones, demonstrating the robustness and progress of its platform. The UK business has achieved profitability, marking a testament to the company's lucrative potential in global markets. On home turf, innovations such as the Sell My Car top dealer offer are designed to enhance user choice while boosting revenue streams. These developments contributed to the company outperforming its forecasted consolidated adjusted EBITDA, setting high expectations for an even more profitable next quarter.

Listings Drive Performance, International Markets Show Strength

This quarter's performance was significantly driven by the Listings business, eclipsing the operating plan thanks to profitability in Canada and the UK. The focus on superior marketing efficiency is translating into value for both consumers and dealers, positioning the company as a formidable player internationally. Moreover, the company's effort to provide increased dealer value is reflected in a rise in quarterly average revenue per subscribing dealer (QARSD), which is anticipated to foster customer retention and long-term growth.

Innovations in Product Offering and Dealer Engagement

The growth narrative continues with QARSD, fueled by listing upgrades and strategic account management. Product innovations like the new premium listing tiers contribute to higher lead volumes and quality. The company’s initiatives like dealer Data Insights add value to dealers' operations, enhancing their decision-making regarding inventory prices and further paving the way for an end-to-end, transaction-enabled platform.

Leveraging New Products and Subscriber Growth to Expand Marketplace

Continuous product innovation is a key driver of growth, illustrated by new offerings like Sell My Car, which provides dual benefits to consumers and dealers. Growth is also achieved through an expanding U.S. paying dealer base and the highest MRR customer acquisition since 2018. The Marketplace business displays robust momentum, with expectations of accelerated revenue growth in the ensuing quarter.

Capitalizing on the Shift to a Digital Environment

In response to the increasing shift to digital, the company continues to enhance its offerings by providing consumer and dealer guarantees and warranties that foster a seamless digital sales process. The ultimate goal remains to enable dealers to compete effectively in this new digital-first landscape, catering to evolving consumer demands.

Digital Wholesale Focuses on Operational Enhancement

Alignment with dealer networks and operational improvements are at the forefront of the digital wholesale strategy. The company is committed to establishing stronger relationships with dealers through a dedicated retention team and new Matrix tooling that addresses pricing volatility. Although transactions have decreased, leading to lower gross merchandise sales, the foundation is being laid for future growth and market share recovery.

Revenue Highlights and Margin Improvements

Third-quarter revenue stood at $219.4 million, with Marketplace revenue up 8% year-over-year. The company has witnessed the highest year-over-year growth since Q1 of 2020, with strong performance in listings contributing to this increase. Despite a decrease in wholesale revenue year-over-year, non-GAAP gross margin improved significantly to 77%. The overperformance of the listings business was a primary contributor to a higher adjusted EBITDA than forecasted, signaling efficient growth and profitability metrics.

Fiscal Disciplines and Shareholder Value Focus

Ending the quarter with substantial cash and cash equivalents amounting to $447.2 million, the company generated a healthy cash flow, indicative of disciplined fiscal management. Redirecting value to shareholders, a new $250 million share repurchase program commencing in 2024 has been authorized. This aligns with the company's intent to keep investing in its growth while also providing shareholder returns. The future outlook anticipates fourth-quarter revenue between $208 million and $228 million, and full-year revenue expectations of $899 million to $919 million.

Earnings Call Transcript 2023-Q3

[Operator]

Greetings. Welcome to CarGurus Third Quarter 2023 Conference Results. [Operator Instructions] Please note, this conference is being recorded. I will now turn the conference over to Kirndeep Singh, Vice President, Investor Relations. Thank you. You may begin.

[Kirndeep Singh, executive]

Thank you, operator. Good afternoon. I'm delighted to welcome you to CarGurus Third Quarter 2023 Earnings Call. With me on the call today are Jason Trevisan, Chief Executive Officer; and Sam Zales, President and Chief Operating Officer.

During the call, we will be making forward-looking statements, which are based on our current expectations and beliefs. These statements are subject to risks and uncertainties, which could cause our actual results to differ materially from those reflected in such statements. Information concerning those risks and uncertainties is discussed in our SEC filings, which can be found on the SEC's website and in the Investor Relations section of our website. We undertake no obligation to update or revise forward-looking statements, except as required by law.

Further, during the course of our call today, we will refer to certain non-GAAP financial measures. A reconciliation of GAAP to comparable 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. 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 as it relates to metrics used by our management in its financial and operational decision-making.

With that, I'll now turn over the call to Jason.

[Jason Trevisan, executive]

Thank you, Kirndeep, and thank you to all those joining us today.

Before I begin, I would like to share the exciting news that we have accelerated the purchase of the remaining minority equity interest in CarOffer. Our decision to expedite the purchase was driven by our strong desire to accelerate new product opportunities that allow us to build an end-to-end transaction-enabled platform even sooner. Further, this decision aims to help us continue the momentum of our operational improvements to build a stronger platform for our dealer partners. We believe that by accelerating our purchase, we will realize synergies of our integrated platform sooner and create an even better consumer and dealer experience.

I would like to thank Bruce Thompson, CEO of CarOffer, for his partnership for nearly 3 years. Upon Bruce's resignation in connection with the expected closing of the acquisition in December, Zach Hallowell will lead the CarOffer business going forward.

We are so excited for Zach to leverage his expertise and industry relationships from his prior roles at Manheim Auctions and OPENLANE to lead CarOffer and their incredible team during this exciting next phase.

Now turning to our third quarter results. This quarter, we achieved significant milestones that we believe underscore the strength and progress of our transaction-enabled platform. On a global scale, we are thrilled that our U.K. business achieved profitability this quarter, a noteworthy accomplishment that further validates our success and opportunity in global markets, especially in the face of a challenging macroeconomic and automotive landscape.

In the U.S., we introduced the next iteration of Instant Max Cash offer, referred to as Sell My Car top dealer offer, which gives consumers the choice to either sell their car entirely online or to the highest bidding local dealership. And finally, we continued year-over-year revenue growth acceleration of our resilient high-margin listings business as we head into 2024 through pricing, packaging and product innovation.

I'm extremely pleased that our achievements this quarter resulted in us exceeding our forecasted consolidated adjusted EBITDA guidance and set the stage for what we believe will be an even stronger, more profitable fourth quarter sequentially.

Our performance this quarter was driven by our Listings business, which exceeded our operating plan. Notably, a little over a year after Canada reached profitability and continues to produce improving year-over-year EBITDA margins, we are pleased our U.K. business is now profitable as well.

The path to profitability for the international business demonstrates our ability to drive greater marketing efficiencies and value to both our dealer and consumer customers and position ourselves as a key player in these markets. While we exceeded our U.K. operating plan, we remain thoughtful in areas where we want to invest in the future to grow the business prudently.

In the U.S., we continue to deliver more value to our dealers, which is reflected in higher quarterly average revenue per subscribing dealer, or QARSD, and we believe will enhance customer retention and long-term expansion. Growth in QARSD comes from adding new dealers at higher market rates and expansion of existing dealer wallet share through listing upgrades, product innovation and adoption, renewals, lead quantity and lead quality.

One recent growth lever of QARSD is our annual business reviews, or ABRs, which delivered results in Q3 consistent with the prior quarter. We continue to see a strong percentage of dealers accepting our renewals motion and a robust win back rate for those who had churned in the prior quarter.

Furthermore, we have also seen healthy product attach rates and higher adoption of annual contracts. In the fourth quarter, we expect to finish the remaining 25% of our planned ABRs, which will, in total, represent nearly 20% of our dealer base for the full year. As we look ahead to next year, we will continue our ABRs for dealers that remain materially underpriced, while continuing our collaborative, steady renewal process with other dealer partners to more closely align with the value we provide. Future QARSD growth will be fueled by all the levers I just mentioned, which we believe will realize via renewals, continual account management and deeper partnership with our customers.

The foundation of listing upgrades are bundling and packaging initiatives that provide dealers with a suite of complementary features and products that make higher packages increasingly valuable. An example of a packaging incentive we launched in October was including Digital Deal in our new premium listing tiers, Feature Plus and Feature Priority Plus, combining the benefits of increased lead volume from premium listing placements with higher quality Digital Deal leads that are up to 5x more likely to close.

Bundling products like Digital Deal also expedites the evolution toward digitally empowered sales for the 70% of consumers who are eager to complete more of the transaction online, allowing dealers to align with consumer preferences.

Another feature we recently added to our paid packages is the first of our new dealer data insights initiative, designed to bring valuable insights that will help dealers increase turn times. In October, we launched Next Best Deal Rating and Insights tool that provides dealers the blueprint for the least amount of price reduction needed to achieve the next best deal rating on CarGurus. Dealers can specify price reduction thresholds on their specific inventory and receive an automated weekly report to inform price changes that will optimize their volume and margin.

As we progress toward an end-to-end transaction-enabled platform, we will have the ability to bundle a growing number of other products across the business and curate unique data insights. We believe this will result in comprehensive stickier solutions that enhance ROI, provide deeper insights, increase the overall value and foster strategic partnerships with our dealer customers.

Another avenue that drives QARSD is ongoing product innovation and adoption. Although new products may initially have limited revenue and QARSD impact, they have the potential to yield significant success and adoption as evidenced by our experience with digital deal.

As such, we recently introduced a new subscription product known as Sell My Car Top Dealer offer. After running a successful early access program in 3 cities, we evolved our existing Sell My Car functionality to provide consumers more optionality and dealers' greater value. Sell My Car now presents consumers with 2 types of offers: A top online offer powered by CarOffer's Instant Max Cash offer, which includes white glove pickup service from the comfort of the consumer's home; and a new top dealer offer, which is the highest offer from a local dealership to which the consumers take the vehicle. Dealers can leverage CarOffer Matrix technology to instantly make tailored offers on CarGurus consumer vehicles and their choice and generate valuable trade-in leads for their business. Consumers can now choose between 2 selling options, providing more convenience and selection.

Sell My Car top dealer offer recently launched in 18 metro areas covering more than 40% of the U.S. population. Early access dealers are reporting Net Promoter Scores of 86, exemplifying the unique value proposition we can offer to dealers with our new product innovation.

Finally, the addition of new dealers who are paying more market rates remains the key driver for QARSD. This quarter, we grew our U.S. paying dealer base sequentially by 148 through strong sales momentum and moderating churn, resulting in 24,368 dealers on our platform. In the third quarter, U.S. QARSD was $6,332, growing 9% year-over-year. Growth came from all QARSD levers and in particular, new dealer signings in Q3 resulted in our largest MRR customer acquisition quarter since 2018.

All of these factors combined are accelerating our growth. In Q1 this year, our marketplace revenue grew 2.4% year-over-year, and this quarter, we've grown 7.6% year-over-year. Appropriately, we are growing our sales team in response to the increased productivity and growing demand we've been experiencing. In Q4, we expect our Marketplace business revenue growth to accelerate year-over-year through the previously mentioned growth drivers. While the automotive industry has been anything but normal these past 2 years, we are excited by our team's ability to continue to overcome these obstacles, innovate and drive value for our dealer partners.

With our company's technology roots and data-centric approach to innovation, we have grown our investment in artificial intelligence and machine learning in areas like search, store, account management, content creation and consumer support.

Our Find My Car functionality, which allows shoppers to search for vehicles using conversational language matching their preferences to relevant listings, is now being piloted in the U.K. and Canada. Moreover, in our ongoing efforts to enhance the shopping experience for consumers, we are leveraging original content from our editorial teams to automatically generate comprehensive vehicle comparisons. This approach simplifies the vehicle purchasing process for consumers, allowing them to easily compare the specifications of 2 vehicles side by side as they shop online.

As consumers and dealers alike move toward an increasingly digital-first environment, we are equipping them with tools necessary to do so. We are creating a platform that tailors the shopping journey for our consumer customers, while simultaneously leveling the playing field for our dealer partners who may be unable to develop these solutions independently or who wish to leverage the breadth of our consumer audience.

Digital deal is a stepping stone in our journey that transforms the car buying experience for consumers by harnessing advanced online functionalities to deliver a seamless online to in-store transaction. This includes providing trade in estimates, offering prequalification or hard pull financing options, facilitating the purchase of dealer or vehicle-specific finance and insurance products, placing a deposit and scheduling an appointment.

We ended the quarter with 3,388 Digital Deal dealers, representing over 250% growth year-over-year. We have now launched Digital Deal in our new featured listings tiers as of October. This strategic move enables us to enhance the ROI for dealers by affording them greater visibility with higher quality leads. Overall, Digital Deal leads as a percentage of total leads continue to grow. Top-performing Digital Deal users, on average, receive 30% of their total e-mail leads from high-intent, ready-to-purchase shoppers that are up to 5x more likely to close.

As we continue on our journey of creating an end-to-end offering for our dealer partners, we are building out our Digital Retail capabilities so that dealers can sell their preowned inventory more efficiently to the approximately 70% of consumers who want to do more from home. While Digital Deal enables dealers to offer consumers an online to in-store experience on CarGurus, the future of Digital Retail will empower our dealer partners with greater optionality to service consumers fully online through every step of the car-buying journey.

As such, we are working with a small subset of dealers to test and facilitate online purchases to out-of-market customers using dealer-friendly delivery capabilities in an asset-light model.

In addition to delivery, our pilot offers a CG guarantee, which comes with a 7-day return policy and a limited warranty to ensure a worry-free post-sale experience for both dealers and consumers. The ultimate goal of Digital Retail is to empower all dealers to compete and sell more cars, while meeting evolving consumer demand in a digital-first environment.

In Digital Wholesale, our primary focus has been sustaining the positive trajectory of our operational enhancements as we aim to return to profitability and growth even in the face of less favorable wholesale environments. We're also continuing to engage with our dealer network to rebuild confidence. Our initial focus is on establishing a dedicated retention team designed to foster greater customer trust and confidence, and the progress we've made in operational enhancements and matrix innovation represent significant steps in the right direction.

We have seen an increase in dealers that are utilizing our new matrix tooling like 24-hour approval and buy it now to drive greater certainty and comfort in their purchases during a volatile pricing environment. And large players continue to find programmatic buying to be an efficient and effective way to source and sell inventory.

For example, rental fleet customers who seasonally de-fleet in the back of the year have pivoted to selling on our platform. We ended the quarter with 13,562 transactions, down approximately 35% quarter-over-quarter. The decrease in transactions resulted in gross merchandise sales, or GMS, of $350 million from the third quarter. While there's more work to be done with our dealer partners, we believe we are well positioned to grow and regain market share as the automotive market normalizes. In the interim, we continue to leverage our matrix technology to innovate and provide dealers with offerings that to Sell My Car top dealer offer to demonstrate the uniqueness of the CarOffer platform coming together with CarGurus.

We are proud that our results this quarter reflect an accelerating listings business as well as meaningful progress toward an end-to-end transaction-enabled platform that provides consumers with the trust, transparency and choice they need to confidently shop, finance, buy and sell a vehicle and empower dealers with innovative tools to source, market and sell vehicles. As we continue to build new products and capabilities, we are helping our consumer and dealer customers achieve their goals of more digital transactions, while at the same time, fueling top line growth and profitability in our business. We are excited by the trajectory of our platform. And all of our accomplishments this year, we believe, have set us up for an exciting 2024 with ongoing growth and innovation to best service our dealer partners and largest consumer audience.

Before I provide a detailed overview of our third quarter performance followed by our guidance for the fourth quarter and full year 2023, I would like to formally welcome Elisa Palazzo as our new CFO beginning in December. We are thrilled to have her join the CarGurus team. And now Elisa's background and expertise in online marketplaces will be extraordinarily valuable to us as we grow and expand our business.

Now turning to our results. Total third quarter revenue was $219.4 million, down 49% from the year ago period. Our total revenue for the third quarter was at the high end of the guidance range of $221 million. Marketplace revenue was $177.9 million for the third quarter, up approximately 8% from $165.3 million in the prior year and up 4% from $171 million in the prior quarter.

Excluding comparisons to periods where we provided pandemic-related concessions to dealers, this represents the highest year-over-year growth rate since the first quarter of 2020 and the highest sequential growth rate since the fourth quarter of 2019.

The increase in marketplace revenue compared to the prior year was primarily due to higher listings revenue as a result of 9% year-over-year QARSD growth. Sequential growth was driven by strong MRR acquisition and stabilization of our OEM advertising business.

Wholesale revenue was $21.7 million for the third quarter of 2023, down 54% from $47 million in the year prior and down 32% from $32 million in the prior quarter. The year-over-year decrease in wholesale revenue was due to our continued prioritization of operational improvement, coupled with less favorable market conditions. Quarter-over-quarter, we saw a decrease in dealer-to-dealer transaction as dealers experienced price uncertainty, coupled with typical retail seasonality in retail sales and rental fleet.

Lastly, product revenue was $19.8 million for the third quarter, in line with the midpoint of our most recent guidance range. Product revenue was down 91% from $214.1 million in the prior year and down 46% from $36.8 million in the prior quarter. The year-over-year decline was primarily due to our decision to limit transactions for Instant Max Cash Offer.

In addition, the third quarter continued to have meaningfully lower arbitration rate and consequently, low arbitration revenue driven by our enhanced inspection capabilities and arbitration policies. Quarter-over-quarter, lower product revenue was due to fewer transactions and lower ASPs on our platform. Instant Max Cash Offer generated $18.2 million in revenue.

I will now discuss our expenses and profitability on a non-GAAP basis. Third quarter non-GAAP gross margin was 77% compared to 37% in the year ago quarter. The change in non-GAAP gross margin year-over-year was primarily due to the shift in revenue mix to our high-margin marketplace business.

Total third quarter non-GAAP operating expenses were down 1% year-over-year to $126.1 million. Non-GAAP sales and marketing expense was down 11% year-over-year to $74 million. The decrease in marketing expense compared to the prior year reflected our decision to continue limiting marketing investment for Instant Max Cash Offer.

Non-GAAP sales and marketing expense represented 34% of revenue, up from 20% of revenue in the year ago period. Our third quarter non-GAAP product, technology and development expenses grew 14% versus the year ago period to $29.7 million. Similar to previous quarters, the increase was primarily due to an increase in salaries and employee-related costs as a result of an 8% increase in headcount from the year ago period, though it was relatively flat sequentially as we slowed our pace of hiring in the third quarter.

As a result of our prior headcount growth, we expect this expense to remain elevated as a percentage of revenue relative to prior years as we continue to develop and grow our expanded product offerings to build our end-to-end transaction-enabled platform.

Consolidated adjusted EBITDA of $48.6 million in the third quarter was $4.6 million above the high end of our most recent guidance range. This was due primarily to the overperformance of our listings business. As we previously mentioned, our U.K. business reached profitability this quarter, driven by revenue growth, prudent expense management and favorable FX rates.

Non-GAAP diluted earnings per share attributable to common shareholders was $0.34 for the third quarter, $0.07 above the high end of our most recent guidance range.

On a GAAP basis, we generated third quarter gross margin of 75% compared to 35% in the year ago period. In the third quarter, we incurred total operating expenses of $141.2 million, up 16% year-over-year. The increase year-over-year was primarily driven by higher stock-based compensation.

In Q3 2022, we had negative stock-based compensation expense as a result of favorable adjustments relating from the revaluation of CarOffer incentive unit and subject unit awards.

Third quarter GAAP operating income decreased 19% year-over-year to $23.1 million. Third quarter GAAP consolidated net income was $19 million. Net income attributable to CarGurus totaled $22.3 million, and third quarter GAAP net income attributable to common shareholders was $22.3 million.

We ended the third quarter with $447.2 million in cash and cash equivalents, a decrease of $6.4 million from the end of the second quarter. We generated $26.4 million in cash from operations in the third quarter and $17.2 million of non-GAAP free cash flow, which includes capitalized website development and capital expenditure costs of $9.1 million.

Cash provided by operations in the third quarter was primarily driven by our results partly offset by a $7.7 million decrease in our working capital accounts.

During the third quarter, we repurchased 956,000 shares for an aggregate purchase price of $17.1 million. As of September 30, we had repurchased a total of $122.9 million in shares and had approximately $127.1 million remaining available for share repurchases. Additionally, I'm pleased to share that our Board has authorized another $250 million share repurchase program commencing in 2024, underscoring our commitment to strategically returning value to shareholders.

I'll close my prepared remarks with our outlook for the fourth quarter and full year 2023. We expect our fourth quarter revenue to be in the range of $208 million to $228 million, and we expect full year revenue to be in the range of $899 million to $919 million.

In the fourth quarter, we expect similarly high single-digit year-over-year marketplace revenue growth as we saw in the third quarter.

In our Digital Wholesale business, we expect revenue in the fourth quarter to be in line with third quarter results as dealers remain cautious, coupled with typical seasonality. We are excited about the launch of top dealer offer, which we expect to cannibalize Infant Max gross revenue. We believe it provides a better experience for consumers and dealers and yield high-margin gross profit dollars given the subscription nature of the offering relative to Instant Max Cash Offer. Accordingly, we forecast fourth quarter revenue for our product line item to be in the range of $12 million to $22 million, and we anticipate full year product revenue to be in the range of $108 million to $118 million.

We expect a modest sequential decrease in operating expenses as we still expect full year 2023 marketing spend to be below 2022. With lower operating expenses and accelerating Marketplace year-over-year revenue growth, we expect Marketplace EBITDA to improve sequentially. We expect Digital Wholesale to remain unprofitable until market conditions and customer buying activity pick up.

We expect our fourth quarter non-GAAP consolidated adjusted EBITDA to be in the range of $46 million to $54 million, and non-GAAP earnings per share in the range of $0.30 to $0.33. We expect full year 2023 non-GAAP consolidated adjusted EBITDA to be in the range of $181 million to $189 million, and non-GAAP earnings per share in the range of $1.19 to $1.22.

Year-to-date, we have made substantial progress toward our vision of being the only end-to-end automotive transaction-enabled platform, as we launch Sell My Card top-dealer offer, continued innovation in Digital Retail and accelerated growth in our Marketplace business.

The progress we have made, which sets us up for an exciting 2024 would not be possible without the dedication and unwavering commitment of our extraordinary employees globally, who continue to push us forward in making our ultimate vision a reality. With that, I'll open up the call for Q&A.

[Operator]

[Operator Instructions] Our first question is from Rajat Gupta with JPMorgan.

[Rajat Gupta, analyst]

Great. I just had a couple. Firstly, on the fourth quarter guidance, it implies flattish sequential EBITDA, maybe like $1 million higher. But if I hear your comments around the Marketplace business, it would suggest that increase kind of confirmed that in the prepared remarks as well. But it kind of implies the CarOffer EBITDA is kind of flattish sequentially. So is that just seasonality? Or because I would have expected like with the operational focus would continue improvement. So maybe if you can just clarify that? And then I have a follow-up.

[Jason Trevisan, executive]

Sure. Thanks, Rajat. So yes, I think in our remarks, we talked about given the growth in marketplace and the comments on OpEx, that sequential EBITDA there should be higher. But I think it's also fair you're in the ballpark to say that the CarOffer is expected to be flattish.

[Rajat Gupta, analyst]

Understood. Got it. And just on the CarOffer purchase decision, obviously, a little surprising that you decided to buy the remaining stake a little earlier. You mentioned some of like the integration efforts that led to that decision. But I'm curious, was there like any increasing visibility around the business turning to profitability in the near term or anything around broader market condition that also lead you to act sooner on the purchase?

[Jason Trevisan, executive]

Sure. I wouldn't say that the broader market led us to act sooner. In terms of visibility, I think we have -- as we all know, it's a transaction business, and so it's much harder to forecast that than our subscription business, but we have gotten better at predicting it and forecasting it because of the operational challenges that we've made and we've talked about.

But I would say the 4 reasons that we accelerated this are: one, it's an accelerant for product innovation between our 2 platforms. Two, it allows us to have full ownership, to have more ball control on the operational improvement. Three, we're excited about Zach's industry experience brought to bear on it. And then four, it sort of reaffirms our conviction of our long-term vision of having these platforms together.

[Operator]

Our next question is from Nick Jones with JMP Securities.

[Nicholas Jones, analyst]

I guess maybe sticking on the kind of fully acquiring CarOffer. Does this change -- how meaningfully does it change kind of the investment cycle on the platform? And I guess, ultimately, margins as we look maybe further out into next year and beyond.

[Jason Trevisan, executive]

Nick, Jason. It does not change our perspective on the investment thesis. We continue to -- as you've heard us talk about in the last couple of quarters, expand the product portfolio to be more resilient in up and down markets. And so we're investing in the technology. We're investing in client service. We're certainly investing in the stability and future growth of the company, and I think that will continue. And in terms of long-term margin targets, no, those remain the same as well.

[Nicholas Jones, analyst]

Great. And then maybe one on just dealers and the ABR. It sounds like you're getting quite a few to come back. Maybe they say no to the increased price and they come back. How is that dynamic changing, if at all, from last quarter? Are you finding it to be easier? And are you finding people maybe for dealers coming back faster?

[Jason Trevisan, executive]

Sure. The 2 things -- so not much change. Our results were similarly as strong. When we talked about return rates of the Q1 cohort in Q2 being around 40%, that has since increased because there's another quarter under our belt. And then our Q2 cohort had similar return rates in Q3 as our Q1 cohort did.

[Operator]

Our next question is from Tom White with D.A. Davidson.

[Thomas White, analyst]

Two, if I could. Just U.S. dealer growth, it increased quarter-over-quarter kind of despite the account reviews, which is encouraging, I'd say. Just curious whether U.S. dealer growth could be a meaningful growth sector for you guys next year as inventory sitting on dealer lots presumably kind of continue to build up? Or is growth in the U.S. marketplace going to be still mostly person driven? And then I got a quick follow-up.

[Jason Trevisan, executive]

No, not it. You want to take a...

[Samuel Zales, executive]

I'll jump in. Sure. Thanks. Tom, thanks. It's Sam Zales here. Thanks for the question. It was a terrific quarter for new customer acquisition. That's a big part of our QARSD #2. We're bringing in customers at a higher price point.

I think what you're seeing in the market is 2 types of customers. Those who are saying, from a dealer perspective, I want to be aggressive in this tough market of high interest rates. There's not as much consumer demand. How do I win? Let me get on the best platform that drives the largest audience and the largest down funnel customers. And those are more conservative saying, I'm only going to play with one of the marketplaces. I would go with, again, the marketplace that's driving the down funnel and largest quality of audience in the marketplace.

We had our biggest MRR customer, monthly recurring revenue, customer acquisition numbers we've seen since 2018. So despite, as you said, our ABRs, the annual business reviews, which do involuntarily kick out some customers who won't pay a fair market price, they're coming back, as Jason said, more than half of them from the first quarter coming back in after saying no to the price point and coming in at double-digit significant price increases; and number two is we're winning to rewinning is working very effectively. And then we're plus on the customer acquisition side, which I think puts us in our own stratosphere in the market in the last quarter.

That number is in the 150 range. So it's a good quality number for new customer -- net new customers acquired. But I think our plan is to keep growing the expansion of our current MRR with our customers and win back those customers who don't choose the price point and the ABRs and then keep winning new business. So I do think that's a lever that our incredible sales and service team is finding a way to continue reaccelerating the growth of our business. It doesn't happen at a company our size, and we're just growing that business and reaccelerating it. We think that's going to continue as we go forward.

[Thomas White, analyst]

Great. And maybe just a quick follow-up. Jason, you touched on engagement of the fleet buyers, the rental car companies on the CarOffer platform. I'm just -- are they returning to the platform like more quickly than local dealerships are to transact? And maybe could you share your latest thinking on what their engagement levels might look like kind of early next year in the run-up to kind of peak travel season?

[Jason Trevisan, executive]

Of course. So I wouldn't think about them as returning faster than dealers. They are really running a different type of business that tends to be -- well, it's clearly tethered to travel trends, but is also much more seasonal than dealers would experience. And so they've always been on our platform in some form. And there are certain times in the past and it often ties to seasons where they will be heavy buyers, but they have more recently, especially as they defleet this time of year, been more active as sellers on our platform.

We have not given guidance or directional indications as to what we think they'll do in future quarters, Q4, Q1, but we continue to believe and know that they really value the programmatic, the ease of programmatic buying and selling. And so we're a compelling platform for that. We also have, over the past couple of years, learned how we can have them work on our platform in a way that doesn't disrupt any of the stability of the platform.

[Operator]

Our next question is from Naved Khan with B. Riley.

[Naved Khan, analyst]

A couple of questions from me. Jason, you had mentioned that we'll be done with the ABR for this year, but will continue to look at opportunities into next year. Can you give us some sense of the scope of that? What percentage of dealers might be still paying significantly below where the rate curve is?

And then I had a follow-up question. If I look at the wholesale gross margin, it was down sequentially. Is that just because of the scale being down sequentially? Or did anything change in terms of arbitration rate going up or anything else been on in that line?

[Jason Trevisan, executive]

Sure. I can handle the first question and then, Sam, if you want to speak to the second question or -- go ahead, Sam, why don't you take the first one on ABRs.

[Samuel Zales, executive]

Okay. Happy to take that one and jump in later, if you like. Naved, thanks for asking. I want to keep reminding that our QARSD number, which has grown so successfully year-over-year and quarter-over-quarter at 9% year-over-year, we're thrilled with, but it doesn't just come from the ABRs.

I'll take your question because it's a good one. I just want to remind that QARSD is growing because we're bringing on new customers at a higher price point. We're upselling customers to higher packages, premium packages. We're cross-selling new products and programs like this new Sell My Car top dealer offer. It's a tremendous opportunity to keep growing our subscription revenue.

On ABR specifically, we've said that we're going to renew about 20% of our base this year. So that last quarter is happening right now. Those were the largest price point customers away from the market rate, if you will. They were the lowest priced customers. As you can tell, each quarter, we've gone after the next set of price points, customers slightly below the market rate for us. We're still seeing that success.

As Jason just said, renewing them agreeing to the price point, and if they say no, for a short period of time coming back on again. Our thought is that there will always be ABR components to our QARSD growth. By next year, as our lead volume continues to grow, we could keep producing an ROI for our customers. There will be more customers that we will be able to renew on an annual basis.

So we can't tell you what percentage that will be. We'll continue to go after that ABR component as part of our QARSD growth. The beauty is, though, that's only one portion of that QARSD growth. We know we're going to keep acquiring customers as the question just came up, we're winning more new business and we're acquiring that at higher rates.

We're going to keep adding to our premium packages. So customers move up to a higher platform, Digital Deal now in our featured premium package. That's going to be a tremendous lift to QARSD as we go forward.

And then obviously, as we sell additional products like this new Sell My Car top dealer offer, is an additional way to keep growing QARSD. So ABR, we're very excited about continuing it, but it's just one of those many levers that grows QARSD for our business. I hope that answers the question to that.

[Naved Khan, analyst]

Sam, on the Sell My Car or the top dealer offer, what's the subscription pricing on that? Have you determined that? Or is that still something that you're testing?

[Samuel Zales, executive]

Yes. I don't think we've announced that publicly, Naved. It's a great question, and it would be looked upon as a product at similar price points to the others that are out there in the marketplace. What's been great about that product, we're still what we call it in a pilot mode. We're out at 18 regions of the country, and we're not fully out to market yet. But the -- we've launched this in the fourth quarter from a pricing perspective. It's had great take rates.

I think what you want to think about the Sell My Car top dealer offer program, is, number one, it allows the consumers something very different in the marketplace. They can choose the white glove experience and say, I like what IMCO is. Pick the vehicle up from my home. Let me get a digital payment and you can drive it away from me.

But consumers are now getting a second offer, which is a choice. Would you like to drop that off at your local dealership and get a higher price point there? While there isn't the same convenience factor, you got a higher price point. Dealers requested us to build this product. Our largest dealer said, could you build something like this. We're not satisfied with the tool sets that are out there in the marketplace.

You heard about the NPS score we're getting from our customers on it thus far. They're getting a great return on that subscription investment, and it's adding significantly to QARSD and will be a long-term growth lever for our business as we scale it. We're only in 18 markets right now.

[Jason Trevisan, executive]

And then on your second question around wholesale and arbitration. So wholesale unit prices are -- have been trending down this year. They're the lowest, I think, this past month than they have been since the spring of '21. So it has been a steady decline since then. And we expect it to probably continue to decline in aggregate over the next -- to the balance -- until the end of next year.

Conversion rate, as a result, is down. So the number of transactions that actually occur in wholesale versus those that were attempted is also down, and it's up a little bit recently because of the UAW strike, but tends to be -- tends to be down. And -- but our -- and those 2 factors would point to, all else being equal, arbitration increases.

But as you've heard us talk about, our operational and product-related improvements that we've made at CarOffer are really limiting in a nice way arbitration. And those are things like inspection, integrity, ability to see cars to different product machinations that we've built off the matrix, ability to have a more discrete matrix, faster delivery times, textile registration processing. I mean all the things that go into transparency of a transaction and customer satisfaction have helped keep our arbitration levels really, really nicely low.

[Operator]

Our next question is from Kunal Madhukar with UBS.

[Kunal Madhukar, analyst]

A couple, if I could. One on the Sell My Car top dealer offer. How does that work technically in the sense? I thought that dealers would enter the prices in the matrix, and that is what would be shown to the consumer. So where does the second offer come in into play? How long does that take? Is that also instant? And if it is, how does that work?

And then on this one, is the delta between the 2 offers really the cost of picking up the car? Or is it something else? And then the second one would be on the QARSD. As we look at next year, how should we think of the evolvement of -- or the growth of QARSD into '24?

[Samuel Zales, executive]

Kunal, thanks. It's Sam Zales. I'll start with it, and I'm not sure I heard the second part of the question, but I'll come back to that in a minute because we really are excited about Sell My Car top dealer offer.

You asked is it an instant offer. It is. And the reason it is, is that the dealer is setting up 2 matrix offers. They're setting up an offer for IMCO, which is a vehicle that's going to be picked up at the consumer and then dropped off. That's a different experience for them.

The second is, I have a chance to win that consumer who might want to buy another vehicle. So they're making an offer for that consumer dropping it directly at the dealership and gives them an opportunity to have a buy-sell opportunity, which is much more lucrative to the dealer. This is exactly why they came to us and said, I use some other products in the marketplace. I want to compete for a buy-seller opportunity for that consumer. I will, therefore, pay more for that consumer that comes into the dealership and transacts with us.

So you asked about the delta. It has been a terrific delta right now. Not only is it a delta where it's meaningful and consumers are choosing the drop-off Sell My Car top dealer offer that's presented at a greater extent than they're taking IMCO. That's why we guided to IMCO will be cannibalized a bit by this product being launched.

Number two is the delta is significant versus our competitors in the marketplace. So consumers today can sell to CarMax, Carvana, Point Solutions. When dealers are competing to win this business at the local dealership in a drop-off scenario, we're winning significantly. And we've had great success for consumers and for dealers in this early stage of Sell My Car.

I'd wait for -- sorry, the second part of the question was -- Jason, do you want to take that one?

[Jason Trevisan, executive]

Yes, I can take it. It's related to QARSD next year, so it's a different topic. So we have not given guidance for QARSD next year. The -- but I'll just quickly run through what are the drivers of QARSD. And QARSD is but one factor and dealer growth is the other factor. So new and -- customers that we're bringing on for the first time that we're rewinning at market rates is a significant driver versus those who were legacy customers on at lower rates.

Upgrading to new packages is a key driver. We talk about ABRs, and I think they probably get overplayed a bit because they're one manifestation of us renewing customers. And there are many ways that we renew customers. And ABRs have -- are sort of the most extreme of those that are underpriced. But we are renewing and resigning customers all the time.

Other products. So we are adding in and building a broader portfolio of other products like highlight, new car highlight, geographic -- geo expansion, Digital Deal. Now you've heard us talk about top dealer offer. So there's a number of other products.

And then we also -- you heard us talk about dealer data insights. And so these are features that we don't charge a la carte for, but they're features that we are confident add value to what our dealers are getting from us. And if we do that successfully and in meaningful enough ways, then we think we'll have even more success helping dealers realize the value that we're driving them.

[Operator]

Our next question is from Doug Arthur with Huber Research Partners.

[Douglas Arthur, analyst]

Jason, I guess, looking at the product side of the business, I mean, what set of circumstances -- if you're predicting price in the wholesale market is likely to decline through the balance of next year, which I think is pretty rational, what set of circumstances is going to jump start this business?

And then just sort of a follow-up on this Sell My Car cannibalization issue. Are you beginning to look at ways to pivot away from the original IMCO proposition?

[Jason Trevisan, executive]

Sure. Thanks, Doug. So yes, if the wholesale prices continue to decline, which there's -- I would say that's the general consensus view. We think -- I mean, digital penetration in wholesale is still quite small. And so we know that we have an opportunity for digital to take much more share than it is.

The ranges of what digital represents today range from maybe low double digits to 30-ish percent. I mean so there's still the majority of the market that is offline that we think we can go after.

Number two is we do think we're making these operational and product changes already, which are opening up new customer segments who are historically not going to be an early adopter to buying sight unseen, and they're now willing to try a product that's more like a matrix rather than an auction.

The third is as we now are one unified company, 100% together, we are excited about the acceleration of product innovation. And our long-term vision is that we can have full visibility on data and give this to dealers from wholesale all the way to retail. And the easiest example of that is we are seeing the retail trends. We can tell a dealer what types of cars they should be sourcing and then we can help them source those exact cars.

So that's one example from a product and data perspective. Another one is tighter integration on our sales and account management and go-to-market. And so it's early days in digital adoption. It's still early days at CarOffer from a total life of company perspective, it's still a young business. And now with Zach coming into his role, we have couple of decades of expertise from other digital platforms and wholesale.

So I don't -- you said jump start. I mean none of the things that I just said are an overnight thing, but we think it's setting that business up for a really nice future.

In the Instant Max Cash Offer cannibalization point, no, I wouldn't say we're pivoting away by any means. I mean I think the whole -- our excitement is this concept that we're offering consumers selection, convenience, price better than anyone else, we think, and this is a great example of that.

So most other places where you're offered to sell your car, it's either come drop it off or pick it up. And some segments like to have it picked up and are willing to sacrifice some costs for it. Others are going to maximize cost and want to bring it locally. So we're giving them the selection by having a top dealer offer or the top matrix offer, we're giving them the price, and then we're letting them decide which is the convenience. So we're the only offering that -- in the market that has both like that.

[Operator]

Our next question is from Ralph Schackart with William Blair.

[Ralph Schackart, analyst]

On CarOffer, Jason, you noted some operational improvements in a prior question. Just curious if you can sort of expand on that a little bit and talk sort more broadly where you are in that process in terms of making operational improvements?

And then now that you'll own all of CarOffer, does that significantly increase your ability should you need to make operational improvements or further ones going forward? Does that increase your ability to do that at a much faster rate?

[Samuel Zales, executive]

Ralph, I'll take it. I'm close to that business day to day. So thanks for asking. Sam here. The operational improvements we talked about the last few quarters have been tremendous. We've talked about mechanical inspections. We've talked about the ability to look inside a vehicle for frame damage. We've done electrical. We've done much more in the upfront process of understanding customer vehicle quality and that's led to arbitration dropping dramatically. We needed to do that to have a trusted process for buyers and sellers, and that's been tremendous. Our transportation efficiency has been phenomenal. We've got much more margin out of how we've led that business.

So all of the efforts on operations have been terrific. But I think you're speaking to the exact point here. Number one, by being able to manage the business directly day-to-day, which has been sort of a third-party relationship and advisory, it gives you the opportunity to do the same thing we've done at CarGurus is run a predictable efficient, highly profitable business. And we'd like to take control and the opportunity came to us to be able to do that earlier than later.

And as Jason said, Zach Hallowell came out of nowhere as an industry expert, 25 years of digitizing 2 of the largest business in the wholesale arena. When you think about -- as Jason said, it's very early in the market for digital takeover wholesale. So we think of his opportunity to watch the operation as well as define market fit, product market fit, we know we have a platform that's been created that is phenomenal that it leads to largest buyers and sellers in the marketplace using programmatic. They're comfortable that they use it.

It's getting to the rest of the market to grow our business by continuing to improve those operations and defining the perfect product market fit with things like 24-hour or buy it now, combined with the programmatic effort. And we -- with a guy like Zach taking over that day to day, we think the operational improvements are there for us to continue advancing and run a business that's not only growth, but profitable for the long term.

[Jason Trevisan, executive]

I'll just add one thing to complement what Sam said. Any time there's an earn-out structure, which effectively step 2 and step 3 were, there's -- it's just tough to perfectly align incentives. If nothing else, the -- measurement was on EBITDA so we're aligned on EBITDA, but you're not aligned on time horizon, for instance. And you're also limited in how closely you can integrate because you want to let that business perform to its highest potential. And so 100% ownership there allows total alignment of incentives, of time horizon, of integration and efficiency of operations if you can do things at a greater scale rather than it's 2 different entities.

[Operator]

Our next question is from Marvin Fong with BTIG.

[Marvin Fong, analyst]

Great. A question on the new Sell My Car products. So from CarGurus' standpoint, do you guys have like a different margin profile between the IMCO matrix driven way, which I think is kind of a transaction fee basis versus what sounds like a subscription model for the -- for sort of like the in-store drop-off? So do you guys have a preference?

And sort of a second part of that question. So is there no arbitration risk if it's dropped off at the dealer? Is the dealer responsible for inspection and all that netting?

[Jason Trevisan, executive]

Sure. Thanks, Marvin, for the question. Yes, they're very different. So the Sell My Car top dealer offer is a subscription product. It is oriented around the leads that are driven to that dealer. And so it's extremely high margin similar to our listings business.

The Instant Max Cash Offer, as you know, is a gross revenue rev rec dynamic, and it's more a transaction fee based. I wouldn't say -- I wouldn't think of it as whether we have a preference. The preference is to give the consumer selection and convenience. And so we think we're doing that. And especially by giving them the 2 highest offers, the white glove highest offer and the local dealer highest offer, we're sort of doing most right by the consumer and giving the most control to dealers by allowing them to bid whatever they feel is appropriate to bid.

So we are very early days in Sell My Car. Really excited by it. And -- but it's -- I wouldn't try to compare the 2 because they are such different treatments, and it's really about giving the consumer and the dealer frankly, more options.

[Marvin Fong, analyst]

Understood. And maybe a follow-up question. I mean I guess to tackle a different topic. I mean we'd like to hear that both -- or the U.K. is not profitable, I think Canada as well. You guys obviously narrowed your focus a couple of years ago. I mean would you entertain expanding internationally again? Or do you feel like you have enough on your fleet?

[Jason Trevisan, executive]

That's not on the short list of our priorities right now. We think there's so much opportunity in our expansion to move into supporting all the transaction types that you're hearing us roll out now that, that's where our focus is. And by the way, doing that in Canada and the U.K. as well, where we're bringing modified versions there of the things that we're doing here, and that's a small reason that those companies or those countries rather achieving the success that they are, but it's certainly a contributing factor.

There's just a lot of runway in those countries, even with our existing model. And as we get more scale, then that gives us a little more pricing power, but also more brand recognition and more dealer customer satisfaction.

[Operator]

Our next question is from John Colantuoni with Jefferies.

[Vincent Kardos, analyst]

This is Vincent Kardos on for John at Jefferies. Maybe first question, talk about Digital Deal a little bit. You've talked a lot about the 2x conversion on these and then 5x conversion on leads that dealers see a bit further down the funnel. Can you talk a little bit about the features that make that product such a great tool for converted leads? And then whether 2x is kind of about where you'd expect the conversion to stick around that long term? Or if there product enhancements or new features or ways to channel in more down to the leads that could push that multiple higher over time?

[Jason Trevisan, executive]

Sure. Thanks for the question. I think, Vincent was your name, you cut out there for your name. But -- so yes, we've given a [ 2 to 5x times ] higher conversion rate data point on Digital Deal. And that range has -- it reflects that a user can do different aspects in the Digital Deal funnel. So for example, if they do simply a prequalification, financing prequalification, then that may only increase their close rate at the lower end of that.

But as they start to do some or all of things like getting a trade-in appraisal or do setting up an appointment or if they do a hard pull on financing to get actual penny perfect deals or if they put down a deposit, with each of those items, you're getting just so much further and further down the funnel and ready to purchase that those conversion rates get to the higher end, and in some cases, with some combinations at some of the best run dealers, they're getting just phenomenal close rates.

And so what we're pushing for as a company and within the Digital Deal product is giving the consumer and the dealer as much choice as they can. I mean, we talk about it as consumer who's sort of going down this path to buying a car, they can decide to pull on any of these levers that they like and then they can decide to get off the highway and go into the dealer at any point that they'd like and give them that selection.

So they don't feel as if they're boxed in to doing all of it online or if they're boxed in to not doing any of it online. So to summarize, it's different elements in different combinations and given the skill set of the dealership that will drive the close rate improvement.

[Operator]

And our next question is from Jed Kelly with Oppenheimer.

[Jed Kelly, analyst]

Great. Just 2, if I may. Can you talk about how you view higher interest rates? And do you see this as an ability to gain more share? And then just on the subscription for the top dealer offer. Do you potentially see that evolving into more of a transactional pay by lead product as that product gains more scale?

[Jason Trevisan, executive]

Thanks, Jed. I'll take the first, and Sam, if you want to take the second. So yes. I mean interest -- very high interest rates. I was reading this morning that the average interest rate right now in auto loons is 16%. It's incredibly high. Car payments are incredibly high.

We are seeing more searches for lower-priced cars as a result. We're seeing more searches that are predicated on payment rather than total price of the car or even type of the car. And so we're absolutely seeing how the consumer behavior is changing because of it. And dealers who tend to stock lower-priced cars are seeing much faster lead growth in our platform than dealers who stock higher-priced cars.

So I think any time a consumer has new search criteria or is going to have a harder time finding the car that's right for them, it gives us an opportunity to get more share because we strongly believe we're the most transparent marketplace available to consumers.

And as we give consumers the ability to do a pre-qual or to do a hard pole or to get a near penny perfect deal or to get a trade-in offer, then we're also going to be much more valuable to dealers because they're not going to get people coming in who are excited about a car only to learn that they can't afford it.

So I do think that our transparency and the features that we have on our site, Digital Deal will be a great example, gives us an opportunity to really shine in periods where consumers are much more sensitive to their payments. Also, it's -- because of our freemium model, we have the most inventory on our site. And by having the most inventory, it allows consumers more optionality as they search for lower-priced cars in this case.

[Samuel Zales, executive]

Jed, I'll jump in on the second one, which is a good question about Sell My Car as a subscription business versus anything like a pay-per-lead business. We went to market after customers asked us to build this product and built it in pilot phase and then came to market through testing and trial and obviously now in 18 regions.

This explicit feedback from dealers is I've got a budget. I want to set a budget. I want to look at my budget and manage it over time. And if it were on a pay per lead basis, that wouldn't be too variable for me. I don't -- I can't control when it goes up or down over time.

Instead, what they're doing with us is paying a subscription for a block of those opportunities. So being able to say, I'm going to buy a block of 100 of those leads, that gives me an opportunity to manage my budget. Fortunately, right now, we're at such a mode where consumers are buying into the Sell My Car top dealer offer, and more -- we have more demand from a consumer side than we expected to have. So now we can go out to dealers and say, buy a second block, buy a third block. But they're able to manage that in a budgeted way as opposed to as a variable on a per lead basis. So they preferred that.

And for us, it's terrific because it's a -- it's a predictable subscription with monthly recurring revenue, which runs at a margin and more like our core listings business. We're also selling to the same customer, which is wonderful. We're going out to the marketing leader who's saying -- or the General Manager of a store saying, I want to buy -- I want leads for buyers, I'd love leads for sellers from consumers. So I get more inventory. I can sell that at retail. And I own the budget for marketing to go acquire those customers. So it's a perfect win-win for our business. We're really proud of this new product we launched recently.

[Operator]

We have reached the end of our question-and-answer session. I would like to turn the call back over to Jason for closing remarks.

[Jason Trevisan, executive]

Thank you. So I just want to thank everyone and thank our employees, certainly, as we did, thank our customers and our shareholders. Thanks for your -- we appreciate your interest, and we hope you are -- we hope you share our enthusiasm for our momentum in our core business and innovation on all these new products. Have a great evening, everyone.

[Operator]

Thank you. This will conclude today's conference. You may disconnect your lines at this time. And thank you for your participation.