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Acquisitions | 9 Months Ended
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Sep. 30, 2021
Business Combinations [Abstract] |
Acquisitions | 4. Acquisitions On January 14, 2021, the Company acquired a 51% interest in CarOffer, which provides an automated instant vehicle trade platform and is based in Addison, Texas, pursuant to the terms of a Membership Interest Purchase Agreement (the “Purchase Agreement”) dated as of December 9, 2020 (the “Agreement Date”), as amended, by and among the Company, CarOffer, CarOffer Investors Holding, LLC, a Delaware limited liability company (“TopCo”), each of the Members of TopCo (the “Members”), and Bruce T. Thompson, an individual residing in Texas (the “Members’ Representative”). This acquisition (the “CarOffer Acquisition”) is intended to add wholesale vehicle purchasing and selling capabilities to CarGurus’ portfolio of dealer offerings and create a complete and efficient digital solution for dealers to sell and acquire vehicles at both retail and wholesale. Upon consummation of the transactions contemplated by the Purchase Agreement (the “Closing”), the Company acquired a 51% interest in CarOffer for an aggregate consideration of $173,155 (the “Total Consideration”), such Total Consideration consisting of (a) shares of Class A common stock in the aggregate amount of $103,645 (the “Stock Consideration”) and (b) $69,510 in cash (the “Cash Consideration”). The number of shares of Class A common stock issued following the Closing in connection with the Stock Consideration was 3,115,282, which was calculated by reference to a value of $22.51 per share, which equals the volume-weighted average closing price per share of Class A common stock on the Nasdaq Stock Market for the 28 consecutive trading days ending on the third Business Day (as defined in the Purchase Agreement) preceding the Agreement Date. Pursuant to the Purchase Agreement, the remaining equity in CarOffer (the “Remaining Equity”) is being retained by the then-current equity holders of CarOffer and subject to certain call and put arrangements discussed below. Pursuant to the Purchase Agreement, the Company established a retention pool in an aggregate amount of $8,000 in the form of RSUs to be issued pursuant to the Company’s standard form of RSU agreement under the 2017 Plan, (i) $6,000 of which was granted to certain CarOffer employees following the Closing in accordance with the terms of the Purchase Agreement and (ii) $2,000 of which is available for issuance to future CarOffer employees in accordance with the terms of the Purchase Agreement. RSUs issued from the retention pool will be subject to vesting based on rendering of future services. As of September 30, 2021, the Company incurred total acquisition-related costs of $2,647 related to the CarOffer Acquisition, of which $709 was incurred during the nine months ended September 30, 2021 and recorded as general and administrative operating expenses within the Unaudited Condensed Consolidated Income Statements. There were no acquisition-related costs incurred during the three months ended September 30, 2021. Acquisition-related costs were excluded from the purchase price allocation as they were primarily comprised of legal, professional and consulting expenses. The following table presents the total consideration transferred.
|  | Consideration Transferred |
Cash paid, net of cash acquired |  | $ | 64,273 |
Cash acquired |  |  | 5,237 |
Cash consideration |  |  | 69,510 |
Stock consideration |  |  | 103,645 |
Total consideration transferred |  | $ | 173,155 |
The CarOffer Acquisition has been accounted for as a business combination under the acquisition method and, accordingly, the total consideration is allocated to the acquired assets and assumed liabilities. The Company’s 51% interest in CarOffer represents a controlling financial interest in the entity as the minority interest holders only have protective rights such that CarOffer is consolidated as of the date of Closing. The following table presents the preliminary purchase price allocation recorded in the Company’s Unaudited Condensed Consolidated Balance Sheet as of the date of Closing, which is subject to finalization for estimates of the fair value of assets acquired and liabilities assumed as of the date of Closing, including, but not limited to tangible assets, intangible assets and tax-related items, and the related tax effects of any changes made:
|  | Adjusted Fair Value at Date of Acquisition |
Cash and cash equivalents |  | $ | 5,237 |
Accounts receivable |  |  | 16,119 |
Inventory |  |  | 2,338 |
Prepaid expenses, prepaid income taxes and other current assets |  |  | 95 |
Property and equipment, net |  |  | 198 |
Intangible assets (1) |  |  | 104,100 |
Goodwill (2) |  |  | 127,500 |
Operating lease right-of-use assets |  |  | 709 |
Accounts payable |  |  | (8,888 | )
Accrued expenses, accrued income taxes, and other current liabilities |  |  | (15,513 | )
Operating lease liabilities - current |  |  | (230 | )
Operating lease liabilities - non-current |  |  | (479 | )
Redeemable noncontrolling interest (3) |  |  | (58,031 | )
Total consideration transferred |  | $ | 173,155 |
(1) Identifiable definite-lived intangible assets were comprised of developed technology, brand, and customer relationships of $63,000, $23,100, and $18,000, respectively, with estimated useful lives of 3 years, 11 years, and 3 years, respectively, which will be amortized on a straight-line basis over their estimated useful lives. The fair value of the developed technology has been estimated using the multi-period excess earnings method which is a variation of the income approach. The fair value of the brand and customer relationships has been estimated using the relief from royalty method and the with/without approach, respectively. (2) Goodwill represents the excess value of the purchase price over net assets acquired, primarily attributable to adding wholesale vehicle acquisition and selling capabilities to CarGurus’ portfolio of dealer offerings. All goodwill is assigned to the United States reporting segment. For tax purposes, $28,991 of the goodwill is deductible under IRC Section 197 upon finalization of the transaction cost study. In connection with the transaction, the Company accelerated certain stock options deemed to be outside of consideration transferred. Therefore, the Company recognized an additional $1,229 of stock-based compensation expense during the nine months ended September 30, 2021. (3) The fair value of the redeemable noncontrolling interest has been estimated using the Least Square Monte Carlo Simulation approach. Significant inputs include market price of risk, volatility, correlation and risk-free rate. In addition, the Company, TopCo, each Member and CarOffer MidCo, LLC, a Delaware limited liability company, entered into the Second Amended and Restated Limited Liability Company Agreement, dated as of December 9, 2020 (the “CarOffer Operating Agreement”), pursuant to which, among other matters, the Company secured the right to appoint a majority of the members of the Board of Managers of CarOffer, other rights customary for a transaction of this nature and the put and call rights described below. In the second half of 2022, the Company will have a call right (the “2022 Call Right”), exercisable in its sole discretion, to acquire a portion of the Remaining Equity representing up to twenty-five percent (25%) of the fully diluted capitalization of CarOffer (such acquired Remaining Equity, the “2022 Acquired Remaining Equity”) at an implied CarOffer value (the “2022 Call Right Value”) of seven (7) times CarOffer’s trailing twelve months gross profit as of June 30, 2022 (calculated in accordance with the defined terms and subject to the adjustments set forth in the CarOffer Operating Agreement). If the 2022 Call Right is exercised by the Company, the 2022 Acquired Remaining Equity will be purchased ratably across all of the holders of CarOffer equity securities other than the Company. The consideration to be paid by the Company in connection with the exercise of the 2022 Call Right will be in the form of cash and/or shares of Class A common stock, as determined by the Company in its sole discretion. In the second half of 2024, (a) the Company will have a call right (the “2024 Call Right”), exercisable in its sole discretion, to acquire all, and not less than all, of the Remaining Equity that it has not acquired pursuant to the 2022 Call Right and the Closing, at the greater of (i) (x) one hundred million dollars ($100,000,000), and (y) the 2022 Call Right Value, whichever is less, and (ii) an implied CarOffer value of twelve (12) times CarOffer’s trailing twelve months EBITDA as of June 30, 2024 (in each case calculated in accordance with the defined terms and subject to the adjustments set forth in the CarOffer Operating Agreement), and (b) the representative of the holders of the Remaining Equity will have a put right (the “2024 Put Right”), exercisable in his, her or their sole discretion, to have the holders of the Remaining Equity sell to the Company, all, and not less than all, of the Remaining Equity at an implied CarOffer value of twelve (12) times CarOffer’s trailing twelve months EBITDA as of June 30, 2024 (calculated in accordance with the defined terms and subject to the adjustments set forth in the CarOffer Operating Agreement). The determination of whether the 2024 Call Right or the 2024 Put Right is ultimately exercised is as set forth in the CarOffer Operating Agreement. The consideration to be paid by the Company in connection with the exercise of either the 2024 Call Right or the 2024 Put Right, as applicable, will be in the form of cash and/or shares of Class A common stock, as determined by the Company in its sole discretion. The foregoing summary of the Purchase Agreement, the CarOffer Operating Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Purchase Agreement and the CarOffer Operating Agreement, which are filed as exhibits to the Annual Report. The following unaudited pro forma consolidated financial information combines the unaudited results of the Company for the three and nine months ended September 30, 2021 and 2020 and the unaudited results of CarOffer for the three and nine months ended September 30, 2021 and 2020, and assumes that the CarOffer Acquisition, which closed on January 14, 2021, was completed on January 1, 2020 (the first day of fiscal year 2020). The pro forma consolidated financial information has been calculated after applying the Company’s accounting policies and includes adjustments for amortization expense of acquired intangible assets, transaction-related costs, and compensation expense for ongoing share-based compensation arrangements replaced, together with the consequential tax effects. These pro forma results have been prepared for comparative purposes only and do not purport to be indicative of the operating results of the Company that would have been achieved had the CarOffer Acquisition actually taken place on January 1, 2020. In addition, these results are not intended to be a projection of future results and do not reflect events that may occur after September 30, 2021, including, but not limited to revenue enhancements, cost savings or operating synergies that the combined Company may achieve as a result of the CarOffer Acquisition.
|  | Three Months Ended September 30, |  |  | Nine Months Ended September 30, |
|  | 2021 |  |  | 2020 |  |  | 2021 |  |  | 2020 |
Revenue |  | $ | 222,915 |  |  | $ | 147,472 |  |  | $ | 614,970 |  |  | $ | 409,007 |
Consolidated net income (1) |  | $ | 29,267 |  |  | $ | 26,487 |  |  | $ | 75,897 |  |  | $ | 20,965 |
(1) For the three months ended September 30, 2021, pro forma consolidated net income includes $7,286 and $1,083 related to intangibles amortization and stock-based compensation for CarOffer, respectively. For the three months ended September 30, 2020, pro forma consolidated net income includes $7,275 and $1,083 related to intangibles amortization and stock-based compensation for CarOffer, respectively. For the nine months ended September 30, 2021, pro forma consolidated net income includes $21,836 and $9,813 related to intangibles amortization and stock-based compensation for CarOffer, respectively. For the nine months ended September 30, 2020, pro forma consolidated net income includes $21,825 and $9,628 related to intangibles amortization and stock-based compensation for CarOffer, respectively. $62,992 of revenue and $178 of net income attributable to CarOffer is included in our Unaudited Condensed Consolidated Income Statement for the three months ended September 30, 2021. $135,847 of revenue and $8,912 of net loss attributable to CarOffer is included in our Unaudited Condensed Consolidated Income Statement from the Closing date of January 14, 2021 to September 30, 2021.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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