Cars.com Inc.

Good morning and welcome to the cars.com fourth quarter 2020 earnings conference call. Hosting the call this morning is Alex Vedder, Chief Executive Officer, and Sonia Jean, Chief Financial Officer. This call is being recorded and a live webcast can be found at investor.cars.com. A replay of the webcast will be available until March 11th. A copy of the accompanying slides can also be found on the company's investor site. Following today's presentation, there will be a question and answer session with Alex and Sonia. I'd now like to turn the call over to Jandy Tomey, Treasurer.

Good morning, everyone, and welcome to our fourth quarter and full year 2020 conference call. Before I turn the call over to Alex, I'd like to draw your attention to our forward-looking statements and the description and definition of our non-GAAP financial measures, which can be found in our presentation. We will be discussing certain non-GAAP financial measures today, including adjusted EBITDA, adjusted EBITDA margin, adjusted net income, and free cash flow. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measure can be found in the financial tables included with our earnings press release and in the appendix of the presentation. For more information, please refer to the risk factors included in our SEC filings, including those in our annual, quarterly, and current reports. We assume no obligation to update any forward-looking statements or information as of their respective dates. At this time, I would like to turn the call over to Alex.

Good morning, everyone, and welcome to our conference call for the fourth quarter and full year of 2020. On today's call, I'll be discussing business highlights from our year and fourth quarter and provide an overview of the expectations and priorities for 2021. I'll then hand the call over to Sonia, who will discuss our financial results in greater detail. Cars delivered impressive results in 2020. Despite the pandemic, we grew ARPD for the second consecutive quarter and grew dealer customers in three out of four quarters this past year, all while reaching record levels of traffic and lead generation. Our performance resulted in a return to year-over-year revenue growth in the fourth quarter. In 2020, our team also maintained strict spending discipline and continued to invest strategically in the business, driving incredibly strong quarterly and annual adjusted EBITDA and cash flow. In a subscription business like ours, it's important to remember how impactful a strong year-end exit rate is and how well it positions us as we enter 2021. The accelerated adoption of digital products and solutions by our dealer customers has been core to our success. Until 2020, many dealers were reluctant to fully embrace a digital-first strategy. The pandemic accelerated car dealers' adoption of digital tools, and we have seen a marked increase in dealers subscribing to our digital solutions. And we expect the trend that emerged from the stay-at-home economy to endure. Despite signs that the stay-at-home requirements are subsiding, The preference for cars is a mode of transportation and car ownership persists. And consumers are appreciating the convenience of shopping when, where, and how they want. Not only are dealers embracing technology to meet the changing expectations of car shoppers, but they are also finding meaningful efficiencies in their businesses. Today, the showroom is both physical and digital. The range of car solutions are perfect to satisfy traditional showroom sales and and also equip dealers to meet the demand for digital retail as a strategic imperative. Marketplaces like Cars.com are and will continue to be vital to the success of dealers because we are a valuable platform for attracting in-market shoppers and sales at scale. During the severe restrictions over the past year, consumers flocked to our platform to research, shop, and connect with local dealers online. We responded by creating tools for dealers to more effectively showcase their services and available inventory. Our home delivery and online shopping badges, which identify the dealers who offer these services, have seen incredible adoption since they were launched. In fact, we have badged nearly 20 million vehicles to date. We also saw a material increase in the number of customers leveraging our car's social and fuel products as dealers seek to connect with our targeted in-market car shopping audience. The Cars.com marketplace has a unique advantage in its ability to efficiently drive high-quality in-market traffic. Today, we generate over two-thirds of our traffic from organic sources, which allow us to balance and control our marketing spend while providing a unique audience to our clients. Cars.com attracts a high volume of quality, direct traffic driven by the industry's number one brand, most popular mobile app, incredible editorial content, ratings, and reviews. Our industry-leading editorial content is an important sustainable advantage and differentiator for our consumer experience and another lever supporting our organic traffic. For example, this month we've been announcing our annual Best of Awards, which reveal the best cars in five categories. This unique content initiative continues to win favor from consumers and drives new visitors to the site. The industry also recognizes our authority, even showcasing our awards in their own advertising and press. Just in the last two weeks, both Volkswagen and Hyundai issued press releases publicizing the Best Family Vehicle and the Best Value Vehicle awards they received from our editorial staff, a demonstration of how impactful it is to earn credible third-party validation for their vehicles. In 2020, organic traffic grew 10% and mobile traffic grew 12% year over year, demonstrating the increasing strength of our brand and the shift towards online car shopping. Our organic traffic, coupled with a surge in online activity and a more favorable SEM pricing environment, led to our ability to reduce our year-over-year marketing investments while still achieving growth. Despite materially reduced investment, particularly in the second and third quarters, Cars.com posted record traffic and lead numbers in 2020. Traffic and unique visitors were up 8% and 5% year-over-year respectively, and leads were up 13% year-over-year. While traffic is an important measure of performance, we are ultimately focused on delivering high-quality connections to our dealers in an effort to maximize their ROI, traffic and leads that are more likely to translate into sales. Another metric that has been increasing in importance is website referral traffic, which represents the consumers who start shopping on a marketplace like Cars.com and then click through to the dealer's website. Dealers consistently cite leads from their own website as converting at the highest level. Data from thousands of website customers last year show that Cars.com sent three times more ready-to-buy car shoppers to dealer websites than compared to its nearest third-party marketplace competitors. In addition, these Cars.com shoppers purchase cars from those dealers at twice the rate of those who solely visit a dealer website. As dealers are increasingly focused on digital metrics, the strength of our referral traffic helps demonstrate our platform strength and quality attribution, leading to our record retention rates. Unlike our competition, we don't need to spend nearly as much in traffic acquisition because our brand and original content drives the vast majority of our traffic. In 2020, 73% of our traffic was generated by organic channels. With our value building and the strength of our year-to-date traffic and leads, in the fourth quarter, we prioritize longer-term investments into our brand to continue to ensure its number one position in long-term health. Those investments coupled with the strength of our audience and value delivery to our dealers is reflected in the strong retention rates and growth in our dealer customers in the second half of this year. We grew our dealer customers by over 300 dealers in the second half of 2020 and nearly half of this growth was from marketplace. We are experiencing record high customer retention rates and that momentum continues into the first quarter of 2021. Our differentiated digital solution strategy played a key role in facilitating auto sales for our customers, as dealers embraced online shop selling and virtual tools to engage with consumers. Our tools allowed dealers to compete virtually and supported increased and more efficient sales. Dealers have been able to continue to leverage some of these operational efficiencies, even as restrictions ease, enabling them to reach new levels of profitabilities. Dealers leverage our digital solutions to have more touch points with consumers in their car buying experience. Today, we power 4,400 dealer websites, having added 1,200 new website customers in 2020. Online shopper and conversations penetration rates also have grown from 14 and 25% last year to 20 and 27% at the end of 2020. Keep in mind, these penetration rates are on top of a growing base of website customers. We expect to see growth as we continue to deliver on other business in our pipeline, as well as complete the initial launch of the GM websites in 2021. We also see an opportunity to help dealers leverage digital advertising to sell more cars. In the fourth quarter, we announced that Ford Direct selected Dealer Inspire as a preferred digital advertising provider for its US Ford dealerships. These dealers now have access to Dealer Inspire's full suite of connected digital marketing services, via our proprietary ad tech platform and advanced reporting technology, PRISM. Fuel is another market-driving solution for dealers that has gained incredible traction since we first announced the launch of this product just one year ago. It continues to be the fastest-growing new product in cars' history. Fuel is a unique, high ROI, targeted video advertising solution that generates higher returns, than expensive, dated, and wasteful traditional PV model on which the auto industry spends approximately $10 billion a year. Because such a small fraction of the U.S. population is actively shopping for a car at any given time, Fuel empowers dealerships to reach and advertise purely to in-market car shoppers by leveraging the power of Cars.com's unique in-market audience. Fuel customers see twice the average click-through rate compared to industry averages. and our dealers are seeing benefits of how efficiently Fuel targets in-market car shoppers. In fact, one of our Fuel customers, the GM of Regional Hyundai in Broken Arrow, Oklahoma, recently said, quote, if I was told I had to cancel every marketing tool I have and only keep one, Fuel would be it. After just one year, Fuel has been adopted by the most progressive dealers in the country, and there's a lot more opportunity for further penetration into the zip codes within each market on an exclusive geographic basis. Fuel is ARPD accredited and only available to existing marketplace customers. Now, turning to the automotive environment. In terms of used cars, prices remain high and strong demand on leading new car inventory is strengthening dealer margins. Retail sales continue to show strength in both new and used car markets. December SAR was $16.3 million and the fourth best December for sales. OEM incentives were down over 8% in December and more than 7% for the quarter, further demonstrating the strength of the market driven by consumer demand and tight inventory. Turning to our national business, while revenue was down 9% on a year-over-year basis, we have seen consecutive quarters of revenue improvement in the second half of 2020. Fourth quarter revenue surpassed our first quarter revenue, and we are pleased to see signs of stabilization after weathering the challenges of COVID-19. In addition, we've seen continued traction and interest among auto adjacent customers, as well as with the tier two associations that are looking to access in-market car shoppers. These continue to be promising opportunities for us and help further diversify our revenue. Over the last two quarters, we have more overtly discussed our company's DEI actions and our efforts to drive representation in the auto industry. Of all of the franchise dealers in the United States, just over 1,200 are minority-owned and 265 are block-owned. In the fourth quarter, we partnered with Facebook to conduct a trial leveraging our social selling solutions for more than 200 members of the National Association of Minority Automobile Dealers, MAMAD. We also held digital advertising, selling, and education sessions to provide them with the information, solutions, and technology to better compete. CARS is also a longtime supporter of the Women in Automotive organization. Just 18% of auto dealers are women, and women of color represent only 6% of the industry workforce. We are proud to have one of the most diverse executive teams and companies in our industry, with 46% of CARS employees identifying as female and 23% identifying as racially or ethnically diverse. And while this significantly outpaces the industry, we know we can and will do more In 2021, we will continue to focus on DEI, reflecting the important role these actions play in maintaining CAR's strong corporate culture and ensuring we retain the industry's best and brightest talent. Additionally, each of our executive team members' compensation will now be linked to DEI. We will also continue to build stronger policies and provide more public disclosures of our company's progress on DEI and other social and environmental factors, most directly related to our industry and our business. Entering 2021, we have an improved competitive position. We have deep and high-value relationships with our dealers, a compelling product portfolio, a massive in-market audience driven by our brand, and a very strong financial position as a result of the actions we took during 2020. Despite the challenges we faced last year, we delivered year-over-year revenue growth in the fourth quarter, strong adjusted EBITDA, and cash flows. and we have a capital structure that gives us flexibility to invest in the business and pursue inorganic growth. We've grown dealer customers in both January and February, giving us strong momentum for the first quarter of this year. Our strategy remains focused on empowering consumers with unique content, data, and information they need to make informed car buying decisions and supporting our customers with efficient digital solutions that drive high-quality consumer audiences and increase sales conversions. further cementing our unique value and differentiation in the market. At this time, I'd like to turn the call over to Sonia to discuss our financial results for the fourth quarter, full year 2020, and additional details around our 2021 outlook, assumptions, and key drivers. Sonia?