Cars.com Inc.

Good morning and welcome to the CARS third quarter 2022 earnings conference call. 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 November 17th. A copy of the accompanying slides can also be found on the company's Investor Relations website. I'd now like to turn the call over to Robin Moore-Randall, Director of Investor Relations.

Good morning, everyone, and thank you for joining us. It's my pleasure to welcome you to the CARS Third Quarter 2022 Conference Call. With me this morning are Alex Vetter, CEO, Sonya Jain, CFO, Jandy Tomey, Executive Vice President of Finance and Treasurer. Alex will start by discussing the business highlights from the third quarter, then Jandy will discuss our financial results in greater detail, and Sonya will provide an overview of our capital allocation priorities and our fourth quarter 2022 expectations. We'll finish the call with Q&A. 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 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 operating expenses, and free cash flow. Reconciliation 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 our presentation. Any forward-looking statements are subject to risks and uncertainties. For more information, please refer to the risk factors included in our SEC filings, including those in our most recently filed 10-K, which is available on the IR section of our website. We assume no obligation to update any forward-looking statements. Now, I'll turn the call over to Alex.

Thank you, Robin, and welcome to our third quarter 2022 earnings call. I'm pleased to report that we delivered another quarter of solid results in line with our guidance. We are well positioned to drive long-term sustainable growth as we empower the auto industry to shift to in-market digital solutions to better compete for auto sales, increase transaction efficiency, and optimize for profitability. Our third quarter revenue grew 5% year-over-year, and our adjusted EBITDA margin was 30%. This momentum was driven by growth in traffic, dealer customers, and increased adoption of our dealer-inspired and AccuTrade solutions. These drivers, combined with our strong free cash flow conversion, demonstrate the strength of our integrated platform strategy. We're particularly pleased with our steady and sustained performance in an operating environment that has been challenging for so many in our industry. Our dealer customer base remains healthy, and our retention rates and value delivery remain strong. Inventory levels are starting to recover, with daily average listings on our marketplace growing 11% year-over-year for new cars, and 9% for used. Despite increasing inventory, new car prices on our marketplace remain elevated at 14% higher than a year ago. Used car prices also remain high, but have declined 1% sequentially. With nearly 70 new car releases anticipated for 2023, we remain the optimal partner to support dealers and OEMs as they will need to invest more in digital marketing to target in-market shoppers and sell more cars. While inflationary pressures will continue to impact consumer spending, vehicle ownership is durable, as car owners rely on their vehicles to transport their families, commute to work, or for holiday travel. Whatever the reason, cars remain vital to the transportation needs of individuals as they go about their daily lives. Even as the country experiences a recessionary environment, we know the auto industry to be resilient. Most recently, in 2020, when the U.S. economy came to a halt for several months, car sales in the U.S. were still 52 million against a 30-year average of 54 million a year. The Cars.com marketplace is essential for the buying and selling of cars. With over 27 million monthly unique visitors, we have an audience to match buyers and sellers at scale. We are pleased that this quarter we continue to expand our audience with 12% growth in unique visitors and 6% growth in total visits on a year-over-year basis. Dealers derive value not only from the strength of our traffic, but also from our portfolio of solutions. We grew our customer base to 19,585, an increase of 556 compared to last year, and an increase of 68 from the second quarter, supported by strong retention. Even in a challenging advertising environment, ARPD was strong at $2,334. We continue to expand our website business as nearly every OEM has selected us as a certified partner, which enables us to further add new dealers to our platform. As a result, our website customers grew to 5,900 at quarter end. We are also expanding our solution strategy with additional end-to-end platform capabilities. With our acquisition of Credit IQ, we are expanding into the multibillion-dollar auto finance market, which enhances our platform as car shoppers can now better understand what they can afford and have the ability to complete more of the transaction online. Our solution also provides dealers and lenders with a source of high-quality financing leads while strengthening attribution to our marketplace. Our large in-market audience and low-funnel shoppers are attracting leading financial institutions into our network. These additions, coupled with our increasing dealer adoption, are key to driving our flywheel and furthering our platform advantage. One of the highlights of the quarter was the significant ramp up and rollout of Accutrade. This solution drives operational efficiency in the vehicle acquisition process for dealers, while also delivering a more transparent vehicle valuation process for consumers. I'm pleased to report that at the end of the quarter, we had over 400 dealers on our connected platform, and we continue to sell and scale this offering. There are approximately 25 million vehicle acquisition opportunities that we can help dealerships facilitate each year. Our AccuTrade technology enables dealers to efficiently value and acquire inventory in both abundant or lean inventory environments. Trade-ins are a complicated yet critical process for dealers, as nearly half of all vehicle sales have a trade-in attached to the sale. However, the physical appraisal process is outdated and inconsistent, resulting in long wait times and highly subjective valuations. Typically, the dealership has an individual who's in charge of appraising all trade-ins, which on average can take up to an hour per vehicle, creating a bottleneck in the store and slowing the transaction process for both consumers and dealers. Accutrade's proprietary VIN-specific valuation and appraisal technology provides full transparency on vehicle valuation and delivers highly accurate appraisal reports, leveraging real-time market data in just minutes. Because Accutrade is so easy to use, it empowers more of the dealership staff to provide accurate appraisals, improving the overall dealership operation while creating a better and more efficient experience for the consumer. This is the experience for Joel Bassam, president of Eastern's Automotive Group, based in Washington, D.C. He leverages our Accutrade trade appraisal technology and appreciates the efficiency it provides. Joel says, and I quote, before using Accutrade, it would take up to an hour to appraise each vehicle, and now it takes as little as 15 minutes. With more than 1,800 vehicles appraised this quarter, this is a meaningful savings, cutting into our time spent by 75%. We recently adjusted our trade-in process onto Accutrade 100%, expanding the technology to all eight of our stores. As evidenced by Joel, using our digital solutions is a game changer. To strengthen our platform advantage, in August, we rolled out Instant Offer on Cars.com, which empowers private sellers to confidently receive a competitive cash offer based on real-time data in minutes. This gives the dealers additional access to buying opportunities from private sellers via cars.com. They can also give consumers guaranteed offers from their own website using Accutrade. We are just getting started on finding more ways to help dealers buy cars and are excited about the disruption we're driving as the auto industry shifts towards speed, accuracy, and efficiency through tech. In summary, our industry-leading brand, our high-value organic traffic, and our integrated platform of dealer-friendly solutions, coupled with the resilience of the auto industry, position us to drive growth and generate strong, free cash flow. Now, I'd like to officially welcome back Sonia and thank Jandy for her leadership as interim CFO. I'm thrilled that both will continue to play integral roles in our organization. Jandy will first discuss our third quarter financial results in greater detail, And then Sonya will provide details on our capital allocation priorities and review our fourth quarter expectations. Jandy.