Cars.com Inc.

team is working hard to accelerate penetration of these valuable subscription products. Moving to media products, VIN performance media is also off to a promising start, with early adopters seeing significant increases in leads, interaction, and website transfers for their promoted inventory. Our proprietary machine learning model, when matched against our in-market audience, not only promotes the right VIN to the right shopper across media channels, but also powers in-demand features like targeting advertising to move aged inventory. And finally, I'd like to highlight the Q1 performance of our number one most recognized marketplace brand, Cars.com, which consistently delivers a large and engaged in-market audience to dealers and OEMs. More than 28 million average monthly shoppers visited Cars.com during the first quarter to research and shop for the right vehicle. Consumers trust and rely on our unique resource they find on our marketplace, like our new affordability report, to steer them to the best vehicle for their budget and lifestyle. They also increasingly use tools like Gear Garage and the new Car Hub, which continue to drive strong repeat traffic to our marketplace, keeping us connected to consumers through their car ownership journey. Building strong organic relationships with consumers has been an enduring hallmark of Cars.com for over 25 years, and we're committed to delivering more innovative content and technology to capture in-market audiences at scale. In closing, focusing on our platform strategy helped us advance our product roadmap, accelerate to high single-digit revenue growth, and meaningfully improve profitability in the first quarter. Our strategy is working as intended, propelling sustainable growth with a durable and well-rounded product portfolio that addresses our customers' most pressing needs. We have immense opportunities ahead, and we're excited to show you what we think this business can do as we simplify car buying and selling for everyone. Now, Sonia will lead the discussion of our first quarter financial results. Sonia?

Thank you, Alex. We started the year on strong footing, delivering solid revenue growth and an adjusted EBITDA margin that exceeded our guidance range. Revenue was slightly above $180 million in the first quarter, an 8% increase over the prior year, and the best quarterly growth we've seen in over two years. Both dealer revenue and OEM and national revenue were up year over year across all product categories. Dealer revenue grew 8% year over year to $162 million, driven by contributions from repackaging, the acquisition and continued growth of D2C, and continued product penetration. OEM and national revenue was $15 million, up 13% compared to the prior year. We benefited from additional OEM investment as they seek to raise consumer awareness amid rising inventory levels. Now turning to expenses. For the quarter, total operating expenses were $167 million compared to $155 million a year ago. Product and technology expenditures increased $4 million year over year as we enhanced marketplace features, further augmented our product portfolio, and invested in our back-end systems. As a reminder, unlike the earnouts associated with our other acquisitions, the D2C earnout runs primarily through G&A, as it was deemed compensation expense under GAAP. And in the period, we expense $2.8 million associated with the earnout. Adjusted operating expenses were $155 million, $9 million higher than the same period last year, primarily related to the aforementioned investments in technical talent and software to support our platform and product roadmap. and a $3 million increase in depreciation and amortization. Net income for the first quarter was $0.8 million, or one cent per diluted share, compared to $11.5 million, or 17 cents per diluted share, in the prior year. The change in net income is primarily attributable to earn-outs associated with our acquisition. I'll also note, in our comparison, net income in Q1 2023 was elevated due to the outsized change in the fair value contingent consideration of our acquisitions. Meanwhile, adjusted net income for the quarter was $28.7 million, or 43 cents per diluted share, compared to $26.2 million, or 39 cents per diluted share, a year ago. Adjusted EBITDA for the first quarter was $53 million, while adjusted EBITDA margin of 29.2% exceeded our guidance range. we're pleased with our year-over-year margin expansion of 270 basis points, which resulted from the strong flow-through of nearly two-thirds of our revenue growth to adjusted EBITDA. Moving to key metrics for Q1, we ended the quarter with 19,381 total customers, down slightly quarter-over-quarter due to what we believe are temporary budget cuts by some dealers in response to declining profitability. Nevertheless, we expect to grow full-year dealer count as we work to win back these customers and expand into new accounts based on our strong value proposition. Unit economics continued to strengthen as ARPD reached $2,505 for the first quarter, up 5% year-over-year from positive repackaging contribution and AccuTrade growth, partially offset by lower ARPD from B2C customers. While AccuTrade customer satisfaction scores are strong, It does take time for dealers to implement and ramp utilization of the tool across their dealership. We're actively exploring ways to accelerate this learning curve over the next several quarters and believe it is a significant opportunity for us in the near future. And we do expect to keep growing our ARPD over time as we cross-sell additional products into existing accounts, sign up new customers in higher-tier marketplace packages, and improve overall retention through enhanced value delivery. Now turning to our balance sheet, net cash provided by operating activities totaled $33 million year-to-date. Free cash flow remained strong at $27 million, roughly $5 million higher year-over-year, driven primarily by improved adjusted EBITDA and favorable working capital, partially offset by one-time cash costs and timing of interest expense. During the first quarter, we repurchased 500,000 shares for $9.5 million, We also repaid $10 million of debt and reduced total debt outstanding to $480 million as of March 31, 2024. This brings our total net leverage to 2.2 times, down from 2.3 times last year, and comfortably within our target range of 2 to 2.5 times. Altogether, we have ample liquidity of $226 million, including $31 million of cash-in-cash equivalents and $195 million of revolver capacity as of March 31st, 2024. As discussed in our earnings release, we also recently amended our existing credit facility in a leveraged mutual transaction, replacing both our current term loan and revolving loan with a new $350 million revolver maturing in May, 2029. We borrowed $80 million on the new facility at closing effectively extinguishing outstanding balances on the current term and revolving loan, eliminating the need for any required amortization ahead of the maturity date. This all-revolver structure bolsters our financial flexibility, adding $75 million of incremental liquidity and allows us to pursue the best return on capital, whether through organic growth or additive acquisitions or separately through returning capital to shareholders. We enjoy strong free cash flow conversion and will look to deploy our capital in a manner that drives incremental shareholder value. Looking ahead, we will continue buybacks under our remaining share repurchase authorization of $110 million, and we will also remain committed to paying down our debt. In addition, we anticipate making additional earn-out payments in Q2 related to certain acquisitions. I'll now conclude with our guidance. In the second quarter of 2024, we expect to deliver revenue in the range of $181 to $183 million, or year-over-year growth of 7% to 9%. Guidance reflects continued strength in dealer revenue, driven by increased adoption of products like Dealer Inspire and Accutrade. OEM and national revenue growth is also expected to accelerate. benefiting from what we perceive as a more competitive sales environment that necessitates OEMs increasing their marketing and advertising directed to in-market shoppers. As a reminder, our Q2 revenue guidance also benefits from last year's repackaging initiative, which began in March of 2023. We expect to deliver second quarter adjusted EBITDA margins between 27.5% and 29.5%. an expansion of 150 basis points year over year at the midpoint of the range. This guidance reflects additional investments to support our marketplace brand and product development initiatives, as well as timing shifts of certain investments from the first quarter to the second quarter. For the year, we are reaffirming our guidance ranges of 6% to 8% revenue growth, as well as adjusted EBITDA margins between 28% to 30%. With a growing and differentiated product portfolio, efficient marketplace flywheel, which feeds our platform strategy, and asset-light business model, we are poised to deliver on our goals and look forward to updating you on our progress throughout the year. And with that, I'd like to open the call for Q&A. Operator?

We will now begin the question and answer session. Should you have a question, please press star followed by one on your touchstone phone. you will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press star followed by the two. If you're using a speakerphone, please lift the handset before pressing any keys. Your first question comes from the line of Rajat Gupta from JP Morgan. Your line is open.