Cars.com Inc.

Thank you very much. First, by adding current marketplace capabilities. This includes personalization, AI features like Carson and interconnected data insights between our products. For consumers, that means a more seamless and customized shopping experience when moving across cars.com and dealer-inspired websites. We will provide seekers with more options and choices for an interconnected marketplace experience. For dealers, aggregated consumer signals yield return leads and a distinct advantage to closing sales. These enhancements plus further technical and product investments slated for 2027 are expected to position our website's business for renewed growth. In summary, we have made solid progress to deliver our goals and objectives. Our 2026 financial performance have consistently met or exceeded guidance. Marketplace results are especially encouraging and reflect strong execution of our new strategy. Operating leverage is also improving via cost efficiencies, tighter internal processes, and a leaner yet more productive organization. And product green shoots are showing the untapped potential of an interconnected marketplace platform. I want to acknowledge the discipline, hard work, and focus of our team whose execution and collaboration has been instrumental to these initial successes. We are confident that these efforts will compound to drive long-term sustainable growth and shareholder value. Now Sonia will discuss our financial results and outlook. Sonia?

Thank you, Toby. Second quarter financial performance highlighted strong execution of our marketplace-first strategy and improved operating leverage across our business. Revenue of $179.9 million was up 1% year over year and within our guidance range. Dealer revenue growth was up 3% year over year and was slightly offset by the anticipated decline in OEM and national revenue, which was down 18% year over year. Within dealer revenue, robust marketplace growth more than offset flat-to-down performance for solutions and media products. ARPD and dealer count also broadly followed these same trends. Q2 ARPD of $2,500 was up 3% year-over-year and 1% quarter-over-quarter. Marketplace was the primary contributor to this year-over-year improvement, and we set a new record for marketplace-only ARPD during Q2. Premium Plus was up quarter over quarter and the fastest growing of our three marketplace packages, further supporting favorable pricing mix. We're making progress towards our stated 15% target adoption rate for 2026. However, lower uptake of add-on dealer media products remained a near-term headwind, partially offsetting gains from core marketplace adoption. Consolidated dealer count reflected similar puts and takes. Marketplace subscribers were up year over year and quarter over quarter. However, website units declined compared to a year ago, consistent with our view that future DI growth hinges on product innovation and packaging rather than unit volume expansion. Therefore, we're applying the same product-led approach that has worked well for Marketplace. Step one is bringing existing Marketplace capabilities to websites in Q3 and Q4, an efficient way to strengthen our focus on DI product innovations. As Toby also mentioned, we launched dealer-verified listings in June. This is an important first step as we integrate our product offerings to capture greater platform value, simplify go-to-market motions, and unlock new cross-selling opportunities. Dealer-verified listings are currently available to existing AccuTrade customers, and in Q4, we will begin expanding this feature to marketplace customers to drive further growth and adoption. As we migrate towards a more integrated marketplace and appraisal bundle, individual point sales of AccuTrade will become less relevant to our strategy. However, it's worth noting that AccuTrade subscribers were roughly flat sequentially in Q2, even as we retool our offering. Rounding out our revenue discussion, OEM and national revenue was down $3 million year over year in Q2. We signaled in May that this quarter would represent a trough in OEM revenue. Based on positive performance in July and incremental spend commitments for the remainder of the year, we anticipate quarter-over-quarter growth in Q3. Now to discuss cost. Second quarter operating expenses were $152.1 million, down 7% year-over-year. We drove operating leverage across the organization, maintaining strong cost discipline and a continued focus on process efficiencies. A meaningful decline in depreciation and amortization expense following the full amortization of customer lists tied to our 2017 spinoff, combined with lower compensation costs, accounted for the majority of the year-over-year delta. Q2 adjusted operating expenses were $144.3 million, down 6% year-over-year from the same cost levers. For the following line item detail, all comparisons are on a year-over-year basis unless otherwise noted. Product and technology expenses decreased $2.7 million on a reported basis and $2.5 million on an adjusted basis. Lower compensation expense related to streamlining our processes and improving interconnectivity and improvements in our capitalization rate drove both the reported and adjusted decrease. Marketing and sales increased roughly $2.7 million on both a reported and adjusted basis, largely driven by targeted marketing to prioritize value delivery. General and administrative expense was down $3.5 million on a reported basis and roughly $1 million on an adjusted basis. The reported decrease was primarily due to the elimination of the D2C earn-out expense accrual and lower compensation expense. As a reminder, the D2C earn-out is considered a special item and not included in adjusted operating expenses, which accounts for the delta between the decline in reported and adjusted G&A expenses. Second quarter net income was $14.3 million, or 25 cents per diluted share, compared to net income of $7 million, or 11 cents per diluted share, a year ago. Net income was primarily driven by improved operating income. Adjusted net income for the second quarter was $28.7 million, or 51 cents per diluted share, compared to $26.4 million, or 41 cents per diluted share, a year ago. Adjusted EBITDA of $53 million in the second quarter was up 4% year over year, healthily outpacing revenue growth and clearly showing the early impact of our process, cost, and organizational improvements. Adjusted EBITDA margin of 29.4% was up nearly 100 basis points year over year. Moving to the cash flow statement and balance sheet. Net cash provided by operating activities totaled $55.6 million for the first half of the year. Thank you for joining us. We are pacing well towards our 2026 share repurchase target of $90 million through opportunistic deployment of our free cash flow in the first half of 2026. Lastly, debt outstanding was $450 million as of June 30, 2026, which includes a $5 million debt payment during the second quarter. Total liquidity was $333.3 million as of June 30, 2026, and we have ample capacity for our capital allocation needs. Finally, we'll conclude with outlook. Third quarter revenue growth is expected to be flat to up 2% year over year, based on continued dealer revenue growth and marketplace improvement, and quarter over quarter improvement for OEM and national revenue. Third quarter adjusted EBITDA margin is expected to be between 28.5 and 29.5%, benefiting from continued cost and operational discipline. Lastly, We are also reaffirming our full year 2026 guidance of flat to 2% revenue growth and adjusted EBITDA margin of 29 to 30%.

And with that, I'd like to open the line for Q&A.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. And if you wish to ask a question, please press star and 1 on your telephone keypad and wait for your name to be announced. Once again, star and 1 if you wish to ask a question. Please limit your question to one question and one follow-up.

Please stand by while we compile the Q&A roster. Thank you for waiting.

We now take our first question. And this comes from Thomas White from DA Davidson. Your line is now open. Please go ahead.

Thank you. Good morning, guys. So I guess just first off, marketplace looks like a nice quarter there, 7% growth. I was hoping maybe you could just unpack a little bit more kind of the drivers there, you know, kind of between maybe some of the premium package adoption and Thanks for the question.

No, we're excited about the marketplace performance that we saw in Q2. I would say that it was driven by a combination of both improvements in dealer count, which really help accelerate the marketplace flywheel, and also the and continued progress on ARPD, a chunk of which was driven by the new premium plus package that we rolled out last year. We continue to see good adoption there. Our target as a reminder is to get to 15% penetration rate by the end of the year.

Okay, great.

So you called out growth in lead volume, but there's still a pretty sharp decline in uniques. Toby, maybe can you help us, or Sonia, help us reconcile that a little bit? It didn't sound like SEO headwinds for you kind of have gotten worse, although there's some other kind of internet marketplaces who are talking about that. So, I don't know, just help us kind of reconcile what's going on there with uniques and Eventually, I presume that that trend has to change, particularly if you're going to look to be adding more dealers to the marketplace.

Yeah, sure. As we laid out and shared, this is really an intentional shift. We looked at our marketing spend and our marketing practice, and we figured that there are some inefficiencies. We drove a lot of traffic in the past, a lot of clicks that didn't convert into leads. So we do not want to do this anymore. So we are intentionally shifting to prioritize the value delivery versus the pure audience reach. And they're very happy to see that this is actually kicking in. So a lot better conversion and lead volume also kicking in. We also have a new CMO who started, so she's going to take it to a new level. So you saw with marketplace, obviously it's a good sign that it's working. You saw the growth kicking in and you saw also the dealer growth and the revenue growth. So we think that's the right strategy. And of course, we'll create the right momentum to also reinvest in the right spots. But again, lower funnel versus just upper funnel.

Thanks. Thank you.

Thank you.

And the next question comes from Marvin Fong from U.S. Bank Corp. Your line is now open. Please go ahead.

Great. Good morning. Thanks for taking my questions here. Just would like to ask a question on the subscribers for solutions. Talked about turning that around with more innovation and new products. Could you just kind of talk about the timeline you have for rolling out those new products? And do you have a timeline in mind for when we can expect that the user or the subscriber count there to stabilize and be positive? And then second question, I know it was just launched in June, but just talk about what you're seeing in terms of leads and conversion rates, if you're able to, on the dealer-verified product. And what's the monetization strategy for that? You know, what packages, what are you including, and how would you modify it outside of IQ Trade specific subscribers?

Thank you.

Hi Marvin, it's Toby. Thank you for your questions. Let's talk about the first part, which is the website part and the AI part. First of all, we'd like to recall that we did tell you in the future that the future growth would be a little bit slowing down and given the fact that we actually repackaged and this is actually what we did. So it's not just about a mere volume, but it's also The price points and the packaging. So we push that and that's totally in line with strategy. Having said that, our value delivery remains really, really strong. We're a really scaled provider. We're endorsed by pretty much every major OEM and we're still winning new customers. But let's also talk about the weakness, which I'd like to address. First of all, there's a slow pace of new feature releases to date. And what we've done is We've rolled out the playbook for marketplace. We talked about it. We're seeing great productivity enhancements and acceleration. And we are going to apply that same playbook also for the solutions business. So we have a pretty exciting roadmap ahead that we work behind closed doors, which will actually focus on the interconnectivity with some of the marketplace functionalities. And then another point I'd like to mention is We do have some organizational and process misalignment in the past, which we're also addressing as part of our reorganization. We've named a new GM, and we're really picking up speed there. So over the next, you know, two to three quarters, there will be a focus on really product innovation and applying the same playbook to be very confident that we'll get this back on a growth trajectory. Now, regarding your second question with dealer innovation, Verified Listings. We're really very happy about that because it took us only a few months to launch that. And what it does is, in terms of impact, it's basically creating already more impressions, which then converts into higher click-through rates to BDPs, which essentially then drives faster listing turns. Why? Because this is a major trust signal that We are integrating into Marketplace to stand out and help consumers really getting a better coordination between lots of vehicles, and there's either CPOs or nothing. And this is another alternative that looks at not just the historic vehicle report, but at the actual condition and at the actual inspection that a dealer had to go through by applying some of the assets from Accutrade. So view this as a really important step, first step. We'll share more data points. We just rolled it out, so it's too early, but we are testing heavily towards an interconnected experience with a focus on trust signals and guiding consumers. So hopefully this is some context for you. Thank you.

That was great. Thank you.

Thank you. And the next question comes from Gary Prestopino from Barrington Research. Your line is now open. Please go ahead.

Hi. Good morning, all. Hey, Toby. Good progress here. I guess with some of the marketplace revenue growth, is that really somewhat of a function of that year now? got the sales force selling an integrated product and you're getting more uptake because of that integrated product sales approach?

Yeah, thank you. There's a couple of factors. That's certainly one. I'm glad you called it out. We made good progress there as well. You know, the other piece is we're bundling it and it's easier to understand, it's easier to package, and it's easier to roll it out. So, away from point solutions more towards an interconnected subscription with a clear value delivery. And then also let's not forget about the marketing piece that we just called out. We are focused on delivering more leads as opposed to just more traffic. And that is the, at the very end, that's the value delivery that dealers want. So it's a combination of the process and organizational adjustments we made, plus A clear interconnectivity. First steps will by no means done. Thirdly, sales efficiency and packaging. And fourthly, support from marketing efficiency and greater lead volume. Thank you.

Okay. And then just to follow up on the verified product, which is being generated by Accutrade, is the data that is being shown there accurate? Very similar to some of the output that we were shown in Las Vegas, or is it more or less just a deeper dive versus a Carfax where it's going to say no mechanical issues, et cetera, et cetera, things like that?

Yeah, it's a great question. Thank you. So the main difference between what you saw in Vegas and How we're utilizing it currently is it was very much dealer-facing in Vegas, which is, if you remember, this was used as a tool to determine the best price, how to price the vehicle from a dealer's perspective to then put it onwards to a consumer-facing potential sale listing. Now what this does today, our focus is really on guiding consumers. So it's a shift more towards consumers, giving them additional data points to really understand that this is a vehicle and a VIN number that went through an additional loop of 15, 18 points inspection, which by the way, the dealer adhered to and signed off. So that's the difference. It's more consumer facing as opposed to

just price labeling. I know I only have two questions, but I just want to be clear. In order to do a verified, have this program, the dealer does have to do some kind of certified inspection and guarantee that inspection for the purchaser of the car?

Yes. They need to go through a rigorous process, which is obviously part of the and then they can put it up online.

That's correct.

Thank you. Thank you.

Thank you. The next question comes from Naveen Khan from B. Riley. Your line is now open.

Thanks so much, guys. Two questions from me. One, maybe just on the traffic, the website traffic between Unique and Visits. Please, you said that you're focusing on higher quality traffic, not just the volume of traffic, which I understand. But if I just look at sort of marketing and sales as a percentage of revenue, that's up here on the area, spending more money. So is it that we have to spend more money to kind of acquire the high quality traffic? How should I understand that deleverage in the marketing line versus... You know, what you just spoke about in the quality trade-off. And then I have a follow-up.

Yeah, good catch there.

We anticipated that question, but there's something else that we're trying to catch up with and trying to have proper allocation, which is really call it brand. Remember, we still need some brand investments for the long-term interconnected strategy. So we need to position this not only just a listing destination, but instead as a transaction enablement platform. So the focus we just called out is really on the performance and growth marketing piece where we really focus on driving more value. Definitely from that, we are continuing and actually, you know, we're spending money on positioning this right in terms of branding. And that's an important part of the journey because We're here for long-term success. So, yes, that's why you see those numbers. Thank you.

Okay, that's great. The second question I have is just on the verified listings. So, it looks like, you know, you're creating a greater value proposition for the dealers that buy active trade and ultimately that should drive sales for this product. Is that the right way I should be understanding this? Or are you just going to... Expand verified listing to more dealers regardless of whether or not they're AccuTrade customers.

Yeah, good question too. As Sonia shared, we started with the AccuTrade customers. Why? Because they're used to the procedures and the processes and obviously they're closer to our intentional shift of driving a differentiated listing and providing a different trust signal. That's the current testing. Now again, this is early innings. We're only out there for a couple of weeks, but the intent is to then also make this available to a broader audience of dealers. And we're seeing very positive and very encouraging signals right now. But also to be fair, we are learning because these are the power users and they're giving us incredibly fundamental and good Sound feedback on how we can further improve that. So in summary, correct, we started with acetate customers only and also only a subgroup of those. We're getting their feedback, we're monitoring, we're finessing the product, but the intent is to roll it out and expand it and make it available to other dealers. Thank you.

Thank you. The next question comes from Alejandro Nuno from UBS. Your line is now open.

Hi, good morning. Maybe you can just sort of help us out with the guidance. The EBITDA guide basically implies margins are relatively flat quarter over quarter, but it sounds like you continue to make good progress on optimizing the cost structure and expect sort of return growth in OEM revenue. So why are margins sort of flat quarter over quarter? And then maybe sort of on top of that, like the fourth quarter margin sort of implies close to sort of 31%. Like what drives, I guess, the step up then from Q3 to Q4?

Yeah, no, thank you for the question.

You know, we're happy with our EBITDA performance on a year-to-date basis. As you heard, we've kind of reaffirmed the full year guide. I think the shape of the year maybe looks a little bit different from a margin perspective than you may have originally anticipated. But we're definitely committed to finding those ongoing efficiencies, some of them unlocked in Q2 with the changes that we made to streamline the organization. But you've also heard us talk about Thank you so much for joining us.

All right, thanks for that color. And maybe just sort of one more follow up if I can. And sorry if I missed this, but on the new premium plus package, you highlighted that you're targeting sort of 15% by the end of the year, like, can you just give us an update of where you stand now?

We're making good progress. You know, we're midway through the year, and I think we're seeing a lot of momentum in terms of those sales. Premium Plus was the fastest growing of our three packages in Q2. And as we continue to add more features and improve the interconnectivity of our marketplace experience, we believe a lot of that value will accrete to the Premium Plus package.

We're still fixed on delivering the 15% by the end of the year.

Do you have a penetration for the quarter so far or where you stand right now?

We're basically at double digits or close to double digit penetration.

Great. Thank you so much. I'll pass it on.

Thank you. The next question comes from Rajat Gupta from JP Morgan. Please go ahead.

Hi, good morning. This is Josh Hahn for Radhat Gupta. Thanks for taking our questions. I just wanted to start off with one on the FTC's push around dealer pricing transparency. I was just wondering if you could expand on how you've changed the platform to just adhere to that increasing pricing transparency standard. You said a step removed since dealers do the advertising. So does all-in pricing play to a marketplace built on trust or Does it create somewhat of a friction for your dealers? And is your approach any different from that that is employed by your peers? Thanks, and I have a quick follow-up.

You know, we've tried to take a role in helping dealers ensure that they're able to get their information out there and be trusted partners to consumers. If you think about our vision for Marketplace, it is embedded in trust, transparency, And so we've been supporting them through this process, encouraging compliance and just better information, right? Because when the consumer understands what they have to pay before they walk into a dealership, it reduces the friction of the transaction, right? It increases lead to sale conversion.

So we feel like we're taking the right steps.

Understood, that's very helpful.

And then just as a quick follow-up, could we get an update on, you know, where cost.com's dealer-to-dealer wholesale initiative stand just around Dealer Club with AccuTrade connected dealers not yet seeing meaningful upward pressure? Just curious how that flywheel starts turning and what's the unlock that gets that ecosystem to compound? Thank you.

Currently, we are focused on, as we just laid out, on really taking some of the actual assets and making them more interconnected. So that's the first step. That's plenty of stuff to chew on. So we're going to take it step by step. And the dealer verified listings program, as we just launched it, is going to keep us busy for quite some months. So we'll give you more updates on the other stuff. But that's the focus. That's the current focus right now. The other part that we really and making it more connected is also anything that's related to our treatment plus features. So we've developed a stack of new features that are going to be launched as part of our rollout and our future subscription services. But again, too early to talk about in public, but there's a lot of work behind closed doors. So stay tuned. Thanks.

Understood. Thanks and good luck.

Thank you and no further questions that came through this concludes our conference call for today thank you all for participating you may now disconnect