Earnings call transcript Q3 2022

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Operator

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 17. 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 Robbin Moore-Randolph, Director of Investor Relations.

Robbin Moore-Randolph

thank joining and everyone, morning, you us. for Good you CARS third my pleasure XXXX the welcome to It's quarter to conference call. morning Executive Finance With CFO; this are, CEO; Vetter, me Sonia Jandy Tomy, Treasurer. Vice and of President Alex Jain,

call our Alex We'll overview the quarter, Q&A. will allocation of with financial in our then from Sonia finish and and our third greater discuss capital start detail, the fourth will will highlights expectations. discussing results by the quarter business XXXX Jandy provide priorities an

Before to and Alex, non-GAAP your and I be over like I'd to of can turn the our call found to draw presentation. in financial definition the attention measures, which statements our forward-looking description

operating non-GAAP financial can are Reconciliation discussing in will non-GAAP risks tables the appendix expenses, today, measures certain forward-looking press free adjusted We our our to measures of Any in and most found cash included measure to uncertainties. flow. statements GAAP and adjusted with directly subject comparable earnings presentation. EBITDA, the these including financial be the and be adjusted margin, of EBITDA release

refer of please assume obligation most which to recently to available any XX-K, risk IR in our factors information, We SEC in filings, filed more For is the forward-looking statements. on our our included website. including section those the update no

turn call over the I'll Now to Alex.

Alex Vetter

in pleased Thank you, results, Robbin, our report with that to XXXX I'm delivered and third we quarter call. our welcome solid line to guidance. earnings another of quarter

efficiency, for empower auto end-market solutions for digital We increase auto compete are long-term to and shift profitability. well-positioned industry to to as optimize to growth, transaction the drive sustainable better we sales,

so combined This was Dealer and challenging adoption particularly environment adjusted in free with by performance has revenue EBITDA driven drivers, strategy. been Accu-Trade quarter an flow with grew our and traffic, third X% of dealer industry. steady margin operating in was integrated in the that conversion, our and and of These many our our strength demonstrate XX%. our momentum solutions. for We're our Our customers, Inspire pleased strong increased cash growth sustained year-over-year, platform

base dealer XX% and daily and starting remains rates for retention on marketplace used. X% growing to new delivery customer strong. our levels for Our cars remain healthy, are recover our with year-over-year average Inventory and listings value

Despite support in increasing more in-market to inventory, new in a car marketplace XX car remain will releases anticipated the cars. than but car elevated it XX% ago. higher With new dealers sell XXXX, they declined prices sequentially. more our remain Used X% prices for high, at optimal to shoppers year also OEMs, and invest we target to marketing need as remain partner and nearly digital

reason, While to durable the go inflationary about as their spending, remain will Whatever transport rely or their on families, consumer for of vehicles lives. as work the holiday is daily to ownership travel. continue transportation needs vehicle their to owners to impact car commute vital individuals pressures cars they

US were environment, a Even economy buyers million, against know a visitors, Most unique the million is have The sales a XX and several audience in XXXX, halt XX-year still buying we as resilient. a be US XX auto marketplace year. an of XX monthly With average scale. million to Cars.com of over sellers cars. essential selling match at for months, to the industry country the when experiences the in came the recessionary recently car to we for and

increase value increase of from last XXX not strong quarter, strength our traffic, continue with customer the visitors supported year also XX,XXX, from from our our our audience only We unique growth an pleased Dealers visits derive year-over-year XX on to by that in of in and portfolio base to solutions. second but retention. We of grew X% compared an growth this to quarter the a basis. expand XX% are of we and total

advertising Even at ARPD in strong a environment, challenging $X,XXX. was

We us selected has new which further us to a as dealers website add business certified enables expand partner, OEM continue to every nearly to as our our platform.

As to our a at website X,XXX result, quarter end. customers grew

strategy our expanding our into ability also acquisition and of our better transaction complete end-to-end additional solutions we are can the auto online. which capabilities. they are platform car the CreditIQ, With shoppers with of platform the market, what finance expanding understand can have as now to We enhances more multi-billion-dollar afford

our solution marketplace. lenders source of leads strengthening attribution with also and a high-quality provides dealers Our financing while to

and funnel advantage. network. flywheel Our additions, financial shoppers low leading to into institutions our driving are large coupled key These are attracting our platform dealer adoption, in-market audience our furthering with our and increasing

was One acquisition There of dealers report XXX efficiency vehicle a process delivering over the This end and vehicle scale also dealerships for evaluation that offering. while at the for process of and can the our pleased we solution transparent are we we opportunities acquisition Accu-Trade. million out highlights roll XX of more year. of and approximately on operational had I'm vehicle this to up continue the that consumers. dealers, facilitate help in quarter the the ramp significant each platform to sell quarter connected drives

nearly dealers Our sales trade-in abundant a attached sale. efficiently in of value Accu-Trade acquire and or inventory lean to complicated all are critical inventory vehicle for dealers, Trade-ins both process the technology to yet half a have as environments. enables

in long physical valuations. appraisal subjective resulting inconsistent, and wait and highly times the is However, process outdated

trade-ins, just provides accurate the the appraisal using on appraisals, based an to He data a leverages and it as Joel quote, our the empowers X,XXX valuation vehicle, experience spent This of to hour up meaningful Automotive transaction store XXX%, has dealers. experience Accu-Trade Accu-Trade, it consumer. our takes better for the says, to dealership more individual and market Because is an to on take each would appraised take quarter, and the use, for the into adjusted efficient vehicles is Group, "before an who of Washington, technology leveraging appraisal can as more eight real-time Joel DC. reports, is savings, trade Accu-Trade it minutes. this stores." cutting bottleneck it efficiency process process the in-charge vehicle, little proprietary for dealership and the With Accu-Trade XX%. a appraise more while is per appreciates our highly creating the We and valuation in than both hour and provide Easterns to operation of delivers easy overall accurate so technology onto XX in and appraisal by this a up dealership time Bassam, transparency staff trade-in slowing now President minutes. vehicle technology full with improving to VIN-specific Typically, I which and our recently average expanding in creating all consumers appraising Accu-Trade's all provides.

digital receive a game-changer. advantage, August, solutions a our our we As cash evidenced private by in To sellers rolled out competitive instant to Joel, empowers platform which is strengthen Cars.com, confidently offer using on data offers They real-time opportunities website, minutes. can the on consumers their from using based also to access give offer in Accu-Trade. dealers buying sellers via guaranteed additional gives This own Cars.com. from private

getting growth with of our dealer-friendly coupled In flow. brand, platform to and speed, the traffic, excited just started strong about finding summary, auto industry-leading are accuracy auto the our high-value our cash driving dealers industry, resilience generate integrated of shifts cars the the to solutions, organic we're buy through and position and free and towards help drive us are We tech. disruption efficiency more industry as ways on

third provide Now, that our our Sonia, as will play our I'd thank discuss like thrilled in quarter first detail, Jandy and allocation and to on Jandy integral Sonia and details to leadership expectations. our capital in Jandy? officially will for will priorities fourth review Interim-CFO. quarter greater results welcome organization. back her then continue I'm both roles financial

Jandy Tomy

sustained steady pleased with Thank Alex, you, Alex. performance. Like I'm our and

revenue, we strong delivered operating adjusted the and flow. quarter, EBITDA For cash

drive diversified to benefits even headwinds, profitable amidst challenging to continue a economic set We our of growth of the testament solutions.

to quarter totaled $XXX prior year. increase a X% the Revenue million, compared for the

was driven performance year-over-year by growth grew X% in Our to dealer revenue, million. which $XXX continued

our Although year to X% new X% only inventory lower was up sequentially. and and remain revenue and our National low, OEM compared car a ago production

expenses. Turning to

the operating depreciation growth. excluding the were million, For result other to amortization, investments pull us and expenses year addition to marketing $X growth a spend $X were and of a lower, marketing $XXX as strong million which and acquisitions drive the by on of visitors, million adjusted operating ago lower result of driven during CreditIQ our enabled our unique back as the the quarter, in than quarter. higher quarter, adjusted Compared second a to expenses, investments traffic and Accu-Trade third

million made expectations performance guidance. diluted a we've $X.XX with acquisitions, margin increase income $X.X of in fair adjusted the at earn-outs share revised XX% of associated the $XX a is loss EBITDA of Due which recent drove by $XX earn-out in We value our per net or estimates million Sequentially, XXX progress or $X.X our million, of delivered recent increased acquisitions. year our to net of compared midpoint the to ago. integrating the of points. our basis million indicative revenue expanded This of

sales, end. Now XXX underlie Driven the at these or XX,XXX customers sustained increased $X year-over-year results. for XX. to solid by Sequentially, dealers strong by metrics, turning by second quarterly us and customers to grew rates $X putting compared ARPD to key at by we our quarter. and quarter which the X% retention quarter new by Monthly increased year-over-year, $X,XXX

due softness to revenue the in Dealer XX% the largely fuel compared growth inventory Inspire lean from levels. at in continued of from grow Website ago XXX year grew performance downgrades quarter, XXX to sales and offset and to resulted Our up total reaching solutions, inventory end the our X,XXX prior in a year. customers marketplace sequentially. by digital

and We high-quality an our to continue OEM scale, dealer them right generate our traffic find shoppers the which Car customers at audience vehicle. to value. engaged and marketplace rely on help consistently

For the represent monthly and car million. visitors, quarter, best in-market increased visits, XX% traffic to XXX to unique which million XX increased shoppers, X%

Sonia, the discuss to priorities turn I'll now, fourth outlook. call over our quarter our and allocation And capital provide will who

Sonia?

Sonia Jain

nine-month in two reasons. Cash year-over-year $XX Thank the current ending $XX you, the million period was XX, by down flow year flow cash Cash provided was free activities period XXXX, September for million. and Jandy. operating for primary was

had year tax last And with changes $X unfavorable from capital. million Act. associated we impact income the in refund the First, second, CARES a working

Overall, integrate related earn-out structures these are acceptance Jandy incentives we and this $XX.X acquisitions increase in efforts. and of the driving next in million As net and the scale our sell as pay continue $XX way acquisitions, momentum we align adoption, recorded for to given our market reflects With million attractive believe fair to these recent to the revised we an upside the integration with over XX This our solutions. earn-outs earn-outs. a mentioned, to these the expectation months. value us associated expect we provide performance

to times X.X quarter-end and compared Recall target are approaching times, at our was target leverage quarter to that of in X.X we down times. quarter above due acquisition. Net first the last range times incremental our from X temporarily borrowings X.X the range Accu-Trade to

consistent at XX% of like interest total cash our generation, quarters. in that into comfortable rates. rate anticipate limiting Given is I'd exposure and you remind back our only level this getting the are to strong, rising debt floating also target our our coming we range our outstanding, to

We of cash million $XX continue hand. our available million to our on of $XXX revolver maintain liquidity ample cash with on to supplement

Our strong shareholders. return financial flexibility to sheet balance with us provides the capital to

million this of During in creating strong our deliver X.X Overall, delevering year back shares execution balance and representing a investing our growth us the balanced $XX shares outstanding. for X.X shareholder and bringing buying repurchased X% that enables focused shares on million, repurchased shares. allocation quarter, total value business and million, performance we by our our to strategy is sheet the capital to for

guidance. our to turning Now

approximately macro fourth $XXX quarter both representing of million, $XXX year-over-year of expect what to environment. million we XXXX, growth, For a deliver challenging in sequential the and remains to revenue

are balanced improvement continued environment, current of and is recent it inventory, our to economic when and rising our we And seeing while views are comes tempered digital in outlook inflation growth Our solutions rates. the acquisitions. by signs with interest

and marketing margin, and XX%. to reflects mix to and growth. This and anticipated increases technology between XX.X% we expect be and outlook fourth our the EBITDA quarter sales, modest Turning drive product investments to adjusted in revenue

environment, to profitable demonstrated deliver set and economic We to us attractive challenging ability generate diversified continue as business. positions our have in we invest well cash delivering solutions in a solid flow, growth. margin of the even And this

the over like I'd call to to turn Alex. back that, With

Alex Vetter

you, Thank Sonia.

while margins and Our market Revenue across and revenue, We're platform model resilient to confident is continue conditions. asset-light in proven differentiated both diversifying strategy. to as many solutions, strong. has grow we our ability growing business execute multiple our sustainable remain in

Q&A. Operator, we're ready to begin

Operator

Instructions]. [Operator

now is White Tom your Our of line D.A. line first question Davidson. Tom, the open. comes with from

Tom White

Great. Good And welcome for morning. Thanks taking my back, questions. Sonia.

X% Can the I guidance, the on little you X% on you you're to will And guide X%. think bit bit half. of that First be maybe the maybe closer half feeling today a then softening growth just of peel either back second gave seeing XQ growth for the business year-over-year got range quarter second implies the a parts The more I've maybe think a or a I for to about? was follow-up. conservative what little bit last you're

Alex Vetter

year, Sure, to internally listen, Tom. I high-end range. a deliver subscription full that we we're only albeit the the the to for one of three the midpoint of range, obviously Good aspired months on business, Well, the you. pleased on think on hear with we're would but remaining. the hand, have midpoint impacts And

number one. that's think so, And I

our solution as longer a sales, and a and seeing them finish traffic, enable key difference takes out time really at seeing back strength two; we year. same we is dealerships, we're QX them value which bit. to the in bit that in I organic the think, up both advertising in delivery, and softness We're in but billable, our in marketing strength what little some make number the pulled set

factors. the else don't are what Sonia, you'd that? to those know, I So, add

Sonia Jain

just think at I the on revenue more little least No, the maybe bit a range. color on

the a we're numbers. QX bit Alex about strength about diversified So, of platform. feeling little the confident spoke the But

been the if we're ability customers in that on the of and and in lot the business, one that even also which the of strong we've add has offsetting a saw spot As business components side grow QX, Alex a bit pleased modestly. mentioned, seeing little to in we're improvement in really a we QX like And the into of of bright advertising seen fuel. is solution dealer ARPD lot dealers of momentum our other strength October with softness continue

Tom White

Alex, That's mention that follow for eventually Maybe bit on think in spend think I It sounds Thanks. well rising heard OEMs, platform. XX% helpful. was inventory to bodes support like line. Okay. I on listings more their just the maybe local a starting vehicle you National of I growth up it new to ad revenue that to the kind dealers.

if maybe about ball-type crystal have you in kind any discussions haven't you that like your line up had any XXXX? with best have curious Do that Just had line when evolve visibility OEMs? discussions, general on you might what perk is how of might or guess

Alex Vetter

Tom. what think environment a Sure, really look, vary they are foremost, while Well, OEM across outlook and levels conservative improving, the And of first and because I on National maintaining we're really I consider OEMs. current climate. just a inventory and

OEMs there so, challenges. having still are production And are many material that

it, events promote past, call market. launches I'm when typically with greatly what over of I think to the two launches the the which to and incentives, I excited about XXXX, reduced product new look is been years. volume coming into And ahead OEMs have new invest, model need those

really you be with productive, And a XXXX in outlook. conversations more see to lift having we'll we're so, positive. But back to are fourth expecting that quarter, very the and the not

and solutions. think more I sales. butter. we if shift dealers a to level, to much and like over have to network vehicle few a of media haven't effort. know We're the these recognize that to that's think retail OEMs last platforms towards move retail our social them I And in to at units aid We bread their media have that done really convert want can OEMs they investments years lot the digital gone

Sonia Jain

add. maybe to one additional And just point

are for promising listings dramatically, new down a are being on see it said, the pleased really the year. with launches to side. especially really expected model especially green shoot, That next pretty came We inventory coupled that is and of uptick, the car kind

think So, we is quarters. of that a over number up off I we of ramp this base see are will and lower growing evolve that the beginning a of

Alex Vetter

That's right.

Tom White

in queue. Got the Yep. get back I'll sense. it. Thanks guys. Makes

Operator

question. your Thank you for

question Naved Truist next your is line now open. Naved, Our Khan to line comes of with Securities. the

Naved Khan

lot. dealer Thanks maybe to a retention want back just I the peel metric.

on side, but or count that is are customers And some listing dealer did us Also, trends there lose Inspire - the that did what color there or how contribute do - So, you're see give waiting you more they you the there the maybe increases, period there working? October? still be is into seeing on to onboarding there? a have to starting side, Subaru start they over Dealer is dealerships before the the

Sonia Jain

Yes.

was just on cross-sell products question, marketplace in to dealer solutions by customer we're So, saw into related our QX to customers. super-focused transparently that driven we additions. the solutions continue the your one to increase And our of ability really our things the

where a and we're rates that of well visibility dealer additions retention both continuation seen the the we looking rates, business of as For well as forward the customer as we side seeing marketplace October, strong. retention solution have have growth, in and look

Alex Vetter

Yes.

- on help on yes, to also financing, to Subaru, strong next launches progressive there of year online ability by that have We're going begun also retention with dealers our question can really addition dealer see we year. the But good which grow into CreditIQ. terms and base. to in next on excitement on be continue of think for seeing think your I those buoyed optimism the I that will do

Operator

your for you question. Thank

BTIG. from next Our question the your line with line Marvin now Marvin, comes of open. is Fong

Marvin Fong

Good question of compared welcome Obviously have. number Accu-Trade, and back, the very, first for on morning. Thanks total growth. questions, impressive taking Sonia. small just you is dealers sequentially my My very to

And two think or there? about how And internal do some your you or I should think Just us from a of path how then you there investors growth a follow-up. just now where evaluate have your should wondering, how did that we or provide progress your three, perform like guideposts could on against year expectations? maybe

Alex Vetter

been we've reception to Accu-Trade. reaction pleased think the with very I look, and initial Well, market

way think also not inventory looking customers. I directly overwhelmingly but as from a public only the dealers are cost-effective new sales more acquire source to to

And as so, as on response has been there, well extremely our appraisal positive technology.

early today is I very we a I think of doubleheader in game. what sit the think here in innings

on feverishly cycle. in dealer Accu-Trade enrollments, longer on dealerships. working are marketplace, can has training We turn Unlike XX hours, onboarding a right, we which

investing and And and the running and there the dealer technology. improve so, to onboarding are staff we train help get up them the experience, using to

product has we is towards then and which I made think this introduced, working initial we've progress enrollment move every through dealers wave we've the issues ever the like year scale. of an

think now time see sometime next only sale inform our inventory to car them and so, where year can to this And think help when progress early double, trade to subscription get a launched Cars.com start next sell to demand of that get they dealers in year region. I I but dealer time retail using rid to like a it dealer-to-dealer another should we'd to we'd more perhaps and not like numbers trading, the than around data informing

as But the give to along here we'll get widespread. needless enrollment we So, that you this industry say period. more guidepost further is interest initial

Marvin Fong

or macro you that's inventory because some creeping bit, still have there? improved environment my dealers that's the Thanks And a just that? color. mentioned mean but you've into fuel, a inventories Could help constrained incremental of decompose little you so mostly of say think I think would I follow-up softness that just on kind I much is headwinds for there. bit the it little are

Alex Vetter

and is to dealers in is softness a promotional for car to said new my spending dealers Sonia's spend of got ground, What exhaust inventory return see inventory. us, in to again car to early. already our rise, buyers as I of having they is have new former, point, more to rate the more to now enough cars right, starting though, will to turn on don't move in what I dollars Yes. I more piece that inventory, QX inventory, addition inventory, in exhaust the help to volume. take fuel But on levels are I've that it's happening healthy don't which inventory to multiple need used Most every need was in-market

the most opportunity a see think there bigger recent slowdown for fuel period. I sure. so, XXXX I inventory the more on And is related And for in brewing

Sonia Jain

echo Yes, side XXX,XXX I currently no. just think, everything I million. relative over the around would vehicle said. on somewhere sitting, X to of Alex highs new We're still

back. And audience, product an from positive but also We're out climbing that's does So, not also we only there it hill dealers market signs, it this but sort just yet. think and not give add, access getting more there. an are other so inventory any of than efficiently up perspective to does I'll fuel, far quite I end

portfolio in benefits a pure about in their also So, mix, from targeting as thinking we the effectiveness. marketing cost they're side, their but provide just

Marvin Fong

Thanks. great. Alex That's and Thanks. Sonia.

Operator

you your [Operator instructions]. question. for Thank

now the Doug, from comes question with open. Arthur next Doug line Research. Our line of Huber your is

Doug Arthur

plunging, welcome Alex, Sonia, in just rolling couple of the pricing And broken minutes has And Obviously, I I say of. over picture. of thanks. it's big I used mean somewhat. wouldn't missed sort cars but Yes, first your back. the presentation. it's of sort

start Just sort as to behavior and is how impacting impact? the having want prices where see customer because market or an is of that hesitancy dealer there is land people not much prices down? I mean, it in of come to to transact broadly,

Alex Vetter

car a seen greater players as level. report values that I've at other Doug, think, marketplaces or used I falling Yes. you are other know,

of the or cycles a remains to the healthy tail luxury to sub in new macro larger dealers. inventory by long with car you as vehicle We market. to market but And supply. end there's skew in entire $XX,XXX economic car know, and to opposed pricing, been the as by skew not softening tends As tend there. I used Cars.com the the up consumer model the we're increase slight issue, and business higher more largely in our market believe, markets impacted a the driven all franchised it's

ultimately and the know, share. as think, for I used new battle markets car you

think because next back a launches But OEMs to hard year, a EVs flocking market, I the And users persisting. we're exciting are are XXXX, record going product. market. the be is There's premature learn is number is that so, in coming move trying and I car softness little about consumer used to for well-positioned new scheduled because think to which in in of to demand Cars.com

If you QX. see persist into demand at strong QX, same and traffic look that relatively in our levels, we consumer

Doug Arthur

you. Okay, great. Thank

Operator

I There Thank pass are no more for Alex questions Thank you for the at to will Vetter so closing back your call leading questions. time, you. this remarks.

Alex Vetter

Thank concludes you for joining And interest your in us CARS today. that call. our and

Operator

concludes participation. This conference call. your today's for Thank you

You may now your line. disconnect

Cars.com (CARS) 3 Nov 222022 Q3 Earnings call transcript