Cars.com. Second Quarter 2018 Earnings. August 8, 2018

Transcription

1 Cars.com Second Quarter 2018 Earnings August 8, 2018

2 Forward-Looking Statements This presentation contains forward-looking statements within the meaning of the federal securities laws. All statements other than statements of historical facts are forward-looking statements. Forward-looking statements include information concerning our business strategies, plans and objectives, market potential, future financial performance, planned operational and product improvements, liquidity and other matters. These statements often include words such as believe, expect, project, anticipate, intend, plan, estimate, target, seek, will, may, would, should, could, forecasts, mission, strive, more, goal or similar expressions. Forward-looking statements are based on our current expectations, beliefs, estimates, projections and assumptions, based on our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we think are appropriate. These statements are expressed in good faith and we believe these judgments are reasonable. However, you should understand that these statements are not guarantees of performance or results. Our actual results could differ materially from those expressed in the forward-looking statements. Given these uncertainties, forward-looking statements should not be relied on in making investment decisions. Forward-looking statements are subject to a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from those expressed in the forward-looking statements contained in this presentation. Such risks, uncertainties, and other important factors include, among others, risks related to our business, our separation from our parent company and our common stock. For a detailed discussion of many of these risks and uncertainties, see the section entitled Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2017 which is available on our website at investor.cars.com or via EDGAR at All forward-looking statements contained in this presentation are qualified by these cautionary statements. The forwardlooking statements contained in this presentation speak only as of the date of this presentation. We undertake no obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, or changes in future operating results over time or otherwise. Comparisons of results between current and prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data. The forward-looking statements in this presentation are intended to be subject to the safe harbor protection provided by the federal securities laws. 2

3 Non-GAAP Financial Measures This presentation discusses Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income and Free Cash Flow. These are not financial measures as defined by GAAP. These financial measures are presented as supplemental measures of operating performance because we believe they provide meaningful information regarding our performance and provide a basis to compare operating results between periods. In addition, we use Adjusted EBITDA as a measure for determining incentive compensation targets. Adjusted EBITDA also is used as a performance measure under the Company s credit agreement and includes adjustments such as the items defined below and other further adjustments which are defined in the credit agreement. These non-gaap financial measures are frequently used by our lenders, securities analysts, investors and other interested parties to evaluate companies in our industry. Other companies may define or calculate these measures differently, limiting their usefulness as comparative measures. Because of these limitations, these non-gaap financial measures should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP. Definitions of these non-gaap financial measures and reconciliations to the most directly comparable GAAP financial measures are presented in the tables below. The Company defines Adjusted EBITDA as net income (loss) before (1) interest expense (income), net, (2) income tax expense (benefit), (3) depreciation, (4) amortization of intangible assets, (5) stock-based compensation expense, plus (6) certain other items, such as transaction-related costs, costs associated with the stockholder activist campaign, restructuring and other exit costs, costs related to the headquarters move and write-off and impairments of goodwill, intangible assets and other long-lived assets. Amortization of unfavorable contracts liability is not adjusted out of Adjusted EBITDA. The Company defines Adjusted Net Income as net income (loss) excluding the after-tax impact of (1) amortization of intangible assets, (2) stock-based compensation expense, and (3) certain other items, such as transaction-related costs, costs associated with the stockholder activist campaign, restructuring and other exit costs, costs related to the headquarters move and write-off and impairments of goodwill, intangible assets and other long-lived assets. Amortization of unfavorable contracts liability is not adjusted out of Adjusted Net Income. Transaction-related costs are certain expense items resulting from actual or potential transactions such as business combinations, mergers, acquisitions, dispositions, spin-offs, financing transactions, and other strategic transactions, including, without limitation, (1) transaction-related bonuses and (2) expenses for advisors and representatives such as investment bankers, consultants, attorneys and accounting firms. Transaction-related costs may also include, without limitation, transition and integration costs such as retention bonuses and acquisition-related milestone payments to acquired employees, in addition to consulting, compensation and other incremental costs associated with integration projects. The Company defines Free Cash Flow as net cash provided by operating activities less capital expenditures, including purchases of property and equipment and capitalization of internal-use software development costs. 3

4 Defining The Future of Automotive Retail Going beyond listings to an automotive marketplace with the most innovative, leading digital solutions for both consumers and dealer customers 4

5 Significant Progress on Affiliate Conversions 8 markets, 2,000+ dealers (incl. LA, Chicago) 37% of wholesale revenues 2/1 8/1 DC market ~350 dealers 6% of wholesale revenues 10/1 Dallas market ~300 dealers 5% of wholesale revenues 6/29 ~300 dealers 5% of wholesale revenue Transitions on or before 10/1/18 22 markets, 1,200+ dealers 18% of wholesale revenues 10/1 6/29 ~2,700 dealers 29% of wholesale revenue Note: All revenue percentages based on 2017 data 5

6 We Now Serve 84% of our Dealers Directly Converted over 3,200 dealer customers since spin-off Converted wholesale rates to full retail rates Up to 45% higher monthly retail ARPD Grew revenue 6% since conversion Improved sales and service levels to solidify growth 84% 84% of Dealers Served Direct 16% Affiliates % of dealer customers as of 8/2018 6

7 Focus Areas Underpinning our strategy to grow revenue Traffic Growth Sales Effectiveness Product Innovation 7

8 Q Traffic Growth Total Traffic (Visits) million 8% 8% million 17.6 million Average Unique Monthly Visitors 19.0 million Mobile App: 22% Traffic by Channel 67% Mobile Traffic Desktop: 33% Mobile Browser: 45% 8

9 Strengthening Sales and Dealer Retention Join Now Program Doug Miller, Chief Revenue Officer Traffic and Value Delivery 9

10 Leading Social Selling in Automotive CARS SOCIAL Ad product that serves native ads displaying real-time inventory to consumers on Facebook and Instagram. SOCIAL SALES DRIVE Empowers automotive retailers to extend the reach of their Cars.com used vehicle listings to Facebook Marketplace. 10

11 Driving Results For Our Partners SOCIAL SALES DRIVE TM PILOT CUSTOMER CARS SOCIAL CUSTOMER "I've wanted to take advantage of Facebook Marketplace for some time The managed chat functionality does an amazing job of getting shoppers' basic information and then handing them off to us, so we don't have to sit in front of a computer answering Facebook messages all day. We sold 10 cars in the first six weeks using this product. We love it! The Cars Social platform allows us to be specific in attracting users back to my inventory. I view this as a dynamic retargeting feature and my zones are over producing. Tony Marino Owner, Marino Chrysler Jeep & Dodge Chicago, IL Kevin Jamiel Sales Manager, Chuck Nicholson Mazda Dover, OH 11

12 Dealer Inspire: Setting Us Apart From Competitors Transforming how cars are bought and sold through innovative digital products and purchase tools that improve results for consumers and dealer customers. DISCOVERY SHOPPING CONNECTIONS BUYING Launch Digital Marketing Dealer Inspire Conversations Online Shopper Customized marketing and customer acquisition solutions Flexible, custom designed website platforms supporting highly personalized digital campaigns Powerful A.I. messaging platform that centralizes customer communication, improves quality and speed of response time, and decreases operating costs End-to-end digital retailing solution empowers shoppers to compare a wide range of financial considerations as they complete their purchase online 12 12

13 Price Badging: The Industry s Most Complete Price Guidance Competitor s Badging vs 13

14 New Matchmaking Experience Automotive industry s first online matchmaking experience powered by machine learning, making car shopping more personal and fun while driving results = profile creation rate +752% return visitors +87% leads +225% 2X the number of page views per visitor vs. traditional search engagement is up (Versus consumers who go down traditional search, 7/5/18-7/19/18, scaled to 50%) 14

15 New Creative and National Campaign In Q3, digital, television, social media, search marketing and will generate awareness of our new positioning while driving traffic to our site and app via the We Met on Cars.com campaign 15

16 Q Financial Highlights ($ in millions, except per share data) Revenues $168.5 Total Operating Expenses $144.0 Net Income $12.7 EPS, Diluted $0.18 Adjusted Net Income $34.3 Adjusted Net Income per Diluted Share $0.48 Adjusted EBITDA $57.3 Adjusted EBITDA as a % of Revenue 34.0% $156.6 $127.8 $24.8 $0.35 $50.5 $0.70 $ % 16

17 Q Key Operating Metrics Average Monthly Unique Visitors Traffic (Visits) Mobile Traffic 1 8% YOY 8% YOY 67% Direct Monthly ARPD 2 $2,064 Dealer Customers 3 20,720 - Direct Dealer Customers 3 16,592 - Affiliate Dealer Customers 4,128 Average Vehicle Listings 4.8 million 1 Mobile traffic includes mobile browser, mobile app and tablet. 2 Average Revenue per Dealer. 3 Includes 508 Incremental Dealer Inspire Customers. 17

18 June 30, 2018: Balance Sheet, Cash Flow & Capitalization Cash Flows from Operating Activities 1 Free Cash Flow 1 Cash Debt $70.6 million $64.2 million $18.4 million $727.5 million Net Leverage Ratio 2 3.0x Shares Outstanding 3 Enterprise Value million $2.7 billion 1 Year to date 2 Net Leverage Ratio calculated in accordance with the Company s credit agreement 3 Shares outstanding as of July 31, Using the closing share price of $28.43 on August 6,

19 Cars.com 2018 Outlook Revenue growth ~6-7% Adj. EBITDA margin ~34% Capital Expenditures ~$14 million Stock Based Compensation ~$10 million Interest Expense ~$28 million Effective Tax Rate ~25% Cash Tax Rate ~13% Note: This outlook is forward looking and actual results may differ materially from those presented here. 19

20 Transformation is Underway Technology Sales force Strategic growth 20

21 Defining The Future of Automotive Retail Going beyond listings to an automotive marketplace with the most innovative, leading digital solutions for both consumers and dealer customers 21

22 Questions 22

23 Appendix 23

24 Affiliate Conversions: 2018 Financial Impact Increase in Revenue, Increase in Affiliate Revenue Share Expense and Increase in Sales Expense ($ in millions) 2018 Revenue impact of Affiliate Conversions Q2 YTD Retail $ 21.2 $ 35.7 Wholesale - previously billed to affiliates (14.5) (24.4) - amortization of unfavorable contract liability (4.4) * (7.5) * Total impact on wholesale revenues (18.9) (31.9) Net revenue impact of affiliate conversions $ 2.3 $ 3.8 Revenue reflects only the uplift from wholesale to retail sales. ($ in millions) Q2 Six months ended June 30, Operating Expense - Affiliate Revenue Share Expense YOY YOY Affiliate revenue share (gross expense) $ 8.2 $ 2.4 $ 5.8 $ 14.6 $ 4.7 $ 9.9 Amortization of unfavorable contracts liability (4.4) - (4.4) (7.5) - (7.5) Affiliate revenue share (as reported) $ 3.8 $ 2.4 $ 1.4 $ 7.1 $ 4.7 $ 2.4 Affiliate Revenue Share Expense includes benefit due to the amortization of unfavorable contract liability related to the converted tronc and McClatchy markets, which has previously been recorded within wholesale revenues, prior to conversion. The impact of these early conversions is expected to be neutral to modestly dilutive to Adjusted EBITDA in 2018 due to the marketing support payments. Significant uplift in cash flow is expected following the completion of the marketing support payments. * The Company no longer records the amortization of unfavorable contracts liability associated with converted markets in revenues as the Company is recognizing this revenue at retail rates. Instead, it is now recorded as a reduction of affiliate revenue share within operating expenses. In the six months ended June 30, 2018, as a result of the early conversion of the tronc and McClatchy markets, $7.5 million of amortization of unfavorable contracts liability was recorded as a benefit in affiliate revenue share expense. In the prior year, the $7.5 million was recorded as wholesale revenues. 24

25 Non-GAAP Reconciliations Three Months Ended June 30, Six Months Ended June 30, Reconciliation of Net income to Adjusted EBITDA (unaudited and in thousands, except per share data) Net income $ 12,726 $ 24,809 $ 13,655 $ 51,697 Interest expense, net 7,343 1,770 13,300 1,729 Income tax expense 4,515 2,345 4,779 2,763 Depreciation and amortization 26,712 22,377 50,650 44,450 Stock-based compensation expense 2, , Transaction-related costs 1,026 11,133 Costs associated with the stockholder activist campaign 1,112 4,897 Restructuring and other exit costs 590 1,671 1,097 1,671 Write-off of long-lived assets and other 401 1, ,389 Separation-related costs 4,558 4,658 Costs related to the headquarters move 2,731 3,428 Adjusted EBITDA* $ 57,301 $ 62,127 $ 104,348 $ 112,266 Reconciliation of Net income to Adjusted net income Net income $ 12,726 $ 24,809 $ 13,655 $ 51,697 Amortization of intangible assets 23,570 19,468 44,747 38,935 Stock-based compensation expense 2, , Transaction-related costs 1,026 11,133 Costs associated with the stockholder activist campaign 1,112 4,897 Restructuring and other exit costs 590 1,671 1,097 1,671 Write-off of long-lived assets and other 401 1, ,389 Separation-related costs 4,558 4,658 Costs related to the headquarters move 2,731 3,428 Tax impact of adjustments (8,020) (4,563) (17,625) (5,079) Adjusted net income* $ 34,281 $ 50,540 $ 62,741 $ 97,180 Adjusted net income per share, diluted $ 0.48 $ 0.70 $ 0.87 $ 1.35 Weighted-average common shares outstanding, diluted 71,330 71,780 71,721 71,780 Reconciliation of Net cash provided by operating activities to Free cash flow Net cash provided by operating activities $ 43,963 $ 53,016 $ 70,624 $ 96,732 Purchase of property and equipment (3,904) (13,301) (6,417) (18,910) Free cash flow $ 40,059 $ 39,715 $ 64,207 $ 77,822 * Amortization of unfavorable contract liability is not adjusted out of Adjusted EBITDA or Adjusted Net Income. 25

26 Definitions Traffic (Visits). Traffic (Visits) and our ability to generate traffic are key to our business. Tracking our traffic performance is a critical measure. Traffic to the Cars.com network of websites and mobile apps provides value to our advertisers in terms of audience, awareness, consideration and conversion. In addition to tracking traffic volume and sources, we monitor activity on our properties, allowing us to innovate and refine our consumer-facing offerings. Traffic is an internal metric representing the number of visits to Cars.com desktop and mobile properties (web browser and apps). Visits refer to the number of times visitors accessed Cars.com properties during the period, no matter how many visitors make up those visits. We measure traffic using Adobe Analytics. Traffic (Visits) provide an indication of our consumer reach. Although our consumer reach does not directly result in revenue, we believe our ability to reach diverse demographic audiences is attractive to our dealer customers and national advertisers. Dealer Customers. Our value to consumers tracks to our ability to showcase the inventory of our dealer and Original Equipment Manufacturer ( OEM ) customers. The larger the advertiser base, the more inventory and options that are available for consumers to review. Dealer Customers represents the car dealerships using our products as of the end of each reporting period. Each dealership location is counted separately, whether it is a single-location proprietorship or part of a large consolidated dealer group. Multi-franchise dealerships at a single location are counted as one dealer. Average Vehicle Listings. Our value to consumers tracks to our ability to showcase the inventory of our dealer and OEM customers. The more vehicle listings that are available for consumers to review, the more traffic we attract and the higher the consumer engagement. Average Vehicle Listings represents the daily average of vehicles listed for sale on Cars.com properties. The daily average is calculated on a monthly basis and averaged for the reporting period. 26