CARS.COM. Investor Presentation September 2017

Transcription

1 CARS.COM Investor Presentation September 2017

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 Registration Statement on Form 10, which was filed with the Securities and Exchange Commission on May 4, 2017 (the Registration Statement ). All forward looking statements contained in this presentation are qualified by these cautionary statements. The forward looking 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 Company Overview Becky Sheehan, Chief Financial Officer

4 We are a Two Sided Digital Marketplace We empower consumers by connecting them to the resources they need to make better automotive decisions about product, price, place and person We enable partners by connecting them to the in market audience and intelligence they need to increase turn and gain market share 4

5 Cars.com Improves Car Decision Making by Connecting Buyers and Sellers More Intelligently and Efficiently Consumers New & used shoppers Vehicle sellers Advice seekers/ enthusiasts Connections Partners Dealers OEMs Sell it yourself consumers 5

6 Cars.com at a Glance Market leading revenue in large addressable market Diversified customer base Leading mobile experience Rich inventory attracts marketleading audience Automotive focused with high margins and cash flow $633MM 2016 Revenue 21,572 Dealer Customers 1 #1 Mobile app 3 5MM Average Vehicle Listings 1 1,200+ Employees, including 500 sales $30BN Market opportunity 100% Top OEM clients +15% YoY mobile app traffic growth MM 2016 Traffic (Visits) 41% Industry leading 2016 Adjusted EBITDA margin 2 1 As of 12/31/16; 2 Borrell 2016 Auto Outlook; 3 JD Power 2016 Automotive Mobile Site Study 6

7 Cars.com Operates at the Center of an Enormous and Fragmented Ecosystem Products Service and Repair Used Cars New Cars 30+ OEMs 3 1, ,000+ Automotive Digital Destinations 1 Dealers 2 >1,600 models / trims per year 4 Participants 1 Vertical Scope; 2 Borrell 2016 Auto Outlook; 3 IHS Markit; 4 Cars.com internal data 7

8 Industry Trends U.S. Auto Advertising Industry $30 in Billion New Car Sales in Million Used Car Sales in Million U.S. Automotive Market 1 $1.1 Trillion 1 U.S. Census Bureau Monthly Retail Trade Survey 2 IHS Markit 3 Borrell 2016 Auto Outlook 8

9 Auto Advertising Industry is a Large and Attractive Market with Growing Digital Ad Spend $30BN 2016 U.S. auto ad market $16bn / 52% digital $26bn / 67% digital 1 1 $39BN 2021 U.S. auto ad market 1 1 U.S. Automotive Advertising Market U.S. Digital Automotive Advertising Market 5% Growth E CAGR 10% Growth E CAGR 1 Borrell 2016 Auto Outlook 9

10 Automotive Decisions are Being Made Digitally 10 years ago, the average car shopper made 5 visits to Dealerships Today that number has dropped to % of Consumers use Digital Sources when Shopping for a Car 2 20% of Audience 3 is captured by Cars.com 3 1 McKinsey; 2 The Role of Digital and Dealers in the Path to Purchase, Google/comScore Study, Jan 2017; 3 comscore; measured as a % of visitors to Cars.com out of total visits to Cars.com plus competitor sites (includes Autotrader, CaruGurus, Edmunds, KBB, and TrueCar) 10

11 Cars.com Shoppers are In market, Undecided, and Sought After #1 in Brand Awareness 3 80% 95% Cars.com Autotrader 66% #1 80% of Cars.com shoppers say they plan to purchase a vehicle in the next 6 months 1 95% of Cars.com shoppers are undecided on what or where to buy 2 KBB Edmunds TrueCar CarGurus #1 demographic of young, affluent families among peers 4 1 Cars.com Consumer Metrics June September Consumers Metrics Q report 3 Millward Brown Brand Tracker In an indexed comparison of Female Customers, Customers with Children, Customers between the ages of 18 and 54, and Customers with a Household Income of more than $40k 11

12 Unique Platform Empowers our Audience to Make Better Decisions PRODUCT PRICE PLACE PERSON Better Decisions 12

13 Expert Advice and Unbiased Coverage Empower Consumers in the Auto buying Process 13

14 Pricing Transparency Fosters Trust Between Buyers and Sellers 14

15 Person: Salesperson Connect Empowering Consumers and Enabling Dealers Better Connections DealerRater Certified Salespeople say their employee profile helps them sell more cars Dynamically sorts recommended sales people *Survey of 233 salespeople of DealerRater customers, June

16 Industry Leading, Mobile First Platform Best in class versus top competitors Award winning app #1 #1 #1 #1 App Rating Most Downloaded App Mobile Experience Rating Highest User Engagement Above peer average in all mobile dimensions (e.g., speed, navigation) with tangible results Average mobile user is within 37 Days of purchase 3 1 Based on Apple and Google App Stores; 2 App Annie; 3 JD Power 2016 Automotive Mobile Site Study; 4 App Annie; User Engagement as measured by average in app sessions per user 16

17 Cars.com Generates Innovative, Measurable Results for Partners Connections for Partners Dealer Dashboard Overview Phone Leads Leads Traffic to Dealer & OEM Websites Mobile Walk ins Actionable Insights 17

18 Differentiated Salesforce Provides Market Expertise and Unmatched Service, at Scale Affiliate National Advertising ~500 Person salesforce Major Accounts Dealers in Affiliate Territories OEMs ~20,000 Total partners Major Accounts Deliver unique solutions that enable our partners Field & Inside Sales Provide deep local market expertise Dealers in Direct Territories Strong relationships with local dealers and OEMs 18

19 Five Pillars of Long Term Growth Advertiser Expansion Connections Growth Adjacencies & Extensions Affiliate Opportunity Data & Attribution Leadership 19

20 Key Investment Highlights Leading, branded digital automotive marketplace for buyers and sellers Large and attractive market with growing digital ad spend Trusted, unbiased content Innovative mobile first technology platform Market leading connections that drive partner results Attractive cash flow generation at scale Well positioned for long term growth Experienced leadership and best in class talent 20

21 Financial Overview Jandy Tomy, Vice President of Investor Relations

22 Financial Highlights Attractive Business Attributes Recurring revenue Strong cash flow generation Significant scale + Growth Investment = Advertiser expansion Connections growth Affiliate opportunity Adjacencies and extensions Data and attribution leadership Compelling Long Term Model Large, fragmented market Expected shift to digital marketing to continue Proven revenue model Strong balance sheet 22

23 Revenue by Product Cars.com Revenue Breakdown National Advertising 20% Dealer Subscriptions 80% Dealer Subscriptions include all subscriptions sold to dealers, both via our direct salesforce as well as our affiliate sales channel (where we recognize wholesale revenue). National Advertising includes selling display advertising to our OEM partners. 23

24 Revenue by Sales Channel Retail Revenue 73% $463 million Monetization Subscription fees (53%) National advertising (18%) Other (2%) Sold by our Direct Salesforce The Dealer Network: Closer Look ~60% Franchise Dealers Wholesale Revenue 27% $170 million Subscription fees ($145 million) Amortization of negative contract liability ($25 million) Sold by the Affiliate Salesforce ~35% Affiliate Dealers Note: Based on 2016 results. 24

25 Subscription Overview Dealer Subscriptions Typically, annual contracts, billed monthly Pricing based on dealer location and size Tiered subscription options which allow dealers to choose desired features and functionality Additional upsells available (e.g. DealerRater and RepairPal) 25

26 Second Quarter 2017: Operational Highlights May 31, 2017: Spin from TEGNA and listed on Cars.com on NYSE Eclipsed 5 million reviews Closed on a $900 million credit facility with 2.5x net leverage Granted a patent for Lot Insights 26

27 YTD Key Operating Metrics Traffic (Visits) (in millions) Dealer Customers Average Vehicle Inventory (in millions) 1 The acquisition of DealerRater in August 2016 added approximately 1,600 incremental dealers to the Dealer Customer metric in

28 YTD Revenue and Adjusted EBITDA ($ in Millions) Revenue Adjusted EBITDA 1 and Adjusted EBITDA as a % of Revenue $309.1 $ includes $2.8 million of public company costs $116.2 $ % 36.2% 1H H H H Adjusted EBITDA is a non GAAP financial measure. For more information and reconciliation of Adjusted EBITDA to net income, please refer to the Appendix of this presentation 28

29 YTD Adjusted Net Income and Free Cash Flow ($ in Millions) Adjusted Net Income 1 Free Cash Flow1 1 Adjusted Net Income and Free Cash Flow are non GAAP financial measures. For more information and reconciliation to GAAP financial measures, please refer to the Appendix of this presentation 29

30 June 30, 2017 Balance Sheet & Capitalization Cash Debt Net Leverage Ratio Shares Outstanding Enterprise Value 1 $36.6 million $675 million 2.5x 71.6 million $2.5 billion 1 Using the closing share price of $26.44 on September 22,

31 Affiliate Agreements Background & Opportunity Overview Inception Opportunity 6 affiliate relationships $170 million of revenue in 2016 (including $25 million of unfavorable contract amortization) 4 contracts terminate Q contracts terminate mid 2020 Wholesale rates are approximately 60% of retail Contracts put in place at the time of the TEGNA acquisition in 2014 Wholesale agreements do not reflect fair market value, resulting in unfavorable contract liability Expiration of affiliate agreements expected to provide lift to Revenue and EBITDA as these markets are transitioned into our Retail Channel Investments in expansion of direct salesforce $25 million revenue amortization annually through expiration of wholesale agreements in October Excludes Gannett and TEGNA wholesale agreements which expire in June We may decide to enter into new agreements but will be on arms length terms. 31

32 Affiliate Conversion Provides Significant Upside Indexed ARPD 1 (base = month end of first month post transition) 160 Independent Franchise Months After Transition Market 1 Market 2 Market 3 Market 2 Market 3 Market 1 Select markets demonstrate potential of conversion to direct model to result in higher ARPD ARPD growth of up to 35% over 12 months in select markets Graph does not include the uplift in revenue expected from billing at retail rates 1 Average Revenue per Dealer 32

33 Capital Allocation Priorities Investments in the business M&A Debt paydown 33

34 Appendix

35 Non GAAP Reconciliations Unaudited and in thousands Reconciliation of Net Income to Adjusted EBITDA Three Months Ended June 30, Six Months Ended June 30, Net income $ 24,809 $ 42,020 $ 51,697 $ 75,719 Interest expense (income), net 1,770 (12) 1,729 (12) Provision for income taxes 2,345 2,763 Depreciation 2,909 2,050 5,515 4,131 Amortization of intangible assets 19,468 18,164 38,935 36,328 Stock based compensation Transaction related costs and other 4,560 4,664 Restructuring costs 1,671 1,671 Costs related to the headquarters move 2,731 3,428 Write off and loss on assets 1,383 1,383 Adjusted EBITDA* $ 62,127 $ 62,222 $ 112,266 $ 116,166 Reconciliation of Net Income to Adjusted Net Income Net income $ 24,809 $ 42,020 $ 51,697 $ 75,719 Amortization of intangible assets 19,468 18,164 38,935 36,328 Stock based compensation Transaction related costs and other 4,560 4,664 Restructuring costs 1,671 1,671 Costs related to the headquarters move 2,731 3,428 Write off and loss on assets 1,383 1,383 Tax impact of adjustments (4,563) (5,079) Adjusted net income* $ 50,540 $ 60,184 $ 97,180 $ 112,047 Reconciliation of Cash Flow Provided by Operating Activities to Free Cash Flow Net cash flow provided by operating activities $ 53,016 $ 46,450 $ 96,732 $ 72,308 Purchase of property and equipment (13,301) (2,666) (18,910) (4,795) Free cash flow $ 39,715 $ 43,784 $ 77,822 $ 67,513 * Amortization of unfavorable contract liability is not adjusted out of adjusted EBITDA or adjusted net income. 35

36 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. Traffic (Visits) numbers 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 dealers 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. Multifranchise 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. 36

37 Non GAAP Financial Measures This presentation contains 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 compensation measure. In addition, 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. We define adjusted EBITDA as net income before (1) interest expense, net, (2) provision for income taxes, (3) depreciation, (4) amortization of intangible assets, (5) stock based compensation, (6) write off and impairments of assets, plus (7) certain other one time or non cash charges including transaction related costs, restructuring costs and costs related to the headquarters move. Amortization of unfavorable contract liability is not adjusted out of adjusted EBITDA. We define adjusted net income as net income excluding the after tax impact of amortization of intangible assets, stock based compensation, write off and impairments of assets, and certain other one time or non cash charges including transaction related costs, restructuring costs and costs related to the headquarters move. Amortization of unfavorable contract liability is not adjusted out of adjusted net income. We define free cash flow as net cash flow provided by operating activities less capital expenditures, including purchases of property and equipment and capitalization of internal use software development costs. 37