28/02/2021 - Cars.com Inc.: Earnings Document

Corrected Transcript

Total Pages: 18

CORPORATE PARTICIPANTS

Jandy Tomy

Sonia Jain

Treasurer, Cars.com, Inc.

Chief Financial Officer, Cars.com, Inc.

T. Alex Vetter

Co-Founder, President, Chief Executive Officer & Director, Cars.com, Inc.

......................................................................................................................................................................................................................................................

OTHER PARTICIPANTS

......................................................................................................................................................................................................................................................

MANAGEMENT DISCUSSION SECTION

Operator: Good morning and welcome to the Cars.com Fourth Quarter 2020 Earnings Conference Call. Hosting the call this morning is Alex Vetter, Chief Executive Officer; and Sonia Jain, Chief Financial Officer. This call is being recorded and a live webcast can be found at investors.Cars.com. A replay of the webcast will be available until March 11th. A copy of the accompanying slides can also be found on the company's investors' site. Following today's presentation, there will be a question-and-answer session with Alex and Sonia.

I'd now like to turn the call over to Jandy Tomy, Treasurer.

......................................................................................................................................................................................................................................................

Jandy Tomy

Treasurer, Cars.com, Inc.

Good morning, everyone and welcome to our fourth quarter and full year 2020 conference call. Before I turn the call over to Alex, I'd like to draw your attention to our forward-looking statements and the description and definition of non-GAAP financial measures, which can be found in our presentation. We will be discussing certain non-GAAP financial measures today including adjusted EBITDA, adjusted EBITDA margin, adjusted net income, and free cash flow. Reconciliation's of these non-GAAP measures to the most directly comparable GAAP measure can be found in the financial tables included with our earnings press release and in the appendix of the presentation. For more information, please refer to the risk factors included in our SEC filings including those in our Annual, Quarterly, and Current reports. We assume no obligation to update any forward-looking statements or information as of the respective date.

At this time, I would like to turn the call over to Alex.

......................................................................................................................................................................................................................................................

T. Alex Vetter

Co-Founder, President, Chief Executive Officer & Director, Cars.com, Inc.

Good morning everyone and welcome to our conference call for the fourth quarter and full year of 2020. On today's call I'll be discussing business highlights from our year and fourth quarter and provide an overview of the expectations and priorities for 2021. I'll then hand the call over to Sonia who will discuss our financial results in greater detail.

CARS delivered impressive results in 2020 despite the pandemic we grew ARPD for the second consecutive quarter and grew dealer customers in three out of four quarters this past year all while reaching record levels of traffic and lead generation. Our performance resulted in a return to year-over-year revenue growth in the fourth quarter.

In 2020 our team also maintains strict spending discipline and continued to invest strategically in the business, driving incredibly strong quarterly and annual adjusted EBITDA and cash flow. In a subscription business like ours, it's important to remember how impactful a strong year-end exit rate is and how well it positions us as we enter 2021.

The accelerated adoption of digital products and solutions by our dealer customers has been core to our success. Until 2020, many dealers were reluctant to fully embrace a digital-first strategy. The pandemic accelerated car dealers' adoption of digital tools and we have seen a marked increase in dealers subscribing to our digital solutions. And we expect the trend that emerged from the stay-at-home economy to endure.

Despite signs that the stay-at-home requirements are subsiding, the preference for cars is a mode of transportation and car ownership persists. And consumers are appreciating the convenience of shopping when, where and how they want. Not only are dealers embracing technology to meet the changing expectations of car shoppers but they are also finding meaningful efficiencies in their businesses. Today the showroom is both physical and digital. The range of car solutions are perfect to satisfy traditional showroom sales and also equip dealers to meet the demand for digital retail as a strategic imperative.

Marketplaces like Cars.com are and will continue to be vital to the success of dealers because we are a valuable platform for attracting in-market shoppers and sales at scale. During the severe restrictions over the past year consumers flocked to our platform to research, shop and connect with local dealers online. We responded by creating tools for dealers to more effectively showcase their services and available inventory. Our home delivery and online shopping badges, which identify the dealers who offer these services have seen incredible adoption since they were launched. In fact we have badged nearly 20 million vehicles to date. We also saw a material increase in the number of customers leveraging our CARS social and FUEL products as dealers seek to connect with our targeted in-market car shopping audience.

The Cars.com Marketplace has a unique advantage in its ability to efficiently drive high quality in-market traffic. Today we generate over two-thirds of our traffic from organic sources, which allow us to balance and control our marketing spend while providing unique audience to our clients. Cars.com attracts a high volume of quality direct traffic driven by the industry's number one brand, most popular mobile app, credible editorial content, ratings and reviews.

Our industry-leading editorial content is an important sustainable advantage and differentiator for our consumer experience and another lever supporting our organic traffic. For example, this month we've been announcing our annual Best Of awards, which reveal the best cars in five categories. This unique content initiative continues to win favor from consumers and drive new visitors to the site.

The industry also recognizes our authority, even showcasing our awards in their own advertising and press. Just in the last two weeks both Volkswagen and Hyundai issued press releases publicizing the Best Family Vehicle and the Best Value Vehicle awards they received from our editorial staff, a demonstration of how impactful it is to earn credible third party validation for their vehicles.

In 2020 organic traffic grew 10% and mobile traffic grew 12% year-over-year, demonstrating the increasing strength of our brand and the shift towards online car shopping. Our organic traffic coupled with a surge in online activity and a more favorable SEM pricing environment led to our ability to reduce our year-over-year marketing investments while still achieving growth. Despite materially reduced investment particularly in the second and third quarters, Cars.com posted record traffic and lead numbers in 2020. Traffic and unique visitors were up 8% and 5% year-over-year respectively, and leads were up 13% year-over-year. While traffic is an important measure of performance, we are ultimately focused on delivering high quality connections to our dealers in an effort to maximize their ROI, traffic and leads that are more likely to translate into sales.

Another metric that has been increasing in importance is website referral traffic, which represents the consumers who start shopping on a marketplace like Cars.com and then click through to the dealers' website. Dealers consistently cite leads from their own website as converting at the highest level. Data from thousands of website customers last year showed that Cars.com sent three times more ready-to-buy car shoppers to dealer websites compared to its nearest third-party Marketplace competitors. In addition, these Cars.com shoppers purchased cars from those dealers at twice the rate of those who solely visit a dealer website.

As dealers are increasingly focused on digital metrics the strength of our referral traffic helps demonstrate our platform strength and quality attribution, leading to our record retention rates. Unlike our competition we don't need to spend nearly as much in traffic acquisition because our brand and original content drives the vast majority of our traffic. In 2020 73% of our traffic was generated by organic channels. With our value building and the strength of our year-to-date traffic and leads, in the fourth quarter, we prioritize longer-term investments into our brand to continue to ensure its number one position and long-term health. Those investments coupled with the strength of our audience and value delivery to our dealers is reflected in the strong retention rates and growth in our dealer customers in the second half of this year.

We grew our dealer customers by over 300 dealers in the second half of 2020, and nearly half of this growth was from Marketplace. We are experiencing record high customer retention rates, and that momentum continues into the first quarter of 2021. Our differentiated digital solutions strategy played a key role in facilitating auto sales for our customers, as dealers embraced online selling and virtual tools to engage with consumers. Our tools allowed dealers to compete virtually and supported increased and more efficient sales. Dealers have been able to continue to leverage some of these operational efficiencies even if restrictions eased, enabling them to reach new levels of profitability.

Dealers leverage our digital solutions to have more touch points with consumers in their car-buying experience. Today we power 4,400 dealer websites, having added 1200 new website customers in 2020. Online shopper and Conversations penetration rates also have grown from 14% and 25% last year to 20 and 27% at the end of 2020. Keep in mind these penetration rates are on top of a growing base of website customers. We expect to see growth as we continue to deliver on other business in our pipeline as well as complete the initial launch of the GM website in 2021.

We also see an opportunity to help to dealers to leverage digital advertising to sell more cars. In the fourth quarter we announced that FordDirect selected Dealer Inspire as a preferred digital advertising provider for its US Ford

This is an excerpt of the original content. To continue reading it, access the original document here.