Good morning, and welcome to the Cars First Quarter 2022 Earnings Conference Call. 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 May 19. A copy of the accompanying slides can also be found on the company's Investor Relations Web site. I'd now like to turn the call over to Robbin Moore-Randolph, director of investor relations.

Good morning, everyone, and thank you for joining us. It's my pleasure to welcome you to Cars' first quarter 2022 conference call. With me this morning are Alex Vetter, CEO; and Jandy Tomy, interim CFO. Alex will start by discussing business highlights from our first quarter; then, Jandy will discuss our financial results in greater detail along with our 2022 outlook. We'll finish the call with Q&A. 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 operating expenses, and free cash flow. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measure can be found in the financial table included with our earnings 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, which are available on the IR section of our Web site. We assume no obligation to update any forward-looking statements. Now, I'll turn the call over to Alex.

Thank you, Robbin, and welcome to our first quarter 2022 earnings call. Our momentum continues, driven by robust dealer customer growth, ongoing product adoption, and record retention, resulting in continued revenue growth for the first quarter. Dealer revenue increased 6% compared to a year ago, and total revenue grew 3% in an inventory-constrained operating environment that has also impacted OEM and national revenue. Consumer demand remains strong, outpacing supply as new car production was muted as a result of the ongoing chip shortage. Sales of used cars, on the other hand, remain robust. This has led to elevated retail prices for both new and used cars, along with soaring profitability for brick-and-mortar dealers. The average retail prices for new and used vehicles listed on Cars.com increased 27% and 37% in the first quarter, respectively, as compared to the prior year. Despite the current market conditions, dealers continue to value and adopt our industry-leading digital solutions. Our consistent value delivery resulted in us reaching 19,500 customers, the highest dealer count in more than three years and an impressive 677 increase compared to last year and 321 compared to the fourth quarter. This is tremendous growth, and we still have ample room to grow our dealer base with over 40,000 dealerships in the U.S. Our solutions are also attracting and retaining a wide spectrum of dealers, both franchise and independent, recognizing the exceptional value we provide across our platform. ARPD growth reflects the ongoing success of our core marketplace, website solutions, and our targeted advertising solutions, despite the impact of inventory shortages. Dealers continue to invest in our digital solutions to add more touchpoints with consumers, which is underscored by our continued growth in website customers reaching 5,500 at quarter end. This expanded network is creating substantial cross-selling opportunities for us to bring additional digital solutions to dealers who seek innovative ways to find and engage customers along the car buying journey. Our marketplace is vital to the success of consumers and dealers. We consistently generate sales from high-quality organic traffic more efficiently than our competitors. For the quarter, leads to dealers grew double digits, and unique visitors increased 2% compared to a year ago. The majority of our traffic comes to us organically, largely driven by our strong consumer brand, the quality of our consumer experience, and our original editorial content that covers the most relevant and timely car shopping advice for consumers. With the recent surge in interest for electric vehicles due to record-high gas prices, we launched EV-related editorial content and a re-imagined landing page with enhanced search functionality to guide shoppers deeper into the purchase funnel. This has generated incremental traffic to Cars.com and elevated our expertise in Google's electric car search results. Inventory searches for EVs are up nearly 200% year-over-year on our marketplace, and our new landing page, which hosts our comprehensive EV buying guide, delivered nearly a 400% increase in SEO traffic in March over the prior month. Our EV expertise has spurred significant national media attention this quarter, including a week-long exposure on the country's #1 morning show, Good Morning America. Our leadership continues in Q2 with the second installment of our popular live stream event where our editors share their EV expertise and answer consumer questions live. We continue executing on our go-to-market strategy, demonstrating the full value of our platform from our leading marketplace and traffic-driving editorial content to our industry-leading technology solutions, all of which empower dealers and OEMs to efficiently scale their business. Michelle Scalise, business development manager for Security Chrysler Dodge Jeep Ram in Amityville, New York, is one such customer. She leverages the full suite of Cars products and appreciates the value delivered from the connected Cars platform. Michelle says, and I quote, 'Cars.com customers are more knowledgeable, and it's very rare that we don't sell them a car. Using Cars for our total solution, including Cars.com, Dealer Inspire, DealerRater, and Fuel, brings everything together, making it easier to run our dealership.' As evidenced by Michelle's testimonial, using our enterprise suite of solutions is a winning strategy. We had great success at the recent NADA Convention, our industry's leading trade show. In just three days, we closed nearly 200 sales across our business, including our newest solutions, CreditIQ and Accu-Trade. Our booth was packed with dealers wanting to learn more about our suite of solutions that are seamlessly integrated into our platform. I'm more than pleased with our strong performance and reception to our new digital solutions, which will begin to launch in the second quarter and have a larger revenue impact in 2023. By far, the biggest dealer need in the current inventory-constrained environment is vehicle acquisition. So, it wasn't surprising that our most sought-after solution was Accu-Trade, a digital vehicle acquisition appraisal and valuation solution. Dealers ranging from single-store to multi-store operators are interested in the value and power of our solution to help them efficiently source inventory with the right valuation and appraisal data to help them buy cars with ease. In March, we began piloting this solution in select markets and are expanding the pilot program during the second quarter. We're extending our end-to-end capabilities and equipping dealers with a much-needed set of solutions to help them drive sales. Our digital financing solution, CreditIQ, also drew strong interest at NADA. We're in the early stages of online financing but are seeing strong demand from dealers and household names in the auto finance industry, who are excited to use our technology to reach larger end-market audiences. The power of our platform is in our high-intent audience with 148 million visits to Cars.com plus an incremental 304 million visits across Dealer Inspire websites. Our opportunity continues to expand with the addition of Accu-Trade and CreditIQ, and we look forward to updating you on the rollout of these solutions. In summary, once again, we delivered results in line with expectations, and I want to reiterate how pleased I am that our momentum continues.

Thank you, Alex. I'm pleased with our solid start to the year. Revenue totaled $158 million, a 3% increase compared to the prior year. Dealer revenue grew 6% to $140 million as a result of 4% growth in dealer customers and 1% growth in ARPD driven by strong customer retention rates and further adoption of our digital solutions. The ongoing inventory shortage continues to impact our OEM and national revenue, which was down 16% from a year ago. New car inventory is expected to begin to recover until the fourth quarter of this year. Despite the macroeconomic headwinds associated with inventory shortages, inflation, and rising interest rates, our diversified business model gives us confidence that we'll deliver another year of solid growth. Turning to expenses, for the quarter, total operating expenses were $147 million, compared to $137 million a year ago. On an adjusted basis, operating expenses were $141 million, $10 million higher compared to the prior year. This increase is primarily due to an increase in marketing, including the return to an in-person NADA, as well as higher product and technology expenses driven by higher compensation and consulting costs, including the addition of the integration of CreditIQ and Accu-Trade. Net income for the quarter totaled $4 million, or $0.06 per diluted share, compared to $5 million, or $0.08 per diluted share a year ago. We delivered adjusted EBITDA at $42 million or 27% of revenue within our guidance range. Margins for the quarter reflect our product mix, lower OEM and national revenue, and higher growth in our solutions business. Now turning to our key metrics, our business is underpinned by strong fundamentals. The value we deliver attracts and retains dealers, evidenced by the growth of 321 dealers in the quarter, putting us at 19,500 dealer customers at quarter end. This is our highest number of dealer customers in more than three years. Our website business also continues to grow. As of March 31, we had 5,500 website customers, up 800 from a year ago. Dealer Inspire revenue in total grew 15% year-over-year. ARPD for the quarter grew 1% year-over-year, driven by growth in our digital solutions and fuel products. Generating unique high-quality traffic is something we've consistently delivered for our dealer and OEM customers. For the first quarter, we had 26.6 million average monthly unique visitors and 148.5 million visits. We grew our UVs, which best represents in-market car shoppers, by 2% year-over-year, while traffic was down 5%. More importantly, our value delivery was up. We grew our leads to dealers 12% year-over-year. All of this, despite inventory levels being down more than 30% year-over-year. For the quarter, cash provided by operating activities was $30 million, and free cash flow was $26 million, $18 million lower than the first quarter last year. This decline was primarily due to a $9 million cash tax refund that we received last year in the first quarter related to the CARES Act and higher compensation payments in the current year period. During the quarter, we borrowed $45 million on our revolver and, together with cash on hand, funded the upfront purchase price of Accu-Trade, resulting in total debt outstanding of $520 million at quarter end and net leverage of 2.7 times. Net leverage improved from 2.9 times a year ago. While 2.7 times is slightly above our target range of 2 to 2.5 times, we are comfortable with this temporary step-up to fund M&A given our consistent strong cash generation. We have $185 million available on our revolver, and our total liquidity was $215 million at the end of the quarter. With our strong balance sheet and modest net leverage, we began returning capital to shareholders. In March, we made the first purchases under our recently authorized share repurchase program, buying 338,000 shares for a total of $5 million. Now turning to guidance, for the second quarter, we expect to deliver revenue between $161 and $163 million, representing year-over-year growth of 3.5% to nearly 5%. This guidance reflects the continuation of our solid first-quarter performance as well as the ongoing industry-wide inventory shortage, which will continue to mute our growth. This low production environment, further delays in new model releases, and lower incentive spend have a negative impact on our OEM and national revenue specifically. While dealers are experiencing record profits and our retention rates remain strong, dealers and OEMs are less inclined to increase or shift their advertising budgets during this time. We expect revenue growth to accelerate throughout the year as our growth in our subscription products accumulates and we roll out and ramp up our newly acquired products. We are reaffirming our full-year expectations for revenue growth between 6% and 8%, with double-digit growth in the fourth quarter. Our guidance assumes inventory shortages begin to recover in the fourth quarter, and the macroeconomic environment does not have a worsening impact on car buying consumer behavior and dealer spending on products and solutions. Our expectation for the second quarter adjusted EBITDA margin of 26% to 28% reflects the impact of our projected revenue mix with lower OEM revenue and growing solutions revenue, as well as higher year-over-year expenses as we continue to invest in marketing and in our people, including the integration and launch of our recently acquired dealer solutions. Adjusted EBITDA margin is expected to approach 30% by the fourth quarter as revenue growth accelerates and OEM and national revenue begins to recover in connection with inventory. In conclusion, our business is well positioned for continued growth, particularly during this challenging macroeconomic environment; our team remains focused on execution and delivering value to our consumers, customers, and our shareholders. With that, I'd like to turn the call back over to Alex.

Thank you, Jandy. I'm pleased with our progress in advancing our platform strategy, enabling OEMs and dealers to better compete in a rapidly evolving industry that's driven by changing consumer preferences. And with that, we're ready to begin our Q&A.

Thank you. Your first question comes from the line of Dan Kurnos of The Benchmark Co. Your line is open.

Great, thanks. Good morning. Alex, nice result on the dealer customer growth; it's pretty positive, especially in this environment. Maybe just a couple of things. I know it's super early with the acquisitions you've made, you were at NADA, you're having conversations. Jandy just made comments about the tough environment. So, how are you thinking about things? I feel like I ask this a lot, but it's especially important now. I think how are you thinking about things like bundling, trying to get these guys locked in to longer-term commitments? Or I know you're doing some piloting and testing right now, especially on the C2B side. So just help us think through the strategy here and how it evolves maybe over the coming quarters in light of the backdrop and trying to just continue the strong dealer momentum that you see, now that you have kind of a more robust product to offer.

Sure. Thanks, Dan. Good to hear your voice. We were very pleased with the dealer growth in the quarter and see a continued opportunity to add dealers to our platform because, to your point, we've got a range of solutions that start from entry-level to those we feature in the call who participate with us across the full enterprise suite of solutions. So, I think that gives us tremendous flexibility to solve dealers' individual problems and then grow the relationship over time. You're seeing that in our strong ARPD in that we're able to sell more solutions. When I look at the opportunities with both Accu-Trade and CreditIQ, keep in mind these are opening up brand-new TAMs for us. On CreditIQ, we've now been in active discussions with all the large U.S. lenders who are eager to determine how they can better compete for market share. And then, on the vehicle acquisition side, every dealer that we've talked to is interested in adding tools that will help them buy cars from the street. Knowing that we've chosen solutions that meet customer needs gives us a wide net of opportunity on ARPD. Then certainly, the cross-selling opportunity grows because, to your question about contracts, I'd say we're less focused on trying to lock dealers into long-term contracts. We're winning with value, and we're winning with service. Our philosophy is we want to attract dealers based on our innovation, but we're going to retain them with service and value delivery. That's what you see; double-digit lead delivery growth, website solution sales continue to grow, and now these new products will add to our capabilities.

And just to be clear, Alex, the conversations even in this environment, obviously, given sort of the uncertainties from the macro front, you're basically trying to communicate, though, that you're still having very constructive conversations, and there's no hesitation in these communications.

Yes. First of all, we know that dealers are reporting record profits and they are eager to shift their business aggressively toward technology. If there has been any softness, it's in areas like fuel and broader marketing strategies in this environment, due to limited inventory. However, on the Technology Solutions side, there is a strong interest in how they can operate their dealerships with fewer resources by relying on technology. Therefore, the only areas that are currently soft for us would be OEMs, who do not have product to promote and are not as active as a result.

Got it. And just on the marketing front, Alex, just as we kind of go forward throughout the year, understanding again sort of the tricky macro, you guys are investing. You've got a bunch of stuff to invest against now, which I think is very telling for '23. Just how do you balance maintaining sort of healthy EBITDA levels versus going after the TAM expansion that you talked about over the coming quarters, depending on how the environment evolves?

Dan, it's Jandy. It's a great question. One of the things that's so great about our business is the tremendous strong cash flow that we're consistently generating. It gives us a lot of options, right? So obviously, we've been a company and continue to be a company that's very, very focused on profitability and cash flow. But in the end, we can use that cash flow to invest back into our business, which is what you're seeing with the numbers this year, right, with the guidance we've given for the rest of the year, as well as our results here this quarter, we're putting a bit more money back into marketing into our people and these acquisitions, which you see across our operating expenses. Certainly, it's a balance. And as the revenue mix changes, we're mindful of impacts to cash flow, but we're constantly looking for investing back into growth in the business.

Got it. Thanks very much. And a solid start to the year.

Thanks, Dan.

Thanks, Dan.

Your next question comes from the line of Tom White of D.A. Davidson. Your line is open.

Thank you. Good morning, guys. I guess first off, Alex, could you maybe talk a little bit more about Accu-Trade solution there and maybe how that offering is differentiated from some of the other competing consumer digital platforms out there? And I guess, sort of as a follow-up, should we anticipate any kind of normalization in the growth rate of that business? I know it's still early, but I'm looking forward to a period when local dealers' used inventory levels start to normalize and they start getting inventory from the more traditional channels like consumer trade-ins at the dealership. How do you see the growth rate of the Accu-Trade business behaving once that happens?

Sure. Well, Tom, we're in pilot right now with our dealer partners, and they're helping us develop the proper go-to-market here. But I can share a couple of examples. I mean, dealerships are spending, in some cases, in excess of $10,000 a month on various tools from different suppliers that we can bring together through Accu-Trade. Whether that's pricing and analytics or trade-in widgets on their website or third-party services that allow them to source cars, in many cases dealers have three to five different vendors trying to do these things for them at any given time. If you look at what Accu-Trade does, our pilot go-to-market is on a subscription basis. We see an opportunity to enter into a variable model as well, particularly as we get into dealer-to-dealer trading. But we are intentionally being somewhat disruptive on pricing because we believe that dealer networks want fewer tools from a smaller number of vendor providers, and we certainly are bringing a suite of enterprise strategy to the dealer network. When you look at the strength of the trade, it really comes down to a few things, such as VIN-specific valuation capabilities that are far more precise than, say, generic make-model-mileage-type valuation tools in the market. They don't rely on third-party inspections. We are also backing up the Accu-Trade offer with a guarantee. We have a lot of factors helping dealers buy cars without any friction between them and the seller. We're doing it in a Software-as-a-Service type model where dealers know that we're enabling them to do this, not just online but in their physical stores and service lanes, using Accu-Trade across their whole business and not just as one narrow buying channel. You're going to hear more about this next quarter as we reveal some of the success stories from our pilot, but there's no reason every dealer in the country wouldn't want Accu-Trade.

To further that point, there's no reason that a change in consumer behavior would impact the way dealers are looking to acquire vehicles. This is something that they can continue to use going forward. There is no reason to change if the trade-in is at the dealership; they can use Accu-Trade to properly value the car and buy it on the spot in the physical form. Great point.

Got it. I appreciate that, Jandy, thanks. And then, just a quick follow-up, apologies if I missed this, but did you guys comment on whether dealer count and ARPD grew for the core listings business this quarter?

It did.

Your next question comes from the line of Naved Khan of Truist. Your line is open.

Hey, guys. Thanks for taking the question. This is Vincent on for Naved. Two questions, if I may. So the first thing that dealer inventory appears to be improving, and we've seen some signs of price inflation somewhat settling down. So, how do you expect these dynamics to affect marketplace revenue growth over time? And the second, on the outlook for the EBITDA margin approaching 30% by Q4, how confident are you in OEM ad spend rebounding to pre-COVID levels by then, given new car inventory is now expected to recover into the latter half of the year?

Sure. First of all, it's interesting to note that while inventory levels for new cars are significantly down, the used car business remains strong, with dealerships maintaining healthy inventory levels, especially those that utilize technology to acquire cars. Despite a decrease in used car pricing, our subscription model is somewhat linked to inventory levels. We believe our average revenue per dealer (ARPD) is quite strong given the reduced inventory levels, and many of the new dealer additions in recent quarters are coming in at lower subscription rates than last year due to overall diminished inventory. As inventory levels rise, it may help to stabilize or even increase ARPD, as it is connected to this dynamic. I think there’s an opportunity for us, and I'll let Jandy address the second part of your question.

Yes. Yes, absolutely. From an outlook perspective and the margins you were asking about, the margins reaching 30% by the end of the year aren't necessarily directly tied to OEM revenue returning to growth. We are certainly expecting it to not get worse and to recover, remaining rather flat by the end of the year from a year-over-year perspective. We're not assuming massive growth in OEM by the end of the year, but more of a recovery and being flat from a year-over-year perspective. Just to clarify further, from a marketplace perspective, ARPD and dealer growth have grown overall, but the core marketplace ARPD was a bit down year-over-year. It's the solutions and the fuel business that really drove the growth year-over-year. Like Alex just said, the pure marketplace subscriptions were a little down year-over-year, and I wanted to clarify that.

Awesome, thank you.

Thank you.

Your next question comes from the line of Doug Arthur of Huber Research. Your line is open.

Yes, thanks. Jandy, just to clarify, are you saying the ARPD for the core listings business was down? Or that total revenues attributed, excluding new solutions, fuel, and Dealer Inspire, was down a little bit year-over-year?

Actually, I don't know the answer to that because we don't look at it broken out that way. But actually, no, here it is. It was up. Marketplace, just the core solutions, was up year-over-year, driven by customer growth.

Okay, Alex, if I understood correctly, you mentioned that the new dealer core listing marketplace customers are being acquired at a lower price. It seems the adoption of the new solutions must be quite strong since your overall ARPD is up. Is that an accurate interpretation?

Well, dealer customer growth, right? Just the customer count alone, even though it's coming in at a lower rate, it's still bringing in incremental revenue. So yes, the combination of those two factors leads to revenue growth year-over-year. Does that answer your question?

Yes, okay. Going back to the margin outlook, considering the various demand factors for the remainder of the year, how do you manage your expenses, especially in marketing? How flexible do you feel, or how much leeway do you have with these expenses depending on revenue outcomes?

It's a fair question. We certainly have flexibility in different areas of the business. Marketing is one example. I think we've proven to be strong operators, especially when you consider our performance two years ago during COVID. I'm not suggesting we implement all the same measures we did at that time, but there are other areas where we can reduce spending if our revenue comes in lower.

Okay, I got it. Thank you.

Thanks, Doug.

Thank you, Doug.

Your next question comes from the line of Gary Prestopino. Your line is open.

Thank you, good morning Alex and Jandy. I have a couple of questions. First, regarding the closing of nearly 200 deals in NADA, can you clarify whether most of those deals were point solutions? Or did you also attract a significant number of new dealers interested in signing up for your marketplace business?

Well, they were across the board, Gary, but the majority of the dealer sign-ups there were wanting to participate with us with Accu-Trade. It was an absolute home run on that front. We're beginning the enablement and the production side of all those orders now in Q2, getting those initial pilot dealers up and running.

Were most of the dealers signing up for Accu-Trade independents rather than franchises, or was it a mix across the board?

It's almost all franchises. NADA largely is a big franchise dealer show, but we do have tenant operators that are interested for sure.

Okay. So, from the time that you sign these entities up for either Accu-Trade or CreditIQ, how long does it take for you to actually roll out the product to the dealer and the dealer to start using the product?

We're working through a lot of those details. We can turn on the digital side fairly quickly, particularly because we have all the dealers' information already in-house, either through Dealer Inspire or any of our existing solutions. I think for the dealers that want to use Accu-Trade for their in-store appraisal process and even in their service lanes, that certainly requires a little bit more time to get them to fully appreciate the totality of the solution. But we can start revenue recognition and dealer value delivery really quickly. It's just trying to get the whole dealership operation to embrace the tech takes a little more time.

So it's really a training issue to make sure that they fully appreciate everything the product does...

Right.

Would you know if the dealers that signed up for Accu-Trade had a competing product, and they were going to double source or were these dealers that didn't really have a product to source cars from consumers?

I think the answer is both there, Gary, because part of the value is sourcing sales either from their website or from our marketplace. Dealers across the country have various tools that do that today. Certainly, none are integrated to do both through one technology. For instance, a dealer will use a third-party vendor for a widget on their website, they'll source leads through various third parties or a buying matrix-type solution, and so they're using multiple tools. With Accu-Trade, they can do all of those things through one interface. Dealers are reporting that they can save a lot of time with fewer things to train people on. They can buy cars directly from their website and from Cars.com; it's far easier. I do think we will replace a lot of existing tools, but there is no reason we can't also be in addition to other solutions that they use.

Okay. And do they have to be a marketplace customer to use Accu-Trade? Or can you sell this as just a point solution?

They don't. But I will tell you, we've already won back a lot of dealers to the marketplace because when they heard about Accu-Trade, they wanted to buy Accu-Trade and then said, let's get back onto the marketplace as well because now we can sell cars and buy them from you. So, that's been a nice positive as well.

Okay. And then, a couple of more questions, I promise I'll get off. Just in terms of as we look at the expenses as a percent of sales in the quarter, are those levels as a percentage of sales pretty much going to be consistent throughout the whole year, Jandy, in terms of revenue operations, product technologies, marketing, sales, and G&A?

Marketing and sales is a bit elevated in Q1, frankly, because of NADA. Year-over-year, you see that. But also, if you look at the trend going out through the rest of the year, it will come down a bit. We're still expecting to spend more each quarter than we did last year, but it will be lower than Q1. Product and tech is, from a pure dollar perspective, a little light in Q1 simply because we only owned Accu-Trade for one month. With Accu-Trade being fully integrated for the rest of the year, you'll see a little bit of a step up there. And then G&A, you have to look at it without stock-based compensation. Stock-based compensation will increase a little because we brought more employees into the equity program this year. So, stock-based compensation will be out. But for normalized G&A, it's probably flattish for the rest of the year.

Okay, and then just lastly, on your share repurchase. Just curious, you only repurchased 338,000 shares in the quarter. Were you locked out of buying your stock after the announcement that you had left or was leaving?

We certainly do have restricted trading windows. Because of the timing of when we put the plan in place, we didn't have the opportunity to establish a 10b5-1; they needed a 30-day cooling-off period. So, that's part of the reason why the shares were concentrated toward the beginning of the month.

Okay, thank you.

Thanks, Gary.

There are no other questions over the phone. I'll turn the call over back to Alex Vetter, CEO.

Thank you for your interest in Cars, and enjoy the rest of your week.

This concludes today's conference call. Thank you for participating. You may now disconnect.