Good morning and welcome to Cars.com Inc.’s Fourth Quarter and Full Year 2023 Earnings Conference Call. This call is being recorded and a live webcast and accompanying slides can be found at [email protected]. An archive of the webcast will be available at cars.com Investor Relations website. I’d now like to turn the call over to Robbin Randolph, Director of Investor Relations. Thank you. Please go ahead.

Good morning, everyone and thank you for joining us. It’s my pleasure to welcome you to the Cars.com Inc.’s fourth quarter and full year 2023 conference call. With me this morning are Alex Vetter, CEO; and Sonia Jain, CFO. Alex will start by discussing the business highlights from our fourth quarter and full year, then Sonia will discuss our financial results in greater detail along with our 2024 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 measures can be found in the financial tables included with our earnings press release and in the appendix of our presentation. Any forward-looking statements are subject to risks and uncertainties. For more information, please refer to the risk factors included in our SEC filings, including those in our most recently filed 10K is available on the IR section of our website. 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 fourth quarter and full year 2023 earnings call. 2023 was a strong year of growth as we executed on our strategy to enable our industry. We delivered another quarter of solid performance, exceeding our guidance. We grew revenue sequentially across marketplace, digital experience, trade and appraisal, and media solutions. For the year, ARPD grew 7%, resulting in $689 million in revenue, a 5% increase year-over-year. Our recurring revenue model supports our strong adjusted EBITDA, which was $195 million, representing a 28% margin, and we ended the year with more than 19,500 dealer customers and rebounding OEM interest in our retail media network. 2023 also marked a year of significant strategic progress. Our team executed on meaningful initiatives that advanced our platform strategy and we continued to invest in innovation for both consumers and partners to drive further growth. For our partners, we united our B2B brands under Cars Commerce, making it easier for them to do business with us and reinforcing our commitment to simplifying everything about buying and selling cars. This underscores our differentiated platform with a powerful combination of audience, technology, and data. During the fourth quarter, we also expanded the Cars.com geographic footprint into Canada with the acquisition of D2C Media, a leading automotive technology and digital solutions provider. The integration of technology and teams is well underway. And throughout 2023, we introduced new simplified marketplace subscription packages, enabling customers to seamlessly leverage our platform capabilities. This resulted in nearly 70% of repackaged marketplace customers opting for a higher-tier subscription package that will drive continued growth in both revenue and adjusted EBITDA. We’re actively helping our customers drive commerce by consulting them on how to win the customer journey. Our dealer experience report helps dealers improve and differentiate their retail experience. For example, George Lawton, the Marketing Operations Manager of Schomp Automotive, a 12-store dealer group in the greater Denver area, has been actively monitoring the experience report each month to manage the reputation of his stores. Since leveraging this report, Schomp’s dealerships are trending up in every experience category. Importantly, we had a record year for customer submitted reviews, now totaling more than 13 million; we continue to have the largest number of reviews in the industry, cementing our leadership position and reputation management. Moving on to enhancements we made on our consumer experience on Cars.com, we debuted a new feature called Your Garage, enabling consumers to track and trend the real-time trade-in value of their car with the Cars.com instant market value. Initial results have been positive. Consumers leveraging Your Garage visit our marketplace 70% more frequently, reducing our reliance on paid media. We also launched the all New Car Hub to help consumers and brands connect. With new car inventory up 36% in January and with approximately 70 new model launches planned for 2024, including a record number of EVs, OEMs and dealers need to stay in front of undecided shoppers. New Car Hub combines Cars.com’s proprietary research with OEMs’ branded content and why-buy messages directly into our marketplace. OEMs showcasing their vehicles on New Car Hub see increased consumer engagement in their make and models with increases in share of search volume, traffic, and leads. Helping OEMs and dealers work together to promote inventory and drive commerce is core to what we do. We’re also leveraging technology to make our industry more efficient. We continue to lead with innovation as early adopters of AI. We have expanded the use of generative AI to support the user experience in our marketplace. We’re also in the market with several tools such as AutoCorrected, which identifies and highlights important features in seller notes, and our conversations tool powered by AnaBot that helps our customers streamline and improve their operating efficiency and user experience. Our ongoing investment in AI technology reflects our commitment to innovation and the enhancement of our services. In addition to enhancing our consumer and customer experiences, we continue to innovate and promote our original content and #1 marketplace brand, Cars.com. Recall that the majority of our traffic comes to us organically. Unlike others, we don’t rent our traffic; we own it, a true differentiator amongst our competitive set. To further our advantage, Cars.com has the number one most downloaded auto marketplace app where organic traffic increased 10% year-over-year. Besting in our brand, generating great content and leveraging our editorial expertise, I’m pleased to report that we set a new all-time company record for total traffic in 2023, reaching 615 million visits, a 5% increase from the prior year. Our platform offers a winning combination of demand generation and industry-leading tech solutions that deliver significant value. Our website business continues to grow, and at year-end, we powered approximately 7,300 dealer websites, including D2C. With the expansion into Canada, our TAM expands as more dealers are interested in our website solutions that are supported by the Cars Commerce platform. Dealer usage of AccuTrade, our trade and appraisal solution, also continues to climb. We ended the year with more than 880 AccuTrade connected customers. For the quarter, dealers conducted more than 590,000 appraisals, a 15% sequential increase. Our technology enables dealers to quickly and efficiently buy and sell inventory while helping maximize profits and improving the customer experience. As used car inventory becomes more constrained and used car profits come under pressure, it’s more important than ever for dealers to reduce their dependence on expensive auctions and source cars more cost-effectively. AccuTrade enables dealers to save an average of $1,300 per vehicle in costly auction and transportation fees by enabling them to buy cars directly from their customers. Unlike other services that generate leads that don’t close or run auctions without sufficient buyers or sellers, AccuTrade is a complete buying solution that enables dealers to source cars from their showroom, service lane, website, and the Cars.com marketplace. AccuTrade also offers the most accurate pricing and value for vehicles because we leverage not only Cars.com’s robust retail, supply, and demand data, but we also have in-house industry experts who make real-time market adjustments. While the rest of the industry relies on historical trends and broad category-based wholesale data for ranges, we accurately price every car. Our OBD scanner automatically syncs detailed mechanical findings from the customer’s vehicle to inform the appraisal in real-time. AccuTrade doesn’t just focus on the history of the vehicle; we focus on its health, uncovering needed repairs that save dealers an average of $650 per vehicle while also providing consumers with greater transparency of the data, powering the cash offer, thereby reducing negotiation friction between the buyer and the seller. Dealers can now buy more cars from their own customers, driving greater profitability as they can now avoid the costly auction altogether. We are proud that FordDirect selected AccuTrade as their brand’s preferred trade and appraisal solution for the shop, a newly launched preferred vendor selection program for their more than 3,000 Ford and Lincoln retailers. OEM endorsements help speed adoption, and we are excited about helping Ford and Lincoln dealers take advantage of our technology. Cars Commerce has deep data and analytical capabilities. We recently launched our new industry insights report, which analyzes supply, demand, pricing, and consumer behavior data from across the Cars Commerce platform. The January 2024 report revealed that the automotive industry is shifting to a buyer’s market with more affordable new cars and increased new car inventory up 36% year-over-year. Used cars' scarcity is also increasing with used vehicle listings down 4% compared to the prior year, indicating increased volatility in the used car market this year. While many marketplaces are solely focused on used cars, our new car content and expert insights coupled with improving new car inventory best position us to help OEMs and dealers stimulate demand and move inventory. We recently gathered at the National Auto Dealers Association Conference, the largest annual gathering of U.S. dealers and industry leaders. The show provides an opportunity for us to consult with thousands of current and prospective customers, gather their feedback and demonstrate our newest solutions. I want to thank those of you who were able to join us for our first-ever NADA investor breakfast. It was great seeing many of you in person as we were able to provide a more hands-on experience of our Cars Commerce solutions like AccuTrade and VIN Performance Media, a new advertising solution that dynamically positions a retailer’s VIN-specific inventory in front of the right shoppers across search, social, and display. The single solution approach saves time and money while maximizing ad performance and operational efficiency. NADA clearly showed that our strategy is working, and we remain focused on simplifying everything about buying and selling cars and creating exceptional value for consumers, dealers, and OEMs. Looking ahead, we remain squarely focused on five growth drivers: grow and sustain engagement with our market-leading audience, grow dealers and cross-sell our solutions to generate more leverage for our customers, create tiered experiences for OEMs, and create more platform advantages. Our momentum is strong. We are growing demand for our connected platform and empowering our consumers and customers, unlocking both top and bottom-line growth. Now for more details on our solid results and 2024 outlook, I’ll turn the call over to Sonia.

Thank you, Alex. We ended the year with robust Q4 revenue growth and adjusted EBITDA margins that exceeded our guidance. Revenue grew sequentially throughout the year, reaching $180 million for the quarter, a 7% increase over the prior year. Including the 2 months of D2C Media revenue, revenue increased 5% year-over-year, and we delivered our 12 consecutive quarters of year-over-year revenue growth. Our strong quarterly performance was driven by dealer revenue, which grew 8% year-over-year to $161 million. OEM and National revenue also increased to $15 million, up 8% compared to the prior year and up 6% sequentially. Notably, the OEM portion of OEM and National revenue increased significantly by 24% year-over-year indicative of increased production, new model launches, and a year-end list as OEMs invested the balance of their advertising budgets. Other revenue was down approximately $2 million compared to the prior year due to the planned expiration of a non-cash AccuTrade license agreement with another marketplace participant that expired in early 2023. Turning to expenses: for the quarter, total operating expenses were $165 million compared to $148 million a year ago. It is worth noting that, unlike CreditIQ and AccuTrade, the earn-out associated with D2C runs through operating expenses, primarily in G&A and is a partial driver of the year-over-year increase by $3 million. On an adjusted basis, operating expenses were $151 million, $10 million higher than a year ago, primarily due to our continued investment in people, a $3 million increase in depreciation and amortization and investments in marketing to support the launch of our B2B brand, Cars Commerce. Net income for the quarter totaled $8 million or $0.12 per diluted share compared to $10 million or $0.15 per diluted share in the prior year. The change in net income is primarily attributable to changes in the fair value of contingent consideration associated with our prior acquisitions, specifically CreditIQ and AccuTrade. Adjusted EBITDA for the quarter was $55 million or 31% of revenue, exceeding our guidance. Sequentially, our margin expanded approximately 250 basis points and year-over-year our adjusted EBITDA increased 12% or $6 million. Now moving to our full-year 2023 performance. Revenue totaled $689 million, up 5% year-over-year. Dealer revenue increased 7% to $622 million driven by growth in websites, AccuTrade, our 2023 marketplace repackaging initiatives, and media sales. OEM and National revenue was $56 million or 5% lower compared to the prior year. The strength in our OEM revenue was offset by continued softness in National revenue, largely related to a significant pullback from our insurance customers due to macro and environmental factors. Additionally, other revenue was down approximately $4.5 million, primarily related to the aforementioned non-cash AccuTrade agreement. Turning to expenses: full year total operating expenses were $635 million compared to $588 million in the prior year. On an adjusted basis, operating expenses were $38 million higher compared to last year. This was largely driven by increased compensation and employee-related expenses, particularly in marketing and sales and product and technology. In addition, as we’ve accelerated product development and technology investments, depreciation and amortization expense was also up year-over-year. In addition to compensation, marketing expenses were also slightly higher year-over-year as we invested in both our consumer and B2B brand with our Cars.com Possibilities campaign and the launch of the Cars Commerce go-to-market brand. Net income for the year totaled $118 million or $1.74 per diluted share compared to $17 million or $0.25 per diluted share in the prior year. Current year net income was primarily related to the release of a significant portion of the Company’s valuation allowance for deferred tax assets that was recorded in 2020. Adjusted EBITDA for the full year was $195 million or 28.3% of revenue compared to $187 million or 28.6% of revenue in the prior year. Now turning to our key metrics. While we experienced some variance in our dealer customer count related to the impacts of our 2023 marketplace repackaging initiative and the sunset of digital dealers, we added 950 new dealer customers through the acquisition of D2C Media and ended the quarter with 19,504 dealer customers compared to 18,715 dealer customers for the third quarter of 2023. As you can see, our platform strategy is working. ARPD grew 7% or $162 to $2,523 driven by the strategic decision to include more of our platform offerings in higher tiers of our marketplace packages and increased dealer adoption of digital solutions. Our platform strategy ultimately drives higher customer lifetime value by improving both ARPD and retention through our enhanced value delivery. As an audience-driven tech company, our ability to deliver a large and engaged audience to our customers is critical to the value we provide them. For the quarter, we delivered 143 million visits, a 2% increase compared to the prior year. Average monthly unique visitors were 24 million for the quarter. Our asset-light business model consistently generates attractive free cash flow conversion. Net cash provided by operating activities totaled $137 million for the year. Free cash flow was $116 million, $7 million higher compared to the prior year, driven primarily by an $8 million increase in adjusted EBITDA and favorable changes to working capital, partially offset by an increase in cash taxes of $17 million. Our strong financial profile enables us to execute a balanced capital allocation strategy, which includes value-creating investments in the business, a thoughtful acquisition strategy, and return of capital to shareholders, all while maintaining modest leverage. In 2023, we repurchased 1.7 million shares or nearly 3% of total shares outstanding at the start of the year. As of December 31, 2023, we have $120 million remaining on our share repurchase authorization. Total debt outstanding at year-end was $490 million, and our net leverage of 2.3x remains squarely in the middle of our target range of 2x to 2.5x. We have ample liquidity at $234 million, which includes $39 million of cash and cash equivalents and $195 million of revolver capacity. Now turning to our guidance, we expect to deliver another year of strong growth. Market conditions for our in-market solutions are improving. With increased OEM production, new model launches, and rising dealer inventory, coupled with a still cautious consumer, our in-market solutions are more valuable than ever. With that as a backdrop, we expect to deliver first quarter revenue of $179 million to $181 million or year-over-year revenue growth of 7% to 8%, which reflects continued growth in dealer revenue driven by ongoing adoption of our suite of products, the D2C acquisition, and the full period impact of the 2023 marketplace repackaging initiative. OEM and National advertising revenue is also expected to be up year-over-year, but historically it has experienced some seasonality from the fourth quarter to the first quarter. For the full year, we anticipate continued dealer and OEM adoption of our platform, which is reflected in our revenue growth guidance of 6% to 8%. As we continue to make strategic investments that support our growth, we anticipate adjusted EBITDA margins for the first quarter to be between 27% and 29%. Recall, we usually make seasonally higher investments in marketing and sales in the first quarter due to the timing of in-person industry events, and 2024 is no different. We expect margins to improve over the course of the year and anticipate delivering full-year adjusted EBITDA margins between 28% and 30%. Capital expenditures for the year are expected to range between $23 million and $25 million. Cash taxes are expected to increase slightly to approximately $20 million, and overall, we anticipate delivering another year of free cash flow growth. In summary, we delivered strong results for 2023 driven by our focused execution. Looking ahead, we are well-positioned to deliver sustained value for consumers, customers, and our shareholders. And with that, I’d like to open the call for Q&A.

Thank you. Your first question comes from the line of Rajat Gupta from JPMorgan. Please go ahead.

Great. Good morning. Thanks for taking the questions. Congrats on the good quarter as well. I had a first question just on the 2024 guidance, the 6% to 8% revenue guidance. Could you give us a little more granularity on what the breakup of that or how much is RPD versus just like-for-like price increases versus just product mix? How much is dealer count, OEM, revenue, etc.? Any more granularity would be helpful. I have a follow-up. Thanks.

Yes. Thanks for the questions, Rajat, it’s Sonia. Maybe I can start by giving a little more color and let’s see if it helps a little bit. One of the things that’s factored into our full year guidance is the acquisition of D2C. So if you recall, we bought that business in November and captured 2 months of revenue in 2023, and we’ll get the full benefit of that acquisition in 2024, along with sort of our efforts to continue to integrate that business, which means more sales of AccuTrade in Canada, leveraging kind of the combined OEM endorsements that exist between our two companies to go faster in terms of Canadian expansion. We’re also positive on OEM and National revenue. We saw some positive performance in that business in Q4 that we’re really excited about. While there may be a little bit of lumpiness from Q4 to Q1, just in terms of how OEMs spend their budget, we expect a good year with inventory levels rising, new model launches, EV releases that require consumer education. Lastly, on dealer revenue, that’s been just a really strong portion of our business over the last several quarters, and I don’t think anything has changed. Our focus is really on trying to grow ARPD there on an organic basis, and we think we have the ability to do that just given the suite of products that we have and the continued penetration. At NADA, we saw a lot of really positive interest in our new media product as Alex was just talking about, VIN Performance Media. Additionally, we saw a lot of really strong interest in AccuTrade. You may have noticed we got an endorsement from Ford. We have a lot of other OEMs that are excited to partner with us, particularly given some of the used car pricing volatility that’s out there. So we generally see and are optimistic about the growth trajectory for 2024 across all of our lines of business.

Got it. That’s helpful color. And then just on the dealer count, I noticed that excluding D2C Media, it was down sequentially maybe a little more than what we would’ve expected. One of your peers talked about some continued pressure on the independent used car dealer side of things. Curious, how should we think about that for 2024 in terms of implications? What’s kind of like embedded in your guidance in terms of behavior from those customers? You also mentioned in the presentation that you essentially have no digital dealers on the platform anymore, and curious, are you seeing – are you expecting any of that to change just on the digital side as well in 2024? Thanks.

Hey, Rajat, great questions. First of all, I’ve seen this cycle a number of times in my tenure in the space. What I will tell you is that Q4 tends to be a softer period in terms of dealer net ads, and then we’re seeing that spill over into Q1. I think it’s largely attributable to the macro environment where profitability concerns regarding the price of used cars, lower inventory levels available in the market, new cars not selling as fast, and dealers take a general reactive stance where they cut expenses dramatically in the short term and then revisit whether or not they should bring them back. We see that too in our business. I wish it wasn’t the behavior of our industry, but it happens. The good news is with our strong traffic trends, our organic concentration on organic traffic, we’ve proven that we win a lot of these dealers back even when they do blink because of current trends. Broader forecasts for this year are healthy and strong, so we feel very good about the full year view, but I know we’re feeling some choppiness right now as dealers are panicked about the current environment. We’re out working with dealers on this stuff. The good news is that when you look at the bulk of where our growth is coming from, it’s on technology solutions that actually help address the profitability concerns dealers are feeling. Yes, it’s a slower sales cycle to sell our solutions, but once we get those solutions sold, we see a halo effect and stickiness for the whole platform. Those would be the big headlines. Finally, I just want to echo what Sonia said: we look at the new car side of the business, and the bulk of our business is with the franchise dealer community. We don’t index heavily in the independent dealer community like some of our peers. They are also looking at us for media solutions that can help them move those new cars. This gives us strong footing heading into this year.

Got it. And on the digital independent side, anything that’s changed or you expect to change? I know there are not many digital used dealers left, but just curious about that.

We’re not expecting that to be a growth driver in the business. As you noted, we have none of those dealers in our current counts, so we don’t have any downside exposure to those operations. There should be upside. I believe that anybody trying to buy or sell cars in the auto industry needs to be with our platform, but we’re not needing those segments to come back in order to deliver our guide.

Got it. Great. Thanks for the color.

Thank you. And your next question comes from the line of Thomas White from D.A. Davidson. Please proceed.

Great. Thanks for taking the questions. I guess first off on OEM, the OEM component of the OEM and National entity, you said up 24% in the quarter. Sonia or Alex, can you remind us when the insurance advertisers that kind of cut spending, when do we fully lap that? Can we think about OEM continuing on that trajectory for the balance of 2024? I guess maybe a slightly bigger picture one, I think you said you grew traffic 5% last year, and revenues also grew 5%. Can you just talk a little bit about your ability to kind of grow the business in excess of traffic growth in 2024 and the years beyond as you build up some of these products that are less dependent on traffic? Thanks.

Maybe I’ll – thank you for the questions, Tom. Maybe I’ll take the first one on the insurance component. I think that really sort of spiked as an issue at the beginning of 2023. We should be lapping some of those challenges by now. Looking to 2024, I do think the Q4 year-over-year growth that we saw in OEMs, I wouldn’t necessarily use that as the run rate going forward. Investment sometimes comes more in Q4 based on the timing of releases and their advertising budgets. However, we think 2024 has a promising outlook when it comes to the OEM and National side of the business.

Yes, I echo that. If you look at the past 12 quarters, we’ve been steadily growing dealer revenue and total revenue for the business despite OEM headwinds. The correlation between traffic and revenue, I think is more coincidental because much of our revenue growth has come through non-traffic dependent solutions like AccuTrade or our dealer-inspire websites. These don’t have a traffic dependence. We’ve outrun declines in National for a few years now with strong dealer and ARPD growth. Now that OEM new car production levels have returned, we’re seeing increased interest in our solutions. There's a healthy picture forming here. We believe we can sustain our traffic levels because we’ve got the brand, we’ve got the content, and we are focusing on tightening up the conversion funnel and the dealer performance highlighted through the dealer experience report.

Okay, great. Maybe just one last one, if I could slip it in. Alex, when you’re talking about the five growth pillars, I think you mentioned unlocking more platform advantages. Could you just elaborate a bit on what you meant there?

Sure. I think there are two things. One, we’re trying to create more leverage for our dealer partners, who are looking for fewer point solutions and more connected tech. When we say we want platform efficiencies, we want to be able to deliver more products and solutions to dealers at lower costs by leveraging a common backbone or the infrastructure of Cars.com and giving that power to our dealers. When we lay it out on the slide you’re referring to, it’s just about driving internal operating efficiencies here as well. As you know, last year, we started integrating our sales teams from our various platforms. That was part of the rebrand towards Cars Commerce, which enhances our ability to sell all of our capabilities as opposed to one or another. Finally, tightening up backend operations helps us deliver faster turnaround times for our customers, consolidating point vendors, and negotiating preferred agreements for various processes.

Great. Thank you.

Thank you. And your next question comes on the line of Naved Khan from B. Riley Securities. Please proceed.

Hi, thank you. A couple of questions from me. Maybe just on, as I think about your 2024 sort of ad spending on marketing activities, how should I be thinking about that relative to 2023 and how should that grow or not? The second question I have is just on the VIN Performance Media. The demo at the NADA show was pretty aggressive. What are you baking in in terms of contribution from this in your annual guidance?

Well, I think in terms of marketing expense, which I think you were asking about, we expect to see some modest increases in marketing expense on a year-over-year basis, but I don’t think anything particularly dramatic. We continue to be focused on trying to deliver that engaged consumer audience to our dealer and OEM partners and how to think about elevating our brand in both the minds of the dealer and the consumer. I think your second question was on VIN Performance Media?

That’s right.

We have – I guess for lack of a better word, it’s baked into the guidance that we’ve provided. We really just launched it at NADA. We’ve done a very small pilot prior to that. So the benefit of that is going to roll in throughout the year, and you should think about it as a bit of an extension to the existing media buy that dealers are already making with us. It will benefit our numbers; it’s baked into our guide.

Got it. And so Sonia, just to clarify your answer on my first question on the ad spending, so as a percentage of revenue, it shouldn’t really change in ‘24 versus ‘23, or how should I think about that?

Yes, it’s pretty – I think we’ve been pretty consistent on a percentage of revenue basis now, and so it’ll stay in that same ballpark.

Understood. Thank you.

Thank you.

Thank you. And your next question comes on the line of Kunal Madhukar from UBS. Please go ahead.

Hi, thank you for taking my questions. A couple from me. One on the cookie-less world that we may be going into, I don’t know how quickly that gets ruled out, but at the investor breakfast at NADA, you talked about how a significant proportion of your traffic comes direct and is organic that you don’t need to pay for. Can you help us understand how you intend to capitalize on the brand and loyalty of consumers that you’ve built? The second question on the AccuTrade side, so one of the things that was apparent from the NADA show was everybody seems to have a similar offering to help dealers with used cars or getting used cars on their dealerships. Why should a dealer use you and AccuTrade versus some other service and what stops them from using multiple services? Thank you.

Great questions, Kunal. Thank you. First of all, the demise of cookies has been talked about for years, and I think it’s proving to move a lot slower than the early projections of when it would actually crumble, but we see it as a tailwind for us. The absence of cookie tracking technology being more prevalent means that brands must spend more money on first-party audiences, of which we have the largest original retail media network of any of our peer group that’s solely in-market car shoppers. Ninety percent of our audience is undecided, and nearly all of them are in the market right now. The business using third-party technology companies or inferred audiences will have weakened conversion rates and programs, forcing brands to spend more with first-party marketplaces. To your point, what do we do to generate loyalty? The average consumer in the U.S. is only in the market once every several years. So having a brand that’s synonymous with car shopping is one of our edge factors, as we generate much of our traffic organically or directly. We rolled out features like Your Garage, which allows consumers to register their car long before they are in-market, and we send them real-time updates on their car's worth and recommend trade-in solutions, which helps develop that organic relationship with our platform and brand. Our records for traffic growth after 25 years reflect a strong formula for value capture and delivery. Your second question was about AccuTrade and the assertion that everybody has a similar solution. I would challenge that; yes, there are many dealer-to-dealer trading platforms, but many of them lack a true network effect. Housing platforms have sellers but no buyers or vice versa. AccuTrade gives dealers direct buying power from their own customers. It allows appraisals to shift from hours to minutes and saves them tons of money compared to auction prices. With the constraint in used cars continuing, we’ll see auction prices increase. With AccuTrade, we maintain precise valuations tied to vehicle health, saving dealers money and enabling them to focus on profitable transactions. AccuTrade is distinctly different from other leads-generating services.

Thank you.

Thank you, Kunal.

And your next question comes from Doug Arthur from Huber Research. Please proceed.

Yes. Good morning. Sonia, did you mention anything about Dealer Inspire in terms of growth in the quarter and the number of dealers in the system?

I didn’t – I don’t think I gave the growth. We had another year of double-digit year-over-year revenue growth associated with that portion of the business. However, I will tell you that increasingly going forward, as we continue to integrate products across the platform, being precise on that number becomes challenging as we focus on cross-selling. In terms of total website customers, I think Alex may have mentioned we ended the year with about 7,300, and that includes, to be clear, customers acquired through D2C.

Right. So, that’s 950 in the fourth quarter, okay. Because I think the number you gave out on Q3 for website management was 6,300.

6,350.

6,350, sorry. Okay. So, I don’t mean to harp on this, did the growth slow a little bit as the comps get tougher in the fourth quarter or did it continue on a very strong trajectory at Dealer Inspire?

Yes. There was kind of like this one-time bump from the addition and bringing D2C onto our platform. We also saw continued growth at both DI and B2B in the fourth quarter in terms of new website launches. We’ve talked a little about it particularly a couple of quarters ago; we will continue to add websites as part of the Dealer Inspire business, but we’ve largely secured all of the endorsements that are out there. So, the pace of which websites are getting added will change a bit because it’s not as though we suddenly win a big piece of business with 800 customers that you can go after. We are adding customers; we are also focused on cross-selling, upselling, and moving folks up the Dealer Inspire package levels to get them features and options that help drive their business. That will show up in ARPD.

Okay. And I guess actually on ARPD, I mean obviously up 7%, very solid, although sequentially it looked a little lower, is that the D2C impact?

Yes. We would have been at about 9% if you adjusted out D2C; they just come in with a slightly lower ARPD.

Hey. Good morning everyone. A couple of questions, Alex or Sonia, what amount of CreditIQ, how many dealers have now signed up for CreditIQ by year-end?

We have to get back to you on an exact number. We folded the CreditIQ solutions into our top-tier packages. I would say north of…

It’s over 11,000.

Okay. That’s fine. And then in terms of this marketplace repackaging, you said about 76% of dealers had opted for a higher tier at this point?

Yes, over 70%.

Is that about the peak of where you think you are going to get at this point, or do you still think there is room to move that needle higher?

In terms of the dealers on premium packages? Yes, it’s clear to us that the inventory turn rate of dealers in our premium tiers is significantly faster than dealers participating at basic tiers. I do see a path for us to continue to demonstrate to dealers that spending more with us improves their business. We are rolling out additional new solutions like VIN Performance Media that I think will lead to a premium tier that continues to buy from us, versus just the dealers that run only our marketplace as their only spend. There is growth for both; that would be the point. We might always still have a 20% of dealers in the lowest cohort of spending, but it doesn’t mean that they can’t grow too.

That’s great. And then Alex, maybe, and I know it’s a very different company than it was years ago, but in the period of 2009, 2010, where we were coming off a real big trough in auto sales, going into ‘11, ‘12, ‘13 when sales were up pretty nicely, what was the dealer behavior and the OEM behavior at that point? Did they kind of en masse go for more services that the company offered, or was it basically a slow ramp that moves with the increase in car sales over time?

Boy, it’s hard to compare the past with the present because so much has changed. Particularly, the level of digital sophistication in the industry is significantly higher. What’s exciting to me now is that not only were the OEM upfronts much more engaging, but there’s now interest from EV automakers and dealers that were previously on the sidelines with us. The level of inbound interest to, 'My vehicles aren’t selling as quickly as they used to, what can you do for me?' is much more proactive today than it has been in prior years. We have always had to educate, and now I feel that shift is happening. Additionally, word of mouth on our digital solutions is also gaining steam; I think that’s a tailwind, especially for AccuTrade because dealers that have moved to buying cars from the public rather than auctions are acquiring other stores and consolidating dealerships.

And then just lastly…

Those would be the top trends; I would say those are the big differences, I would see from the periods you talked about to what I see today.

Okay. And then just lastly, with this endorsement by Ford for AccuTrade, what do you have to do to prepare to sell more into Ford with AccuTrade, or does that endorsement just really help with dealer uptake of the product?

It helps dealers who say, 'I can’t spend any more in this environment because I am trying to cut back.' It allows us to point to the co-op funds available for the dealer to use from Ford, which removes price as an objection. It’s not going to change the rate of sales in the sense that we’re not expecting huge volumes coming at us, but it does give us a lot of reason to go to Ford dealers above all else because we take price off the table as an objection.

So, when Ford gives this co-op incentive, what percentage of AccuTrade do they end up paying for? Can you make that public, or is that not something you can share?

No, we don’t disclose Ford’s allocations to their dealers, but this is nominal. I mean nominal. Thank you, Gary.

And your next question comes from Marvin Fong from BTIG. Please proceed.

Good morning. Thanks for squeezing me in here. So apologies, I missed the prepared remarks, but I did have a follow-up on the FordDirect endorsement and just curious how you should think about that adoption curve now that you are part of the shop platform. Should we think about it as more of a burst of adoption in the next quarter or two quarters, or should it be more of a gradual build in addition to your normal client wins? And then the second question, just noting the full year guidance calling for 28% to 30% adjusted EBITDA margin. That’s a similar margin that we have seen in the past few years, and it’s a very strong margin, but just curious, do you ever foresee breaking above 30%, or do you think that this is the margin that’s appropriate for the firm and one of the drivers of continued top-line growth? Thanks.

A couple of comments there, and thanks for the questions. I think you should look at the FordDirect selection of AccuTrade as more affirmation of a product that’s in its nascent stages of market entry. Many people have not fully understood the power of AccuTrade; the Ford team did diligence and selected us after much homework. This shouldn’t be the last OEM endorsement to achieve because many are now being asked to assist their dealers more digitally. Additionally, we saw very engaging upfronts with OEMs. As we scale AccuTrade, I believe it will foster increased sales rates for Ford dealers in the summer months of this year as we educate dealers. But I see it more as affirmation than a rush of customers. Regarding margins, I know that we have ample opportunities to invest and grow; picking the right growth-generating areas is our hardest job as stewards of capital. Yes, the business could exceed 30%, but we prioritize sustained growth over the mid to long-term. We aim for a balance between harvesting and positioning for future growth.

The only thing I’d add is we are seeing progress on margins. If you look at the guide we’ve given for the full year and even the guide for Q1 on adjusted EBITDA margin relative to what we delivered last year, you’re starting to see that progress. We do want to continue to grow this business profitably.

Okay. That’s terrific. Thanks, guys.

Thank you. There are no further questions at this time. I will now turn the call over to Mr. Alex Vetter, CEO. Please go ahead.

I just wanted to thank everybody for their interest in Cars Commerce. We are going to continue to share our story and look forward to seeing many of you as part of our upcoming IR engagements. Quick notes, on February 26th, we are going to be at the JPMorgan High Yield Conference in Miami. On February 28th, we are going to host investor meetings in Minneapolis with Barrington Research. Details about these events, as well as the recording of our investor breakfast at NADA, are available on the events section of our IR website. You can also download our industry insights report, which we have posted there as well. This concludes our call for today and thank you and have a great day.

Thank you. Ladies and gentlemen, this does conclude our conference for today. Thank you all for participating. You may all disconnect.