Q2 2022 Cars.com Inc Earnings Call
Adjusted operating expenses and free cash flow.
Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measure can be found in our financial tables included with our earnings press release and in the appendix of the presentation.
For more information please refer to our risk factors included in our SEC.
Which are available on the IR section of our website, we assume no obligation to update any forward.
Yeah.
Now I will turn.
Thank you Robyn and welcome.
So our second quarter 2022 earnings call.
We delivered another quarter, demonstrating the strength of our solution.
For our marketplace.
Total.
Core revenue and dealer revenue both.
Prior year revenue growth.
This was attributable to ongoing product adoption and strengthening customer retention.
Which offset unsurprising decreases in OEM and national revenue, which are a direct reflection of the continued production challenges.
Despite the macroeconomic uncertainty consumer demand persist, albeit in an environment with limited supply.
Just as they may delay their purchase due to a mix of factors, including limited inventory elevated vehicle in gas.
As prices and rising interest rates.
We expect these trends to continue for the remainder of this year as reflected in our second half guidance at the same time. We are also seeing the benefits of pent up consumer demand and the growing strength of our durable solution strategy.
As a result of production challenges Oems are eliminating their advertising and promotional spending for the remainder of 2022.
We still plan to grow at 6% to 8% in the second half of this year driven by dealer solutions, which will accelerate into 2023, he needs of both consumers and dealers as we continued to deliver relevant digital solutions in advance.
As a reminder, our strategy.
Strategy is about connecting buyers and sellers across a range of solutions built for them.
A common tech platform that reinforces our value.
There are three key drivers to our success this quarter.
<unk> content and technology.
Which I'll highlight before turning the call over to <unk> for more details on our financial performance.
<unk> for the quarter unique visitors to the Carter's dot com marketplace increased 3% compared to a year ago. This was driven by the strength in our original content and brand authority.
Our trusted editorial content is an established area of strength and expertise not only the regulatory content provide the most relevant shopping advice, but it's an efficient way to engage with shoppers early in their purchase journey in June we released our 2022 American made index, where Tesla claim the most American made.
Vehicle for committed index delivered a 44% traffic increase compared to the.
Prior year supporting our strong SCO position and strengthen our brand leadership.
With more than 500 press placements.
We believe that the combination of end market shoppers and a contextually relevant environment will help cars flourish. Despite many of the challenges affecting the broader media industry and will normalize.
Let's turn to our technology solutions.
The marine environment and is reflected in <unk>.
Accu trade's valuation.
Capabilities enhanced trends.
For our industry.
A far more profitable way for dealers to acquire cars is to buy them directly from <unk>.
From the general public bypassing the bidding wars and traditional auctions.
This week, we announced the nationwide launch of instant offer on cars dot com that less private parties get a competitive cash offer from a local dealership sell their used car and picked up a check in the same day.
Piloting instant offer in May we've generated more than 5000 qualified cash offers to individuals looking to sell their vehicle quickly and efficiently.
We've experienced tremendous inbound interest in accu trade and there is no better way to demonstrate that value to dealers tend to have one of their own leading the way.
I am pleased to operations experience coming to us directly from the germane automotive group, a well respected and successful operator, where he leveraged accu trade to transform the wholesale operations.
And to one of the most profitable parts of the business.
Since our rollout of accu trade at our dealer customers.
Customers are seeing improvements in three critical areas.
Operational efficiency.
Thanks Ray.
<unk> <unk>.
Sporting a 58% increase in used car margin.
Acquired a 130 vehicles.
In the first 60 days of using our solution.
And Crown has moved to a prison.
Vehicle valuation.
As dealers start to see and discuss with Accu trade is doing for their dealership profitability.
We will continue to scale the.
The financial contribution from this subscription product in 2022.
It is relatively low but it will have a more material impacts as we rollout and ramp throughout this.
We also continue.
At quarter end, we powered 5650 dealer sites.
And I am excited to share that Subaru certified website and technology.
LNG provider, giving spi.
570 dealerships in the U S.
And anticipate deploying our first season.
Third quarter of this year.
I think budget reductions across the entire.
<unk> solutions are growing.
Proving the power of our diversified.
Solutions portfolio.
In total we are seeing our platforms.
Strategy pay off in dealer growth and growth in average revenue per dealer at quarter end cars had 19517 dealer customers, a 672 customer increased sequentially and year over year.
AARP increases.
Driven by the ongoing success of our digital solutions.
In summary, we delivered.
<unk> delivered another quarter of solid results at the high end of our quarterly guidance.
We are well positioned to further our growth in the second half of this year and beyond through the continued realization of our platform strategy and now I will turn the call over to <unk>.
Alex like Alex I'm pleased with our continued momentum we delivered strong results in the second quarter revenue and adjusted EBITDA were very strong.
And both were at the high end of our guidance setting us up well for continued growth and margin expansion for the remainder of 2020 tail and setting up a great starting off point for our subscription business in 2020.
Which grew 5% year over year.
As a result of 4% growth in dealer customers and 1% growth in AARP, which was driven by continued adoption of our Camden National revenue, which is clear.
Closely correlated with the ongoing production challenges with 13% down compared to a year ago.
Note that accu trade also contributed to our growth in the quarter, which youll see primarily in the other revenue line item.
Connected product this subscription revenue will show up in dealer revenue and continue driving our AARP growth.
Despite the ongoing inventory shortages inflation rising gas prices and interest rates our products.
Our diversified business model and value, we deliver to our customers gives us confidence that we will continue to deliver solid growth.
Moving on to expenses.
For the quarter adjusted operating expenses were $139 million 6 million higher compared to the prior year. This into your expenses, including compensation and consulting costs related to the accu trade in credit IQ acquisition.
As planned marketing and sales investments increased to help drive traffic and growth solutions.
Net income for the second quarter totaled.
So $6 million or <unk> <unk> per diluted share essentially.
We delivered adjusted.
Good EBITDA of $45 million or 28% of revenue.
Again, the high end of our guidance sequentially margin expanded by 100.
Based on these solid quarterly results.
Okay and by strong fundamentals.
We retained dealers evidenced site growth and 672 dealers or 4% year over year.
Sure putting us at 19517 dealer customers at quarter end.
<unk> only customers.
Particular single digital dealer.
The financial and operational position.
Prohibited them from continuing to partner with Us <unk>.
Excluding these two items dealer customers would have still grown during the quarter.
We continue to push for growth in the universe.
The continued adoption and growth in our digital solutions fueled 1% year over year AARP growth.
Growth and 2% sequentially.
Our website business also continues to grow.
<unk> customers.
650 from a year ago, and up 150 sequentially dealer.
14% compared to the prior year.
<unk> high quality traffic and an engaged audience is something we've consistently delivered for our dealer and OEM.
We had $27 million.
8 million visits.
<unk>.
30% year over year however.
Due to elevated traffic and the price.
Every year related to strong consumer.
And from the 2021.
Federal economic stimulus plan.
Our performance and strong execution.
We continue to enable substantial cash generation, which we have been investing back into our business strengthening our financial profile and returning to shareholders through our share repurchase program.
Cash provided by operating activities for the six month period, ending June 32020 tail with $42 million and free cash flow was $34 million cash flow in the current year period was down year over year due to three primary reasons.
Timing of payables.
We had one extra payment Ron in the current year period second lower year over year, EBITDA and third recall that last year, we had a $9 million income tax refund associated with the cares act and our ability to carry back our NOL.
As a reminder, this.
Temporary step up reflects last quarter's borrowing to fund the accu trade stable at this level due to our strong.
Consistent cash generation, we anticipate getting back within our target range in coming quarters.
Okay.
We continue to maintain ample liquidity with $185 million available on our revolver supplementing our cash on hand.
Our strong balance sheet provides us with the financial flexibility to return <unk> for $18 million.
Bringing our total shares repurchased this year to $2 1 million representing.
3% of our shares outstanding.
Now turning to guidance for the third quarter of 2020 sale, we expect to deliver revenue of approximately $265 $5 million, representing continued solid year over year growth as well as sequential growth.
Our guidance reflects our strong first half of 2022 performance balanced against the continuing industry wide inventory shortages and a challenging macroeconomic environment.
We expect our adjusted EBITDA margin for the third quarter to be between 29%, 31%, reflecting sequential margin expansion and our focus on profitability.
Expense management optimizing for growth.
For the second half of 2022, we expect revenue growth of 6% to 8% year over year, assuming the inventory does not recover before 2023.
While we are encouraged by the Oems this year.
Our guidance reflects continued momentum and sequential revenue growth based on performance of a well executed and integrated solution strategy.
In conclusion.
As we look to the second half of the year, our strong financial position leaves us poised to execute and deliver value and profitable growth for this year and beyond with that I'd like to turn the call back over to Alex.
Thank you Jamie our platform strategy is working revenues growing and diversifying and margins are expanding the business continues to prove resilient and sustainable in many market conditions and despite the challenges of the current environment, we are confident accelerate our solution.
<unk>.
Operator, we're ready to begin the Q&A.
Absolutely.
Like to ask two questions.
Followed by one of your telecom.
Hi, Bill.
Yes.
Please remember to pick up your handset.
Right.
A question are necessary.
Your first question comes from the line of David Cohen.
Two unsecured.
Okay.
Thanks.
Yes, Thanks a lot.
Just a couple of questions to one.
We can provide some color.
Hello, there on.
And then.
This data.
<unk>.
And it was positive.
About demand there from the dealers and in terms of the attitude.
I think right now you're having a subscription model.
Touch on Mike.
Such great monetization.
Yeah.
She continues to grow thank you.
Thank you. Thank you.
Since our debut at <unk> with.
With accu trade connected the cars dotcom.
<unk> response has been overwhelming with VNS.
Dealers, we've done over 1000 deaths.
Since that time.
As you know we are selling a subscription product. So it's not like you can sign up and configure something for free it's going to take US a lot more time to get the booking for billable dealers in.
We've got a ramp and onboard them.
So average onboarding time for a dealer with accu trade it takes more than a few weeks, where say our marketplace takes.
<unk> 48 hours and so.
There will be a slower ramp here as we get dealers on board, but as we shared on the call. There has been meaningful to our accu trade solution.
On vehicle acquisition.
Time efficiency in the dealership and overall more accurate vehicle valuation which is savings.
Given the dealer money and reducing friction between buyers and sellers and so we know we're going to end this year with a really strong exit rate and then this is adding meaningful subscription revenue our guide room to take that further but we want to build some critical mass in market share.
Because I think dealer voices will be our best marketing and testimonial than.
Then we will look at a DVD trading based on transactions.
Transactions, but that will be phase II.
Got it and then just one.
Uh huh.
Okay.
Recognize them.
We will come here.
Yeah, well, we just.
Launched we just launched a consumer use.
So as we got to a pretty healthy.
We've got dealers and almost.
The re city now already using accu trade and so we felt that we could turn on the consumer functionality on <unk> Dot com nationally we made a press announcement this week and.
And we will begin marketing that directly to consumers Ironically, we don't need to do much marketing because as you know we get the propensity of our traffic through organic means and so we're already seeing significant consumer volume on both vehicle appraisal and instant cash offer without any incremental marketing spend.
<unk>.
I think as we scale dealers that may change because we are good.
During this functionality on where again.
Meaning sufficient.
Volume to support the dealers that we've got and importantly, accu trade is more than just the opportunities that we generate dealers are using mist to appraise vehicles in their service lines.
Dealers like we shared on the call.
Pork and some cases or process.
We're seeing hundreds of.
Appraisals using <unk> technology.
In addition to the opportunities that we are generating for them through cars.
A quick follow up if I may.
Just talk about Google recognized.
I think it does.
Participants.
Sure. So so we're of course monitoring googles move because the longtime advertiser on Google.
Across our dealer business as a solutions provider and so I'll just share that we've seen both positive and negative.
With impacts I think <unk>.
First on the BDC side.
So it's more efficient.
We're seeing.
Our own participation in the channel generate cost per action.
Okay.
Because we're providing larger AD forms and architectural content into the environment.
Got it is that.
<unk>.
Jim I guess, the upshot for that.
As we were watching our competitors.
And we're maintaining our pace.
Original content.
And operating model and so.
So there is it's a mixed bag there.
Doomed, mostly by the larger participants.
And most of our competitors are having to bid.
Which two or in some cases, three and <unk>.
Organic ranking and Thats not an issue that we're seeing at this time.
For our brand I think on the dealer customer side, where we also are hearing frankly lukewarm feedback.
We're buying DLA to Google's search bar.
Not high intention in the moment, it's very preliminary research.
Even more so than cars dot com for auto and so.
Yes.
Okay.
Okay.
Google search bar than they are from.
Our.
Vehicles.
Generating almost five times more efficiency for the dealer then the Google vehicle ads.
So I think we feel really good about the strength of our subscription offering relative to this open auction.
But we're watching it closely.
Okay. Thank you.
Thank you Ms.
Great.
Thanks.
Yes.
Yeah.
Another question on instant offer.
We're already but how many of your 20000, almost 20000 dealer base do you believe would be good customers with instant offer.
And a follow up question just on EBITDA margin guidance for third quarter was quite strong.
Almost 30%, which I think previously you said it would.
Be more like fourth quarter.
So you would get there is this a sustainable level or is it just a function of pulling back on marketing spend or other expense items you could just comment on how you see EBITDA margin performing that'd be great. Thank you.
Sure well first of all from a Tam standpoint, if you think about the way dealers buy cars today 40 dealers are sourcing cars at auction.
They are.
They all have legacy systems, and then the digital auction.
<unk> again.
30000 dealers minimum buying cars through these these dealer dealer auction so.
I look at Accu trade and say like this this pam can be larger than any of our other solutions that we've introduced are not occurs dot com customer using accu trade to appraise vehicles accurately into itself and so.
It has a potential that that could be wider than our marketplace, but at the same time. We are integrating these things so that dealers see the benefit of both being on our marketplace.
Thanks Vince.
Accu trade deals.
Lee on their vehicle detail pages on cars dot com, so when they're marketing to consumers shopping for a car. They can begin the trade in process online directly from their cars dotcom vehicle listing ads.
I do think it's going to take time to ramp accu trade because again, it's not just signing up for free and configuring, what you want to buy.
So that.
The diligence to understand what does it take to use accu trade to appraise their cars on boarding teams and we've got more.
For subscriptions now that we need to get launched and live.
With growing demos.
From a margin perspective Marvin.
It's actually a combination of both incremental revenue so as our cities.
Build and grow we're getting nice flow through to the bottom line and connection with also careful cost.
Marketing is about 25% of our total operating expense and we're planning on that.
That being at about the same level as it was in the second quarter, but thats elaborate events.
Across the whole business, we're definitely watching expenses and optimizing for growth, but it's a combination of both.
Nice flow through from the revenue perspective, as well as the expense management.
Terrific. Thanks, Alex Thanks, Andy appreciate it Mr. Peng.
The next question comes from the line of Gary Konstantinos.
Okay.
Sir you May proceed.
Good morning, all.
Thank you, Eric and kind of a number of questions here.
Just want to clear up one thing was with accu trade in this instant offer.
Does the dealer have to be a marketplace.
Sure.
Customer to get Accu trade.
<unk> for a lower fee, Gary and use the accu trade functionality and our own website and in store.
Want to get the connected package, which.
Okay.
Okay sonar and Norway.
They are most most of them already.
Desire to be.
Inventory from the open market.
Okay. So in other words.
And soon offer has kind of worked through.
<unk> trade is that correct or is that just a separate product.
The car with a number on it.
The interesting guaranteed from from Us and buy the car directly from the consumer but the opportunities flow directly into accu trade.
So that's what I'm, saying is.
There is still no matter, what a dealer in order to do instant offer is still going to have something to be on the accu trade platform. It might not be the same of our marketplace sky, but they're still going to have to pay right.
That's correct.
Okay, Okay, no that's fine.
<unk>.
And then with the Subaru business.
Are they also offering their dealers.
Sign up for you on the website.
Okay.
I don't believe Theres co op dollars eligible for <unk>.
For the website they negotiated with us on.
Partner pricing, so that in terms between us and Subaru.
A lot of our Oems do offer.
Coal co op dollars for marketing services that go above and beyond the base website brew is eligible will check.
Today.
Okay.
That's fine and then lastly, I just want to clear something up here.
You said you had a net increase of 17 dealers along with that and that includes $180.
If you do the math.
Net loss of 163 dealers.
And then it cancellations related to a single digital dealer.
Europe .
That are or maybe an rmi right with my math, there because thats just a single digital dealer how did how did you lose some in outer years.
So many dealers.
So the single customer has multiple locations of the subscriptions are based on the locations where theyre advertising inventory.
So with that cancellation.
Asia.
That more than offset the addition of the accu trade dealers. The 180 <unk> is there a digital dealer.
They don't they should mob location.
<unk> all done on the web so that's what I'm trying to understand.
Yes, Gary.
Because we charge based on the DMA. So if a digital dealer wants to sell cars in San Antonio in order for those cars to appear in San Antonio ZIP codes, they need to pay for access to that market and so whether physical dealers don't have to think about this and worry about this but the virtual dealership.
Certainly every time they want to expand their reach.
And have their searches appear more.
Okay.
That clears it up thank you very much.
Thanks, Gary.
Thank you Mr Prince with Needham.
If you would like to.
Selling for a question star followed by one.
Okay.
The next question comes from the line of Tom White with D. A.
Okay.
Great. Thanks for taking my question.
Good morning, I guess.
1% was up 1%.
Maybe disaggregate a little.
So a bit kind of the different moving pieces there.
There between I guess maybe pricing.
How should we think about AARP.
Growth.
Kind of in the back half of this year.
I have a follow up on the Super Bowl.
Yeah, Yeah, so from a solution.
The perspective, that's really what's driving the growth in AARP solutions and fuel.
Also as you probably remember has been.
He says across the dealer base.
And so the AARP de growth.
For downgrades related to lower inventory levels. So as you know are part of our pricing is dependent.
And upon how many cars dealers have on their lives and with the significant declines over the last two years, well six quarters I suppose.
<unk> put pressure on the marketplace on.
On the marketplace AARP D. The other piece.
It's in there as well as mix. So as we continue to grow our dealer customers dealers are typically coming in at slightly lower rates in existing customers.
That's also putting pressure on marketplace.
Okay. That's super helpful and I know you guys don't guide to <unk>, but I mean, given kind of all those moving pieces and kind of what's going on in the macro.
Do you think that <unk> can kind of continue to grow at a similar level here over the back half for.
Is there reason to maybe be a bit more conservative on modeling that piece.
Yes.
Tim we really expect <unk> to be the growth driver of our growth here with the solutions that we're rolling out with Accu trade with continued growth in Dci and even the <unk>.
<unk> in the marketplace dealer customers in the core.
Core business, we do think that <unk> can continue to grow and will continue to grow, particularly because this accu trade connected package is being sold to dealers.
<unk>.
And Thats whats going in a year, we'll see that come through in dealer revenue and come through in AARP D.
Okay, Okay, and then on the Subaru deal.
I remember I think it was with the GM deal.
There was sort of like.
You can only I'm trying to attack all 750.
Or whatever the number was all of those dealers at once.
How should we think about kind of the season essentially that.
Subaru.
Being a smaller OEM than GM was when we rolled out GM has no staging and so basically it's more of a jump ball and we've seen strong inbound interest from CBER reviewers nationally and then importantly.
On <unk> spending so we can support more of the dealers marketing spend thats co op of oil by Subaru and the website.
Okay. Thanks, guys.
Thanks, Tom Thank you.
Thank you Mr. Li.
Okay.
Further questions registered at this time as a reminder.
Ill close by one.
Thank you Matt.
There are no additional questions.
I will now pass the conference.
Okay.
This morning.
Just wanted to say thank you for your interest in cars and joining us today and that concludes our call. Thank you.
P cards second quarter.
Earnings Conference call. Thank you for your participation you may now.
No disconnect your line.
[music].
Yes.
Got it.
Yes.
Yes.
Yeah.