All right. Great. Thanks, everyone, for joining. Thanks, everyone on the webcast, for joining as well. My name is Rajat Gupta, member of the Automotive Equity Research Team at JPMorgan. Very pleased to have with us the team from Cars.com, Alex Vetter and Sonia, CFO, as well as Katherine from IR in the audience. Maybe, Alex, if you want to spend like a couple quick minutes just to quickly go through the last four results, just give us like a state-of-the-union update on the industry, where business is, and then we can go into some deeper questions.
Sure. First of all, core business trends are all improving in a really nice and healthy way. We have seen this cycle before. The business has been through a lot of different economic cycles that the industry goes through. What people really should know is that auto is a pretty resilient industry, right? Unless you live in New York or San Francisco, where you think cars are a luxury, the rest of the world needs a car to get to work, get to a job. Even in the 2008-2009 recession, I think auto was back to 25%. We still sold like nearly 40 million used cars and almost like 15 million new. Despite what some people think of cars as a luxury, it has proven out to be very much a necessity to people's lives. This cycle is no different.
We're seeing great growth on the consumer trend. Even with the tariff news, consumers are flocking to our marketplace proactively and opportunistically to make sure they can scour the internet for deals. Importantly, we had solid dealer growth in February. We said solid dealer growth in March. We followed that in April with solid dealer growth. That is just not on our marketplace, but also our software solutions and dealer tools. The reason that is important is that a lot of people hear the name Cars.com, they think singular website. They do not always take time to realize that we are powering over 8,000 retail websites. We are powering technologies that reside on OEM websites. We collect subscription or SaaS-based revenue from a lot of different participants in our ecosystem. Generally, the whole industry is moving towards digital, right?
I think the consumer has already moved years ahead of the industry. The industry is now shifting away from investing in physical showrooms and huge splashy national launches towards more digital-focused first solutions and technologies to reach consumers where they are.
Understood. That's helpful, Vetter. Is there a way to cut your business between cyclical and non-cyclical components? In other words, there's obviously a lot of ancillary media solutions that are incorporated in the monthly average revenue per dealer that you report. I'm curious if there's a way to split that across the more durable listings and the more cyclical advertising spend.
Yeah. I mean, if you think about maybe discretionary revenue in the business, probably the areas that I would think of as a little bit more discretionary are going to be on the media side. Dealers aren't going to just turn off their websites regardless of the business conditions. I think marketplaces have proven to be durable over the long term. The exposure is really on the media side. We have an OEM and national business, which is a little bit more indexed into new car activity and largely media-weighted. That's an area where we've seen a little bit more variability since a lot of the tariff noise and tariff announcements started coming out as they want to plan more month to month and evolve their media strategies to the market environment. Similarly, we do have a heavier mix of franchise dealers.
Roughly 2/3 of our dealers are franchised. And those dealers also are a little bit more indexed into new car-related media spend. There's a component that's always on, and then there's a component that's a little bit more tied to new model launches, incentive plans. And those are a little bit more up in the air in the current environment.
Understood. Going back to your comments around the dealer additions that you've seen recently, February, March, and April, it sounds like, are there two or three key reasons that you would point to that drove that after, I would say, a pretty stable last couple of years? What has driven this recent uptick? Why should it continue?
Yeah. Look, I think dealers tend to react in real time, right? They're retail operators. They make changes much faster than any other participants in the industry. I think going into this year, there was a lot of apprehension of recession, what's going to happen. You just saw dealers start to panic and pull back. Now you're looking at consumer trends not only being very durable, but actually growing in interest. Dealers are looking at that saying, "Wait a minute, I need to get in this game. There's still cars to be sold. I have to compete for that volume." We tend to get the majority of our traffic organically and directly. When you sit outside of our ecosystem, there are definitely lost market share opportunities. 90% of our audience comes to us undecided between make, model, and dealer selection.
If you're not in that ecosystem, they're finding your peers. There is a dealer recognition now that like, "Okay, wait a minute. The world's not ending. It's still going to be a healthy year this year in automotive. It's a good market. I need to compete for my share of sales." I think that led to a lot of dealer growth. I would also say our Canadian business continues to take market share. We had lots of dealer website growth. Again, highly recurring revenue. I think we had almost 100 dealer websites in the quarter, and that continues to scale. Growth in our software solutions. Even with new car uncertainty, there's a natural industry shift towards used cars and, more importantly, self-furbishing your used car inventory.
The legacy models are these traditional auctions where dealers all go, and every dealer bids on cars that other dealers could not retail in the hopes that they will win them and try even harder to retail that car. The growing trend is actually buying cars from your customers while they are in your service lane. We have a product called AccuTrade that enables dealerships to basically plug in a little device into the dashboard of the car. We take a real-time diagnostic, bounce it against our demand, and we can give the dealer and the customer a real-time guarantee on the car in real time. Now dealers are sourcing, buying that inventory because, a, they do not have to bid on it with 20 other dealer friends. B, by buying the car, you have now got a customer who needs a new one.
Dealers are becoming much more self-sufficient as opposed to relying on these legacy structures and systems, and we're enabling that. That is also exciting growth.
Understood. No, that's very clear. On the guidance framework that you gave us, you suspended the revenue guidance given some of the uncertainty, but you did maintain the EBITDA margin guidance. Could you highlight some drivers of your confidence in the ability to control that margin irrespective?
Yeah. We also signaled that we would grow the business this year, and we signaled growth. I think to Sonia's point, we're one of the few marketplaces that actually caters a lot to new car shoppers as well. Most people will tell you you start out in the market thinking you're going to buy a new car, and about 25% of those people switch into a used car at the point of sale or vice versa, right? OEM incentives. The Cars.com Marketplace caters to both new and used car shoppers. OEMs started signaling to us in February, March that they could not guarantee us that all the dollars they had committed to us would run, at least on the same time frame. So far, we haven't really seen any cancellations, but we've seen some delays.
As OEMs have got cars sitting at port, they're not going to spend advertising and marketing dollars. They have said, "Hold off a quarter." It was on that uncertainty we said, "Hey, we do not have clarity on the OEM business." The dealer fundamentals and the consumer fundamentals are strong. I do not know, Sonia, what else you'd add.
Yeah. No, I think that point on revenue is important, which is we do still expect to be growing on a year-over-year basis. I think the variability of what that growth looks like on a quarterly basis is a little wider than what it might otherwise look like. The fact that we expect to grow year-over-year is part of what gives us confidence in maintaining the margin guidance. We do have a number of levers that we have at our disposal to manage the cost structure, some of which we talked a little bit about on our earnings call. We did make some adjustments to our cost structure unrelated, frankly, to tariffs, more associated with integration of our platform in Q1 already. We have other levers that we can lean into if needed.
Yeah. No, the first quarter margins were definitely stronger than we had expected, for sure. Just to follow up on that last OEM lack of visibility point, just over the last week, we've seen a lot of changes with the U.K. tariffs, the China tariffs. It looks like we might see some relief ultimately. Some cars have started to get released at the ports as well. Any change very recently in those indications that you want to highlight? Any messaging from the OEMs, like more real-time?
Yeah. Look, I generally think there's a macro-positive picture here, right? OEMs are saying they know they need to do more digitally. They're trying to shift more of their budgets away from traditional media to being more digitally proficient and leaning towards technology solutions. Importantly, they're also looking to enable technologies for their dealers, right? So we've had multiple OEMs come out and endorse AccuTrade as a solution that they'll co-op on behalf of their dealers if they adopt the technology. So we're seeing OEMs lean towards digital. We certainly understand if they don't have cars on dealer lots, they're not going to spend that discretionary media in the near term. The picture keeps getting a little bit better every day for the last few weeks that we would expect this to start to unleash.
When that does, those new car dollars, if they flow in, not only are they big dollars on the top line, but they're almost all gross profit revenues. That can be a boon for the bottom line as well.
Is there a silver lining here where this can actually create a little more demand for the marketplace in the sense there are going to be certain OEMs that are in a better position from tariffs, some not, and everyone wants to stay price competitive? Is there any indication of anything like that that you're sensing from the dealer community?
We do have about a third of our OEMs stepped up their spending in Q1. It was not the majority that we had hoped, but a third still did. They largely were the OEMs that are not impacted. They are seeing this as an opportunity that they can take share. We certainly understand why some of the bigger OEMs have got bigger concerns. When those dollars come in, I think that growth algorithm can certainly accelerate.
Got it. Got it. That's helpful. I just want to quickly check in if anyone in the audience has a question here. Not yet. I'll just go on, but feel free to raise your hand. I wanted to, hoping to touch on competition. From the surface, it appears that a wide range of ecosystem participants are building somewhat similar products addressing bottlenecks such as market intelligence, consumer sourcing, digital transaction, and enablement solutions. What's differentiating Cars.com in this intensifying landscape to some degree? It feels like that, that the competitive landscape is intensifying. Is there a strategy to continue to out-innovate peers, or is it more a network effect aspect where your scale is helping you innovate faster and penetrate faster with better solutions?
Yes and. I'll start by saying most people don't realize that you're only in the market for a car about once every seven years, right? It's not something that you're always thinking about. When someone enters the car market, they start really from a basis of, "I don't know where to begin." Cars.com is part of our differentiation because the brand is so damn good and synonymous with the category that we drive the majority of our traffic organically or directly. Even despite that there's over 200 car websites out there, we're consistently one of the top most traffic sites because of our brand strength. Importantly, we're also unique in that we actually pay pedigreed experts to critically curate the inventory.
If we think a car has been poorly built or is not designed in the right way or the model year change took a step back, you will actually get that content from our editors. They will tell a car company that what they built does not meet or exceed a standard that drivers will expect. Consumers, despite you can search on Instagram and see cars, Google cars, Facebook cars, you will still seek out pedigreed expertise before making a big purchase decision. Even Amazon wants to get into the car business. Everybody wants to be in the car business because it is a big tent. It is a great industry. I do not think you can displace the need for people to do research. Average consumer is doing about seven hours online prior to purchase.
That means that they're collecting a lot of information before they make a big decision. I think from a differentiation standpoint, certainly I would say our software tools and our solutions are different. We're not just a marketplace. We've got this great marketplace that generates a lot of free cash flow, but we're going vertically deep and getting into the operating system of the way our dealers work, right? We're powering their website. We're giving them performance analytics. We're giving them technology and tools that they can appraise cars in seconds. We're getting deeper into the food chain, which I think will only increase our stickiness and durability within the industry.
Got it. Got it. No, that makes sense. Could you give us some insights into what the switching costs look like for a dealer to move marketing or even other ancillary solution budgets away from one platform to another or to Cars, Cars Commerce , is there enough flexibility from a data infrastructure standpoint?
I mean, I think the switching costs can be hard to quantify. I mean, what I can say is on the solution side of the business, particularly if you think about a dealer website, there are real switching costs associated with building that website that takes a couple of months to do. We're, I think, a little bit less focused on the switching costs and using that as a lever with dealer customers and more focused on how we can continue to cross-sell the platform because one of our observations is when dealers are using more of our products, a couple of things happen. One, our ARPD goes up. Two, retention rates improve meaningfully. Three, which is the reason this is happening, is dealers actually get more value. A good example is dealers who use Marketplace plus AccuTrade.
You actually find that they get almost two times in some cases the leads that they would if they were just using Marketplace alone. There is a multiplicative effect for dealers to adopt more of our platform as opposed to sticking with singular point solutions, which would, frankly, have a lower switching cost.
Right. Right.
By the way, just a point of comparison, dealers who buy cars at auctions or through inspection services are spending around $1,500 to buy a car. With AccuTrade, they're paying $1,500 a month, and on average, dealers are buying 19 cars a month using our software. There is no question empowering dealers with their own technology to do this on their own is more profitable to them. It's getting dealers to embrace technology and changing their behavior takes a little more time, but the economic payoff is massive.
Got it. Got it. Yeah. Because you mentioned Amazon earlier, I want to quickly address their initiative with Hyundai launched to the broader public late last year, early this year. Would love to get your views on what this means for the broader category. How have you reacted, if at all, to this? Is there an increased emphasis internally to build more end-to-end digital enablement or perhaps to protect the top-of-funnel customer leads?
Yeah. Look, I mean, Amazon made their first announcement to enter into auto in 2017, also with Hyundai. In our strategy, we saw that then. We said, basically, let's make sure that we're positioned to go vertically deep into the industry. In effect, our strategy to create durability of our business has always been when a big horizontal giant comes into any industry, you better go vertically deep. We have through websites, appraisal technology, now wholesale dealer-to-dealer transactions. I think we're well ensconced within our industry. I think Amazon's ultimate desire is to sell advertising. If they're listening, we can be a great reseller of your advertising too. We know dealers that want to spend a lot of money, and we can use our first-party data to retarget shoppers on Amazon.
I generally don't think buying a car is the kind of experience that you read a few reviews on Amazon and you click add to cart. I think that consumers vacillate between brands all the time in auto. This is one of the few retail categories where actually the purchase funnel widens in the last mile. Talk to any dealership. People come into the physical showroom thinking they're going to buy one thing and need more time to go consider other makes and models. This isn't a category that converts easily. There's going to be a lot of expansion of decision-making in that last mile. I'm pretty certain Cars.com is going to be part of that consideration set and won't be left out of the shopping cart.
Got it. Got it. Yeah. Moving to pricing and data insights, during the first quarter call, you laid out plans to roll out additional data insights around consumer shopping behavior, consumer budgets. This clearly looks to, it seems like an exciting opportunity. As you weave this into the existing marketplace solution along with other features that you have in the pipeline, how does Cars Commerce , generate incremental revenue for providing this value-added offering? How do you market this? Is it primarily through rate hikes during renewal cycles, or are you focusing more on pushing dealers to upgrade their packages in order to make most of these solutions? How are you going about this?
Yeah. No, totally different. Look, if you look at the automotive industry today, there is one big monopoly in this industry, and it's Cox Automotive. They've acquired 30 software companies, and they sell dealerships tons of software, and they raise prices on that software every year. Effectively, none of it really works together. When you think about what we're building at Cars Commerce , it's connected technologies that actually work really well together. As an example, with AccuTrade, not only can you appraise a car using the predictive data from Cars.com to give the consumer and the dealer, here's what the car is going to be worth over the next 30, 60, 90 days. If the dealer doesn't want to keep that car, they can one-click launch it into our wholesale marketplace Dealer Club.
That is the theme that dealers really have told us and driven our strategy by, that they're tired of logging into 30 different tools to perform 30 different operations. They want more connected software where they can make a change and syndicate information from one store to the next or wholesale a car to a marketplace, but do it within a connected suite of tools. The Cars Commerce proposition is exactly that. We are helping dealers both wholesale and retail cars amongst themselves without having to rely on some large clearinghouse middleman and pay the ransom of the house. Dealers, I think, appreciate that we're enabling them or arming the rebels, as I like to say.
Maybe also more specifically to kind of the lead enhancements that we're making to Marketplace. That's something that we're going to make widely available to dealers. I don't think we're not going to penny pinch on this one. Effectively, what we're doing is I think it's something like 45% of consumers who come to our site know that they're going to purchase a car within 30 days. There is a long tail to that where 85% say they're going to be, it's maybe a six-month outlook for them. What we're trying to do is for people who have that longer purchase decision timeline, if they enter and exit kind of the Cars.com Marketplace, we'll let dealers know that they're still back shopping on our site. It's still a warm lead that they should re-engage.
Here's what they're searching for and really giving them more contextual data around search behavior, price points that consumers are looking for, which we think will help increase the quality of the lead and the conversion rate that dealers get. I think on pricing broadly, that's something we look at regularly. We try to think about pricing in the context of added value where the dealers are getting something incremental and we're also getting to nest a little bit of a price increase into that. It changes the tone of the conversation that we have with them a little bit and I think is part of what drove so much of our success back in 2023 when we did our last major repackaging effort on marketplace. I think important maybe for this group to know that we've been busy with our website bundles in Q1.
We did finish three of those repackaging deals in Q1. Some of it is pricing. Some of it is taking the different solutions we have and incorporating them into the existing website tiers to give our customers reasons to move up tier and up market with us.
Got it. Is there a minimum price hike that you look to pass on to consumers every year just to cover general cost inflation, or is that just more, I would say, ad hoc in nature?
I think it's a great question. I think right now, from a roadmap perspective, we're not targeting we're going to increase your rate 3% a year because that's the cost of inflation. It is much more around repackaging. We do have plans in marketplace for the second half of the year to add kind of a newer top-tier package and migrate some of our dealer customers up that curve. It's something we look at all the time.
Got it. Got it. No, that's clear. I wanted to touch on Dealer Club a little bit. It looks a little surprised by the announcement at NADA. Clearly looks like an exciting growth opportunity. It's a bit novel, but simple, differentiator in a category that continues to see a lot of competition. You also saw meaningful uptake in prospects on the site after the acquisition. Wondering if you could firstly walk us through the dealer onboarding journey for Dealer Club. How do you solve the chicken and egg problem of establishing reputation on your platform? And then relatedly, what is the strategy of integrating this with the broader marketplace?
Yeah. So I've been following the wholesale industry for a while. Mannheim is the monolith. ADESA in Canada. You've got Openlane and ACV, both publicly traded. Dealers source inventory through those large established wholesale marketplaces. Dealer Club was invented by the former founder of ACV, basically based on all his insights in terms of the wholesale market and the vagrancies of arbitration, dealer, buyer, and seller disagreeing on the condition of the vehicles. When I talked to Joe after his non-compete ran out, it was basically about the power of AccuTrade, accurately appraising vehicles using technology. He had been building Dealer Club, which was all about trading on reputation. He and I both believe that, yes, there are bad actors in every industry, and there are some bad dealers out there that seek to deceive both consumers and trading partners.
The vast majority of them just want to move efficiently and trade on information and reliably know that they can trust the people that they want to do business with. Dealer Club is the first reputation-based wholesale marketplace where buyers and sellers rate each other on every transaction. What we've seen initially has been incredible organic growth and interest from the dealer industry. We had over 2,500 dealers, which is more dealers signing up to enroll for this than any other product that we've introduced to the market. Of that, we've converted just over 1,000 of those dealers. In order for them to officially enroll, they've got to upload their dealer license, complete a profile, and give us a form of payment. They can transact and list cars on the marketplace for other dealers to buy and trade.
In this environment, because of the supply chain shortages that we just went through and now potential more supply chain issues because of tariffs, dealers know they've got to source inventory differently, and Dealer Club organically is growing like a weed. We've been busy integrating into our platform. We just launched the AccuTrade integration so you can appraise a vehicle and launch it in the wholesale marketplace in real time. We've just got to get the marketing machine going because the dealers that have used Dealer Club love the model. Importantly, we're paying the seller to sell where most of the traditional wholesale marketplaces charge both buyers and sellers. We can be disruptive in this and pay sellers to sell on the marketplace, and we only charge buy fees.
Interesting. Willing to share any targets? I know you've talked more than we've shared, but.
We've signaled Dealer Club will be very modest growth in 2025 because we're just building the business. The advantage we have is unlike some competitors today that employ hundreds of people to go around to dealers asking them if they have any inventory they'd like to wholesale or get inspected for wholesale. Because of our Cars.com Marketplace, we see aging of inventory in real time and are actually predicting which cars have low to no propensity to retail. Now through Dealer Club, we can actually go to dealerships and say, "These four cars have low to no propensity to retail at current price. You either can lower the price or you can get rid of them in our wholesale market." We're going to be able to do this in a very low-cost, disruptive way without having to employ hundreds of inspectors running all over the country.
Got it. We can see more contributions starting 2026.
2026, we think will be an inflection point, and we'll give updates to investors throughout the year. Again, we're in the first inning here, and the organic adoption has been incredible.
Got it. Just to sum up a lot of the conversation, we've had this period of a little choppy revenue growth the last few quarters. Looks like it's going to be a little choppy in the near term. It also seems like we're getting closer to an inflection at some point. Do you feel the same way internally? Do you feel like things are moving the right direction and we're just waiting for that inflection to occur? Dealer Club, AccuTrade, the website renegotiations, things like that. When should investors start to see a meaningful inflection in revenue?
Look, I mean, the dealer business changes quick. I mean, I can tell you NADA this year, which is the big dealer conference, was very sparsely attended because dealers were a little bit panicked about where the market was going to go, and so they weren't traveling.
The snowstorm.
Yeah. New Orleans snowstorm is not too extreme coming from Chicago. I'm headed to Baltimore tomorrow, and the conference is oversold. Dealers know that it's time to get back to work and get innovation. The fact that they're already oversold for this conference tomorrow, I'm excited to go there and speak. Dealer behavior changes quick, and we're seeing a lot of green shoots going into this year. Again, Q2 is also following suit. We're feeling very front-footed about where the market is headed this year. I think it's going to be a good year in automotive despite a lot of headline noise around tariffs.
Understood. That's encouraging. Just want to check in once more. Anyone in the audience has a question? No? Maybe one last one. If you have time, we can do one more. I wanted to touch a little bit on capital allocation. You had a healthy level of buyback in the first quarter. I would say it's a higher run rate than what your full year guidance implies. Your stock is trading at four times EBITDA multiples. Help us walk us through what's the priority here on capital allocation. Could we see you be a little more aggressive on the buyback, just given not just the capacity you have or the leverage you have on the balance sheet or the flexibility on the balance sheet, but just given the fact that we're nearing this potential inflection in the business later this year or next year?
Yeah. I mean, we're definitely leaning into share buybacks more this year. I think we tried to indicate that in providing an actual concrete range, dollar range. And you've rightly kind of pointed out we did $22 million in Q1. If you annualize that out or run rate it out, we're getting close to $90-$100 million at that pace. At current valuations, kind of where we're trading, it is a highly attractive purchase in our opinion. I think you'll continue to see us be opportunistic on that front.
Got it. Now, your share price is lower than what you bought in one Q, average, I would assume.
Yes.
Okay. Today's share price.
Today, it's a little bit better.
Yeah. Okay. Got it. No, great. I think that's a good way to end. Thanks, Alex, Sonia, for the time here, and thanks for coming.
Thank you.
Thank you.
Thank you.