Acquisition of Dealer Inspire and Launch Digital Marketing Investor - PowerPoint PPT Presentation

Acquisition of Dealer Inspire and Launch Digital Marketing Investor Presentation February 14, 2018

Forward‐Looking Statements This presentation contains “forward‐looking statements” within the meaning of the federal securities laws, including those statements under “Preliminary 2017 Results” and “Preliminary 2018 Outlook.” All statements other than statements of historical facts are forward‐looking statements. Forward‐looking statements include information concerning our business strategies, plans and objectives, market potential, future financial performance, planned operational and product improvements, liquidity and other matters. These statements often include words such as “believe,” “expect,” “project,” “anticipate,” “intend,” “plan,” “estimate,” “target,” “seek,” “will,” “may,” “would,” “should,” “could,” “forecasts,” “mission,” “strive,” “more,” “goal” or similar expressions. Forward‐looking statements are based on our current expectations, beliefs, estimates, projections and assumptions, based on our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we think are appropriate. These statements are expressed in good faith and we believe these judgments are reasonable. However, you should understand that these statements are not guarantees of performance or results. Our actual results could differ materially from those expressed in the forward‐looking statements. Given these uncertainties, forward‐looking statements should not be relied on in making investment decisions. Forward‐looking statements are subject to a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from those expressed in the forward‐looking statements contained in this presentation. Such risks, uncertainties, and other important factors include, among others, risks related to our business, our separation from our parent company and our common stock. For a detailed discussion of many of these risks and uncertainties, see the section entitled “Risk Factors” in our Registration Statement on Form 10, which was filed with the Securities and Exchange Commission on May 4, 2017 (the “Registration Statement”). All forward‐looking statements contained in this presentation are qualified by these cautionary statements. The forward‐looking statements contained in this presentation speak only as of the date of this presentation. We undertake no obligation, other than as may be required by law, to update or revise any forward‐looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, or changes in future operating results over time or otherwise. Comparisons of results between current and prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data. The forward‐looking statements in this presentation are intended to be subject to the safe harbor protection provided by the federal securities laws. 2

Compelling Strategic and Financial Rationale 1 Integrates rapidly growing digital dealer product suite Integrates rapidly growing digital dealer product suite 2 Broadens Cars.com’s capabilities, deepens dealer connections and improves attribution Broadens Cars.com’s capabilities, deepens dealer connections and improves attribution 3 Combines complementary assets to create a unique, end‐to‐end car shopping experience Combines complementary assets to create a unique, end‐to‐end car shopping experience 4 Accelerates growth, extends dealer solutions, targeting high‐growth channels Accelerates growth, extends dealer solutions, targeting high‐growth channels 5 Significant synergy opportunities and long‐term growth support investment returns Significant synergy opportunities and long‐term growth support investment returns 3

Digital Value Chain: Product Offerings for Dealers Acquired two integrated businesses – Launch Digital Marketing (“LDM”) and Dealer Inspire (“DI”) – which provide an array of digital solutions to automobile dealers for distribution through Cars.com and DI/LDM sales networks DISCOVER SHOP CONNECT BUY FUEL FUEL Launch Digital Marketing Launch Digital Marketing Dealer Inspire Dealer Inspire Conversations Conversations Online Shopper Online Shopper Dynamic inventory Dynamic inventory Customized marketing Customized marketing Powerful A.I. messaging Powerful A.I. messaging End‐to‐end digital retailing End‐to‐end digital retailing Flexible, custom designed Flexible, custom designed advertising program advertising program and customer acquisition and customer acquisition platform that centralizes platform that centralizes solution empowers shoppers solution empowers shoppers website platforms website platforms creates customized ads creates customized ads solutions solutions customer communication, customer communication, to compare a wide range of to compare a wide range of supporting highly supporting highly and keyword lists based and keyword lists based improves quality and speed improves quality and speed financial considerations as financial considerations as personalized digital personalized digital on real time inventory on real time inventory of response time, and of response time, and they complete their they complete their campaigns campaigns data and logic data and logic decreases operating costs decreases operating costs purchase online purchase online 4

Complementary Strengths Create a Powerful Combination  Highest brand recognition  Innovative technology leader  Third party marketplace leader: 400+ million website  Proprietary digital dealer solutions enhance Cars.com’s visitors and 5 million vehicle listings product portfolio and proposition  Over 6 million expert and consumer reviews  Core business originated with disruptive websites, paid search and social media  Significant growth opportunity: dedicated sales force serving more than 20K dealers + affiliate revenue  Innovation focused on enhancing dealer solutions to conversion better service end‐to‐end car buying journey  Strong balance sheet and modest leverage serviced by  1,700 dealer customers free cash flow of $176 million 1  50%+ revenue growth in 2017 Note: Cars.com figures as of 09/30/17 1 LTM 09/30/17; free cash flow defined as net cash flow provide by operating activities less capital expenditures. 5

Acquisition Improves Cars.com’s Penetration of Fastest‐Growing Industry Channels Category Category Annual Growth $34BN Driven by dealers’ desire to Dealer 15% U.S. Auto Ad Market in 2022 differentiate and promote Total market Websites their website Driven by consumer use of $22BN Social Media 12% social platforms Digital Auto Ad Market in 2022 Addressable market Driven by dealers’ desire to Paid Search 11% reach consumers in search discovery process Driven by dealers’ desire to SEO 3% CARS current remain relevant in organic 3% market share search results Source: Borrell 2017 Outlook; BCG December 2016 Auto Dealer Advertising Survey, N = 362; Based on dealer responses to "How do you think your digital marketing spend will change over the next 1-2 years?“ 6

Continued Focus on Our Core, Two‐Sided Digital Marketplace Strategy We empower consumers by connecting them to the resources they need to make better automotive decisions about product, price, place and person We enable partners by connecting them to the in‐market Acquisition Directly Aligns with Acquisition Directly Aligns with audience and intelligence they need to increase turn and gain Cars.com’s Core Strategy Cars.com’s Core Strategy market share 7

Transaction Overview and Financial Outlook

Acquisition Highlights Consideration  Under the terms of the acquisition agreement, Cars.com will pay $165 million in cash at the close  There are additional incentives up to $40 million for over‐performance over three‐year period  Return on investment enhanced at every level of revenue over‐performance Financial Impact  Increases revenue scale and growth with significant long term Adjusted EBITDA and cash flow contribution  DI and LDM are expected to achieve ~$55 million of standalone revenue with ~15% Adjusted EBITDA margins in full year 2018  Expect to sell product through Cars.com’s distribution network and achieve $25 ‐ $30 million of incremental revenue and at least $10 million of incremental Adjusted EBITDA annually by 2020, representing approximately 15% dealer penetration by year 3 Implies 2018 purchase multiples of 2.0x 1 revenue and 9.0x EBITDA including run rate revenue and EBITDA, respectively, generated via product  sales through Cars.com’s distribution network (3.0x revenue and 20.0x EBITDA excluding sales through Cars.com’s distribution network)  Transaction expected to be accretive to adjusted net income per share in 2018 and GAAP EPS in 2019, reflecting intangible amortization Financing  $165 million cash consideration to be financed through existing revolving credit facility, at close  3x pro forma total debt‐to‐EBITDA ratio at transaction close Process and Timing  Expected to close by the end of February 2018  Subject to customary closing conditions 1 Revenue multiple calculated using midpoint of run rate revenue synergy range 9