Cars.com Second Quarter 2018 Earnings August 8, 2018 - - PowerPoint PPT Presentation

Cars.com

Second Quarter 2018 Earnings

August 8, 2018

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This presentation contains “forward-looking statements” within the meaning of the federal securities laws. 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

• ur 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

• n 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 Annual Report on Form 10-K for the year ended December 31, 2017 which is available on our website at investor.cars.com or via EDGAR at www.sec.gov. 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.

Forward-Looking Statements

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This presentation discusses Adjusted EBITDA, Adjusted EBITDA Margin, Adjusted Net Income and Free Cash Flow. These are not financial measures as defined by

• GAAP. These financial measures are presented as supplemental measures of operating performance because we believe they provide meaningful information regarding
• ur performance and provide a basis to compare operating results between periods. In addition, we use Adjusted EBITDA as a measure for determining incentive

compensation targets. Adjusted EBITDA also is used as a performance measure under the Company’s credit agreement and includes adjustments such as the items defined below and other further adjustments which are defined in the credit agreement. These non-GAAP financial measures are frequently used by our lenders, securities analysts, investors and other interested parties to evaluate companies in our industry. Other companies may define or calculate these measures differently, limiting their usefulness as comparative measures. Because of these limitations, these non-GAAP financial measures should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP. Definitions of these non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures are presented in the tables below. The Company defines Adjusted EBITDA as net income (loss) before (1) interest expense (income), net, (2) income tax expense (benefit), (3) depreciation, (4) amortization

• f intangible assets, (5) stock-based compensation expense, plus (6) certain other items, such as transaction-related costs, costs associated with the stockholder activist

campaign, restructuring and other exit costs, costs related to the headquarters move and write-off and impairments of goodwill, intangible assets and other long-lived

• assets. Amortization of unfavorable contracts liability is not adjusted out of Adjusted EBITDA.

The Company defines Adjusted Net Income as net income (loss) excluding the after-tax impact of (1) amortization of intangible assets, (2) stock-based compensation expense, and (3) certain other items, such as transaction-related costs, costs associated with the stockholder activist campaign, restructuring and other exit costs, costs related to the headquarters move and write-off and impairments of goodwill, intangible assets and other long-lived assets. Amortization of unfavorable contracts liability is not adjusted out of Adjusted Net Income. Transaction-related costs are certain expense items resulting from actual or potential transactions such as business combinations, mergers, acquisitions, dispositions, spin-offs, financing transactions, and other strategic transactions, including, without limitation, (1) transaction-related bonuses and (2) expenses for advisors and representatives such as investment bankers, consultants, attorneys and accounting firms. Transaction-related costs may also include, without limitation, transition and integration costs such as retention bonuses and acquisition-related milestone payments to acquired employees, in addition to consulting, compensation and other incremental costs associated with integration projects. The Company defines Free Cash Flow as net cash provided by operating activities less capital expenditures, including purchases of property and equipment and capitalization of internal-use software development costs.

Non-GAAP Financial Measures

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Defining The Future of Automotive Retail

Going beyond listings to an automotive marketplace with the most innovative, leading digital solutions for both consumers and dealer customers

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Significant Progress on Affiliate Conversions

2019

8 markets, 2,000+ dealers (incl. LA, Chicago) 37% of wholesale revenues 2/1 /1 Transitions on or before 10/1/18 22 markets, 1,200+ dealers 18% of wholesale revenues 10/1 /1 8/1 /1 DC market ~350 dealers 6% of wholesale revenues 6/29 29 6/29 29 10/1 /1 Dallas market ~300 dealers 5% of wholesale revenues ~300 dealers 5% of wholesale revenue ~2,700 dealers 29% of wholesale revenue

Note: All revenue percentages based on 2017 data

2020 2017 2018

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84% 84% 16% 16% Converted over 3,200 dealer customers since spin-off

We Now Serve 84% of our Dealers Directly

• Converted wholesale rates to full retail rates
• Up to 45% higher monthly retail ARPD
• Grew revenue 6% since conversion
• Improved sales and service levels to solidify

growth

% of dealer customers as of 8/2018

Affi ffiliat ates es

84% of Dealers Served Direct

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Focus Areas

Underpinning our strategy to grow revenue Traffic Growth Sales Effectiveness Product Innovation

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104.1 million 113.0 million 2017 2018

Total Traffic (Visits)

17.6 million 19.0 million 2017 2018

Average Unique Monthly Visitors

Q2 2018 Traffic Growth

Desktop: 33% Mobile Browser: 45% Mobile App: 22%

Traffic by Channel

8% 8%

67% Mobile Traffic

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Strengthening Sales and Dealer Retention

Join Now Program Doug Miller, Chief Revenue Officer Traffic and Value Delivery

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SOCIAL SALES DRIVE™

Empowers automotive retailers to extend the reach of their Cars.com used vehicle listings to Facebook Marketplace.

Leading Social Selling in Automotive

CARS SOCIAL

Ad product that serves native ads displaying real-time inventory to consumers on Facebook and Instagram.

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Driving Results For Our Partners

"I've wanted to take advantage of Facebook Marketplace for some time…The managed chat functionality does an amazing job of getting shoppers' basic information and then handing them off to us, so we don't have to sit in front of a computer answering Facebook messages all day. We sold 10 cars in the first six weeks using this product. We love it!”

Kevin Jamiel Sales Manager, Chuck Nicholson Mazda Dover, OH

SOCIAL SALES DRIVETM PILOT CUSTOMER

“The Cars Social platform allows us to be specific in attracting users back to my

• inventory. I view this as a dynamic

retargeting feature… and my zones are

• ver producing.”

Tony Marino Owner, Marino Chrysler Jeep & Dodge Chicago, IL

CARS SOCIAL CUSTOMER

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Dealer Inspire: Setting Us Apart From Competitors

Transforming how cars are bought and sold through innovative digital products and purchase tools that improve results for consumers and dealer customers.

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Launch Digital Marketing

Customized marketing and customer acquisition solutions

Online Shopper

End-to-end digital retailing solution empowers shoppers to compare a wide range of financial considerations as they complete their purchase online

Conversations

Powerful A.I. messaging platform that centralizes customer communication, improves quality and speed of response time, and decreases

• perating costs

DISCOVERY SHOPPING CONNECTIONS BUYING

Dealer Inspire

Flexible, custom designed website platforms supporting highly personalized digital campaigns

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vs

Competi titor tor’s Ba Badging

Price Badging: The Industry’s Most Complete Price Guidance

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profile creation rate

+752%

return visitors

+87%

email leads

+225% 2X

the number of page views per visitor

• vs. traditional

search

engagement is up

+ + + =

New Matchmaking Experience

Automotive industry’s first online matchmaking experience powered by machine learning, making car shopping more personal and fun while driving results.

(Versus consumers who go down traditional search, 7/5/18-7/19/18, scaled to 50%)

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New Creative and National Campaign

In Q3, digital, television, social media, search marketing and email will generate awareness of our new positioning while driving traffic to our site and app via the “We Met on Cars.com” campaign

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Q2 2018 Financial Highlights

EPS PS, D Dilut uted ed $0.1 $0.18 Rev Revenues enues $168 $168.5 .5 Total al Oper erat ating ng Exp xpens enses es $144 $144.0 Net et I Inco ncome $12. $12.7 Adjus usted ed N Net et I Inco ncome $34. $34.3 Adjus usted ed N Net et I Inco ncome p e per er D Dilut uted ed Shar hare $0.4 $0.48 Adjus usted ed E EBI BITDA $57. $57.3

($ in millions, except per share data)

Adjus usted ed EBI BITDA as as a a % of f Rev Revenue enue 34.0 34.0% $0.7 $0.70 $62. $62.1 39.7 39.7% $0.3 $0.35 $156 $156.6 .6 $127 $127.8 $24. $24.8 $50. $50.5 2018 2018 2017 2017

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Q2 2018 Key Operating Metrics

Average Monthly Unique Visitors

8% YOY

Traffic (Visits)

8% YOY

Mobile Traffic 1 Dealer Customers 3

20,720

• Direct Dealer Customers 3

16,592 67%

• Affiliate Dealer Customers

4,128

Average Vehicle Listings

4.8 million

Direct Monthly ARPD 2

$2,064

1 Mobile traffic includes mobile browser, mobile app and tablet. 2 Average Revenue per Dealer. 3 Includes 508 Incremental Dealer Inspire Customers.

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June 30, 2018: Balance Sheet, Cash Flow & Capitalization

1 Year to date 2 Net Leverage Ratio calculated in accordance with the Company’s credit agreement 3 Shares outstanding as of July 31, 2018 4 Using the closing share price of $28.43 on August 6, 2018

Shar hares es Out utstand anding ng 3 69.7 m millio illion Cash Deb ebt $727.5 m millio illion Net et Lev ever erag age e Rat Ratio 2 3.0x 3.0x Ent nter erprise V e Val alue ue 4 $18.4 millio illion $64.2 millio illion $70.6 millio illion Free C ee Cas ash F h Flow 1 Cash F Flo lows f from O Operatin ing Activit ivitie ies 1 $2.7 b billio illion

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Revenue growth ~6-7% ~34% ~$14 million Stock Based Compensation ~$10 million

• Adj. EBITDA margin

Capital Expenditures Interest Expense ~$28 million Effective Tax Rate ~25% Cash Tax Rate ~13%

Cars.com 2018 Outlook

Note: This outlook is forward looking and actual results may differ materially from those presented here.

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Transformation is Underway

Sales force Strategic growth Technology

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Defining The Future of Automotive Retail

Going beyond listings to an automotive marketplace with the most innovative, leading digital solutions for both consumers and dealer customers

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Questions

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Appendix

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* The Company no longer records the amortization of unfavorable contracts liability associated with converted markets in revenues as the Company is recognizing this revenue at retail rates. Instead, it is now recorded as a reduction of affiliate revenue share within operating expenses. In the six months ended June 30, 2018, as a result of the early conversion of the tronc and McClatchy markets, $7.5 million of amortization of unfavorable contracts liability was recorded as a benefit in affiliate revenue share expense. In the prior year, the $7.5 million was recorded as wholesale revenues.

Affiliate Conversions: 2018 Financial Impact

Increase in Revenue, Increase in Affiliate Revenue Share Expense and Increase in Sales Expense

• The impact of these early conversions is expected to be neutral to modestly dilutive to Adjusted EBITDA in 2018 due to the marketing

support payments.

• Significant uplift in cash flow is expected following the completion of the marketing support payments.

Revenue ue reflects only the uplift from wholesale to retail sales. Affiliat ate R e Reven enue S Shar are E e Expense includes benefit due to the amortization of unfavorable contract liability related to the converted tronc and McClatchy markets, which has previously been recorded within wholesale revenues, prior to conversion.

($ in millions)

Revenue impact of Affiliate Conversions Q2 YTD Retail 21.2 $ 35.7 $ Wholesale

• previously billed to affiliates

(14.5) (24.4)

• amortization of unfavorable contract liability

(4.4) * (7.5) * Total impact on wholesale revenues (18.9) (31.9) Net revenue impact of affiliate conversions 2.3 $ 3.8 $

($ in millions)

Operating Expense - Affiliate Revenue Share Expense 2018 2017 YOY 2018 2017 YOY Affiliate revenue share (gross expense) 8.2 $ 2.4 $ 5.8 $ 14.6 $ 4.7 $ 9.9 $ Amortization of unfavorable contracts liability (4.4)

• (4.4)

(7.5)

• (7.5)

Affiliate revenue share (as reported) 3.8 $ 2.4 $ 1.4 $ 7.1 $ 4.7 $ 2.4 $ 2018 Six months ended June 30, Q2

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Non-GAAP Reconciliations

(unaudited and in thousands, except per share data)

* Amortization of unfavorable contract liability is not adjusted out of Adjusted EBITDA or Adjusted Net Income.

2018 2017 2018 2017

Reconciliation of Net income to Adjusted EBITDA Net income 12,726 $ 24,809 $ 13,655 $ 51,697 $ Interest expense, net 7,343 1,770 13,300 1,729 Income tax expense 4,515 2,345 4,779 2,763 Depreciation and amortization 26,712 22,377 50,650 44,450 Stock-based compensation expense 2,876 481 4,476 481 Transaction-related costs 1,026 — 11,133 — Costs associated with the stockholder activist campaign 1,112 — 4,897 — Restructuring and other exit costs 590 1,671 1,097 1,671 Write-off of long-lived assets and other 401 1,385 361 1,389 Separation-related costs — 4,558 — 4,658 Costs related to the headquarters move — 2,731 — 3,428 Adjusted EBITDA* 57,301 $ 62,127 $ 104,348 $ 112,266 $ Reconciliation of Net income to Adjusted net income Net income 12,726 $ 24,809 $ 13,655 $ 51,697 $ Amortization of intangible assets 23,570 19,468 44,747 38,935 Stock-based compensation expense 2,876 481 4,476 481 Transaction-related costs 1,026 — 11,133 — Costs associated with the stockholder activist campaign 1,112 — 4,897 — Restructuring and other exit costs 590 1,671 1,097 1,671 Write-off of long-lived assets and other 401 1,385 361 1,389 Separation-related costs — 4,558 — 4,658 Costs related to the headquarters move — 2,731 — 3,428 Tax impact of adjustments (8,020) (4,563) (17,625) (5,079) Adjusted net income* 34,281 $ 50,540 $ 62,741 $ 97,180 $ Adjusted net income per share, diluted 0.48 $ 0.70 $ 0.87 $ 1.35 $ Weighted-average common shares outstanding, diluted 71,330 71,780 71,721 71,780 Reconciliation of Net cash provided by operating activities to Free cash flow Net cash provided by operating activities 43,963 $ 53,016 $ 70,624 $ 96,732 $ Purchase of property and equipment (3,904) (13,301) (6,417) (18,910) Free cash flow 40,059 $ 39,715 $ 64,207 $ 77,822 $

Three Months Ended June 30, Six Months Ended June 30,

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Traffic ( (Visi sits) s). Traffic (Visits) and our ability to generate traffic are key to our business. Tracking our traffic performance is a critical measure. Traffic to the Cars.com network of websites and mobile apps provides value to our advertisers in terms of audience, awareness, consideration and conversion. In addition to tracking traffic volume and sources, we monitor activity on our properties, allowing us to innovate and refine our consumer-facing offerings. Traffic is an internal metric representing the number of visits to Cars.com desktop and mobile properties (web browser and apps). Visits refer to the number of times visitors accessed Cars.com properties during the period, no matter how many visitors make up those visits. We measure traffic using Adobe Analytics. Traffic (Visits) provide an indication of our consumer reach. Although

• ur consumer reach does not directly result in revenue, we believe our ability to reach diverse demographic audiences is attractive to our dealer customers and national

advertisers. Deal ealer er C Custom

• mers. Our value to consumers tracks to our ability to showcase the inventory of our dealer and Original Equipment Manufacturer (“OEM”) customers. The

larger the advertiser base, the more inventory and options that are available for consumers to review. Dealer Customers represents the car dealerships using our products as of the end of each reporting period. Each dealership location is counted separately, whether it is a single-location proprietorship or part of a large consolidated dealer group. Multi-franchise dealerships at a single location are counted as one dealer. Averag age e Vehicle L

• Listings. Our value to consumers tracks to our ability to showcase the inventory of our dealer and OEM customers. The more vehicle listings that are

available for consumers to review, the more traffic we attract and the higher the consumer engagement. Average Vehicle Listings represents the daily average of vehicles listed for sale on Cars.com properties. The daily average is calculated on a monthly basis and averaged for the reporting period.

Definitions