CARS.COM Investor Presentation September 2017 ForwardLooking - - PowerPoint PPT Presentation

CARS.COM

Investor Presentation

September 2017

Forward‐Looking Statements

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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 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.

Company Overview

Becky Sheehan, Chief Financial Officer

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We are a Two‐Sided Digital Marketplace

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 audience and intelligence they need to increase turn and gain market share

Cars.com Improves Car Decision Making by Connecting Buyers and Sellers More Intelligently and Efficiently

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Connections

New & used shoppers Vehicle sellers Advice seekers/ enthusiasts



Consumers Partners

Dealers OEMs Sell‐it‐yourself consumers

    

Cars.com at a Glance

Market‐leading revenue in large addressable market Diversified customer base Leading mobile experience Rich inventory attracts market‐ leading audience Automotive focused with high margins and cash flow

$633MM

2016 Revenue

21,572

Dealer Customers1

#1

Mobile app3

5MM

Average Vehicle Listings1

1,200+

Employees, including 500 sales

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$30BN

Market opportunity

100%

Top OEM clients

+15%

YoY mobile app traffic growth 2016

412MM

2016 Traffic (Visits)

2

41%

Industry leading 2016 Adjusted EBITDA margin

Cars.com Operates at the Center of an Enormous and Fragmented Ecosystem

7 Service and Repair Used Cars New Cars

30+

OEMs3

>1,600

models / trims per year4

1,000+

Automotive Digital Destinations1

42,000+

Dealers2

Participants Products

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Industry Trends

Used Car Sales in 20163

44.4

Million U.S. Automotive Market1

$1.1

Trillion New Car Sales in 20162

17.6

Million

1 U.S. Census Bureau Monthly Retail Trade Survey 2 IHS Markit 3 Borrell 2016 Auto Outlook

U.S. Auto Advertising Industry in 20163

$30

Billion

Auto Advertising Industry is a Large and Attractive Market with Growing Digital Ad Spend

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$16bn / 52% digital $26bn / 67% digital

U.S. Automotive Advertising Market

5% Growth 2016 – 2021E CAGR $30BN

2016 U.S. auto ad market

$39BN

2021 U.S. auto ad market

1 1

1 1

U.S. Digital Automotive Advertising Market

10% Growth 2016 – 2021E CAGR

Automotive Decisions are Being Made Digitally

plus competitor sites (includes Autotrader, CaruGurus, Edmunds, KBB, and TrueCar)

10 years ago, the average car shopper made

5 visits

to Dealerships… …Today that number has dropped to

1.6

use Digital Sources when Shopping for a Car2

95%

• f Consumers

1

10

20%

• f Audience3

is captured by Cars.com3

Cars.com Shoppers are In‐market, Undecided, and Sought After

• f 18 and 54, and Customers with a Household Income of more than $40k

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80% of Cars.com shoppers say they plan to purchase a vehicle in the next 6 months1

80%

95% of Cars.com shoppers are undecided on what or where to buy2

95%

#1 demographic of young, affluent families among peers4

#1

Cars.com Autotrader KBB Edmunds TrueCar CarGurus #1 in Brand Awareness3 66%

Better Decisions Better Decisions

Unique Platform Empowers our Audience to Make Better Decisions

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PRODUCT PLACE PRICE PERSON

Expert Advice and Unbiased Coverage Empower Consumers in the Auto‐buying Process

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Pricing Transparency Fosters Trust Between Buyers and Sellers

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Person: Salesperson Connect – Empowering Consumers and Enabling Dealers Better Connections

• DealerRater Certified Salespeople say their

employee profile helps them sell more cars

• Dynamically sorts recommended sales people

*Survey of 233 salespeople of DealerRater customers, June 2016

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Industry‐Leading, Mobile‐First Platform

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Above peer average in all mobile dimensions

(e.g., speed, navigation) App Rating Most Downloaded App Mobile Experience Rating

#1 #1 #1

Highest User Engagement

#1

Best‐in‐class versus top competitors… Award‐winning app… Average mobile user is within

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Days of purchase …with tangible results

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1 2 3 4

Cars.com Generates Innovative, Measurable Results for Partners

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Connections for Partners Dealer Dashboard Overview

Phone Leads Email Leads Traffic to Dealer & OEM Websites Mobile Walk‐ins Actionable Insights

Differentiated Salesforce Provides Market Expertise and Unmatched Service, at Scale

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Major Accounts Field & Inside Sales Affiliate National Advertising

~500

Person salesforce Major Accounts Dealers in Direct Territories Dealers in Affiliate Territories OEMs

~20,000

Total partners

Deliver unique solutions that enable

• ur partners

Deliver unique solutions that enable

• ur partners

Provide deep local market expertise Provide deep local market expertise Strong relationships with local dealers and OEMs Strong relationships with local dealers and OEMs

Five Pillars of Long‐Term Growth

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Data & Attribution Leadership Connections Growth Adjacencies & Extensions Advertiser Expansion Affiliate Opportunity

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Key Investment Highlights

Well positioned for long‐term growth Leading, branded digital automotive marketplace for buyers and sellers Large and attractive market with growing digital ad spend Trusted, unbiased content Innovative mobile‐first technology platform Market leading connections that drive partner results Experienced leadership and best‐in‐class talent Attractive cash flow generation at scale

Financial Overview

Jandy Tomy, Vice President of Investor Relations

Financial Highlights

Attractive Business Attributes Compelling Long Term Model Growth Investment

+ =

• Advertiser expansion
• Connections growth
• Affiliate opportunity
• Adjacencies and extensions
• Data and attribution

leadership

• Recurring revenue
• Strong cash flow generation
• Significant scale
• Large, fragmented market
• Expected shift to digital

marketing to continue

• Proven revenue model
• Strong balance sheet

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Revenue by Product

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Dealer Subscriptions 80% National Advertising 20%

Cars.com Revenue Breakdown

• Dealer Subscriptions include all

subscriptions sold to dealers, both via our direct salesforce as well as our affiliate sales channel (where we recognize wholesale revenue).

• National Advertising includes selling

display advertising to our OEM partners.

Revenue by Sales Channel

Note: Based on 2016 results.

Retail Revenue

73%

Monetization The Dealer Network: Closer Look

Wholesale Revenue

27%

• Subscription fees (53%)
• National advertising (18%)
• Other (2%)
• Sold by our Direct Salesforce
• Subscription fees ($145 million)
• Amortization of negative contract

liability ($25 million)

• Sold by the Affiliate Salesforce
• ~60% Franchise Dealers
• ~35% Affiliate Dealers

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$463 million $170 million

Subscription Overview

Dealer Subscriptions

• Typically, annual contracts, billed monthly
• Pricing based on dealer location and size
• Tiered subscription options which allow dealers to choose

desired features and functionality

• Additional upsells available (e.g. DealerRater and RepairPal)

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Second Quarter 2017: Operational Highlights

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May 31, 2017: Spin from TEGNA and listed on Cars.com on NYSE Closed on a $900 million credit facility with 2.5x net leverage Eclipsed 5 million reviews Granted a patent for Lot Insights

YTD Key Operating Metrics

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the Dealer Customer metric in 2016.

Traffic (Visits)

(in millions)

Dealer Customers Average Vehicle Inventory

(in millions)

$116.2 $112.3

37.6% 36.2%

1H 2016 1H 2017 $309.1 $309.8 1H 2016 1H 2017

YTD Revenue and Adjusted EBITDA

Revenue Adjusted EBITDA1 and Adjusted EBITDA as a % of Revenue

28 ($ in Millions)

2017 includes $2.8 million of public company costs

YTD Adjusted Net Income and Free Cash Flow

Adjusted Net Income1 Free Cash Flow1

29 ($ in Millions)

June 30, 2017 Balance Sheet & Capitalization

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Cash Enterprise Value1 Net Leverage Ratio Shares Outstanding $36.6 million $675 million 71.6 million Debt 2.5x $2.5 billion

1 Using the closing share price of $26.44 on September 22, 2017

Affiliate Agreements – Background & Opportunity

Overview Opportunity Inception

• Contracts put in place at the

time of the TEGNA acquisition in 2014

• Wholesale agreements do not

reflect fair market value, resulting in unfavorable contract liability

• 6 affiliate relationships
• $170 million of revenue in 2016

(including $25 million of unfavorable contract amortization)

• 4 contracts terminate Q4 2019

2 contracts terminate mid 2020

• Wholesale rates are

approximately 60% of retail

• Expiration of affiliate agreements

expected to provide lift to Revenue and EBITDA as these markets are transitioned into our Retail Channel

• Investments in expansion of

direct salesforce

• $25 million revenue amortization

annually through expiration of wholesale agreements in October 20191

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Affiliate Conversion Provides Significant Upside

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Market 1 Market 3 Market 2 Market 3 Market 2 Market 1 90 100 110 120 130 140 150 160 1 2 3 4 5 6 7 8 9 10 11 12 Months After Transition

Indexed ARPD1 (base = month end of first month post transition)

• Select markets demonstrate

potential of conversion to direct model to result in higher ARPD

• ARPD growth of up to 35% over

12 months in select markets

• Graph does not include the

uplift in revenue expected from billing at retail rates

Independent Franchise

Capital Allocation Priorities

• Investments in the business
• M&A
• Debt paydown

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Appendix

Non‐GAAP Reconciliations

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Three Months Ended June 30, Six Months Ended June 30, 2017 2016 2017 2016 Reconciliation of Net Income to Adjusted EBITDA Net income $ 24,809 $ 42,020 $ 51,697 $ 75,719 Interest expense (income), net 1,770 (12) 1,729 (12) Provision for income taxes 2,345 ‐ 2,763 ‐ Depreciation 2,909 2,050 5,515 4,131 Amortization of intangible assets 19,468 18,164 38,935 36,328 Stock‐based compensation 481 ‐ 481 ‐ Transaction related costs and other 4,560 ‐ 4,664 ‐ Restructuring costs 1,671 ‐ 1,671 ‐ Costs related to the headquarters move 2,731 ‐ 3,428 ‐ Write‐off and loss on assets 1,383 ‐ 1,383 ‐ Adjusted EBITDA* $ 62,127 $ 62,222 $ 112,266 $ 116,166 Reconciliation of Net Income to Adjusted Net Income Net income $ 24,809 $ 42,020 $ 51,697 $ 75,719 Amortization of intangible assets 19,468 18,164 38,935 36,328 Stock‐based compensation 481 ‐ 481 ‐ Transaction related costs and other 4,560 ‐ 4,664 ‐ Restructuring costs 1,671 ‐ 1,671 ‐ Costs related to the headquarters move 2,731 ‐ 3,428 ‐ Write‐off and loss on assets 1,383 ‐ 1,383 ‐ Tax impact of adjustments (4,563) ‐ (5,079) ‐ Adjusted net income* $ 50,540 $ 60,184 $ 97,180 $ 112,047 Reconciliation of Cash Flow Provided by Operating Activities to Free Cash Flow Net cash flow provided by operating activities $ 53,016 $ 46,450 $ 96,732 $ 72,308 Purchase of property and equipment (13,301) (2,666) (18,910) (4,795) Free cash flow $ 39,715 $ 43,784 $ 77,822 $ 67,513 * Amortization of unfavorable contract liability is not adjusted out of adjusted EBITDA or adjusted net income.

Unaudited and in thousands

Definitions

Traffic (Visits). 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. Traffic (Visits) numbers provide an indication of our consumer reach. Although our consumer reach does not directly result in revenue, we believe our ability to reach diverse demographic audiences is attractive to our dealers and national advertisers. Dealer Customers. 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. Average Vehicle 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.

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Non‐GAAP Financial Measures

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This presentation contains 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 our performance and provide a basis to compare operating results between periods. In addition, we use adjusted EBITDA as a compensation measure. In addition, these non‐GAAP financial measures are frequently used by our lenders, securities analysts, investors and

• ther 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. We define adjusted EBITDA as net income before (1) interest expense, net, (2) provision for income taxes, (3) depreciation, (4) amortization of intangible assets, (5) stock‐based compensation, (6) write‐off and impairments of assets, plus (7) certain other one‐time or non‐cash charges including transaction related costs, restructuring costs and costs related to the headquarters move. Amortization of unfavorable contract liability is not adjusted out of adjusted EBITDA. We define adjusted net income as net income excluding the after‐tax impact of amortization of intangible assets, stock‐based compensation, write‐off and impairments of assets, and certain other one‐time or non‐cash charges including transaction related costs, restructuring costs and costs related to the headquarters move. Amortization of unfavorable contract liability is not adjusted out of adjusted net income. We define free cash flow as net cash flow provided by operating activities less capital expenditures, including purchases of property and equipment and capitalization of internal‐use software development costs.