CARS.COM Investor Presentation - September 2017
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CARS.COM
Investor Presentation
September 2017
Forward‐Looking Statements
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.
2
Company Overview Becky Sheehan, Chief Financial Officer
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
4
Cars.com Improves Car Decision Making by Connecting
Buyers and Sellers More Intelligently and Efficiently
Consumers Connections Partners
New & used shoppers Dealers
Vehicle sellers OEMs
Advice seekers/ Sell‐it‐yourself
enthusiasts consumers
5
Cars.com at a Glance
Market‐leading revenue in large $633MM $30BN 2
addressable market 2016 Revenue Market opportunity
Diversified customer base 21,572 100%
Dealer Customers1 Top OEM clients
#1 +15%
Leading mobile experience YoY mobile app traffic
Mobile app3
growth 2016
Rich inventory attracts market‐ 5MM 412MM
leading audience Average Vehicle Listings1 2016 Traffic (Visits)
Automotive focused with high 1,200+ 41%
margins and cash flow Employees, Industry leading 2016
including 500 sales Adjusted EBITDA margin
1 As of 12/31/16; 2Borrell 2016 Auto Outlook; 3JD Power 2016 Automotive Mobile Site Study
6
Cars.com Operates at the Center of an Enormous and
Fragmented Ecosystem
Products Service and Repair
Used Cars
New Cars 30+
OEMs3
1,000+ 42,000+
Automotive Digital
Destinations1
Dealers2 >1,600
models / trims
per year4
Participants
1 Vertical Scope; 2 Borrell 2016 Auto Outlook; 3 IHS Markit; 4 Cars.com internal data
7
Industry Trends
U.S. Auto
Advertising Industry $30
in 20163 Billion
New Car Sales 17.6
in 20162 Million
Used Car Sales 44.4
in 20163 Million
U.S. Automotive $1.1
Market1 Trillion
1 U.S. Census Bureau Monthly Retail Trade Survey
2 IHS Markit
3 Borrell 2016 Auto Outlook
8
Auto Advertising Industry is a Large and Attractive
Market with Growing Digital Ad Spend
$16bn1 / 52% $26bn1 / 67%
digital digital
1 1
$30BN $39BN
2016 U.S. auto 2021 U.S. auto
ad market ad market
U.S. Automotive Advertising Market 5% Growth 2016 – 2021E CAGR
U.S. Digital Automotive Advertising Market 10% Growth 2016 – 2021E CAGR
1 Borrell 2016 Auto Outlook
9
Automotive Decisions are Being Made Digitally
10 years ago,
the average car
shopper made
5 visits 95% 20%
to Dealerships… of Consumers of Audience3
…Today that number
has dropped to
1 use Digital Sources when is captured by
1.6 Shopping for a Car2 Cars.com3
1 McKinsey; 2 The Role of Digital and Dealers in the Path to Purchase, Google/comScore Study, Jan 2017; 3 comScore; measured as a % of visitors to Cars.com out of total visits to Cars.com
plus competitor sites (includes Autotrader, CaruGurus, Edmunds, KBB, and TrueCar)
10Cars.com Shoppers are In‐market, Undecided, and Sought
After
#1 in Brand Awareness3
Cars.com 66%
80% 95% Autotrader
#1
KBB
80% of Cars.com 95% of Cars.com #1 demographic of
shoppers shoppers are Edmunds young, affluent
say they plan to undecided on what or families among peers4
purchase a vehicle in where to buy2 TrueCar
the next 6 months1
CarGurus
1 Cars.com Consumer Metrics June ‐ September 2016
2 Consumers Metrics Q1 2017 report
3 Millward Brown Brand Tracker 2016
4 In an indexed comparison of Female Customers, Customers with Children, Customers between the ages
of 18 and 54, and Customers with a Household Income of more than $40k
11Unique Platform Empowers our Audience to Make
Better Decisions
PRODUCT PRICE PLACE PERSON
Better
Decisions
12Expert Advice and Unbiased Coverage Empower
Consumers in the Auto‐buying Process
13Pricing Transparency Fosters Trust Between
Buyers and Sellers
14Person: 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
15Industry‐Leading, Mobile‐First Platform
Best‐in‐class versus top competitors… Award‐winning app…
#1 App Rating
1 Above peer average in
all mobile dimensions 3
(e.g., speed, navigation)
#1 Most Downloaded App 2
…with tangible results
#1 Mobile Experience Rating
3
Average mobile user is within
#1 Highest User Engagement 4
37
Days of purchase
1Based on Apple and Google App Stores; 2App Annie; 3JD Power 2016 Automotive Mobile Site Study; 4App Annie; User Engagement as measured by average in‐app sessions per user
16Cars.com Generates Innovative, Measurable
Results for Partners
Connections for Partners Dealer Dashboard Overview
Phone Leads
Email Leads
Traffic to Dealer & OEM Websites
Mobile Walk‐ins
Actionable Insights
17Differentiated Salesforce Provides Market Expertise and
Unmatched Service, at Scale
National Major
Advertising Major Accounts OEMs Accounts
Affiliate
Dealers in
Affiliate
~500 Territories
~20,000
Person Total
salesforce partners
Field & Inside Dealers in
Sales Direct
Territories
Deliver unique Strong relationships
Provide deep local with local dealers and
solutions that enable
market expertise OEMs
our partners
18Five Pillars of Long‐Term Growth
Advertiser Connections
Expansion Growth
Adjacencies &
Extensions
Affiliate Data & Attribution
Opportunity Leadership
19Key Investment Highlights
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
Attractive cash flow generation at scale
Well positioned for long‐term growth
Experienced leadership and best‐in‐class talent
20Financial Overview Jandy Tomy, Vice President of Investor Relations
Financial Highlights
Attractive Business Compelling
Attributes + Growth Investment = Long Term Model
Recurring revenue Advertiser expansion Large, fragmented market
Strong cash flow generation Connections growth Expected shift to digital
Significant scale Affiliate opportunity marketing to continue
Adjacencies and extensions Proven revenue model
Data and attribution Strong balance sheet
leadership
22Revenue by Product
Cars.com Revenue Breakdown
• Dealer Subscriptions include all
National subscriptions sold to dealers, both via our
Advertising
20%
direct salesforce as well as our affiliate
sales channel (where we recognize
Dealer
Subscriptions wholesale revenue).
80%
• National Advertising includes selling
display advertising to our OEM partners.
23Revenue by Sales Channel
Retail Revenue Monetization The Dealer Network: Closer Look
Subscription fees (53%)
73% National advertising (18%)
• ~60% Franchise Dealers
$463 million Other (2%)
Sold by our Direct Salesforce
Wholesale Revenue Subscription fees ($145 million)
• ~35% Affiliate Dealers
Amortization of negative contract
27%
liability ($25 million)
Sold by the Affiliate Salesforce
$170 million
Note: Based on 2016 results.
24Subscription 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)
25Second Quarter 2017: Operational Highlights
May 31, 2017: Spin from TEGNA
and listed on Cars.com on NYSE Eclipsed 5 million reviews
Closed on a $900 million credit Granted a patent for
facility with 2.5x net leverage Lot Insights
26YTD Key Operating Metrics
Traffic (Visits) Dealer Customers Average Vehicle Inventory
(in millions) (in millions)
1 The acquisition of DealerRater in August 2016 added approximately 1,600 incremental dealers to
the Dealer Customer metric in 2016.
27YTD Revenue and Adjusted EBITDA
($ in Millions)
Revenue Adjusted EBITDA1 and Adjusted EBITDA as a % of Revenue
2017 includes $2.8
million of public
company costs
$309.1 $309.8 $116.2 $112.3
37.6%
36.2%
1H 2016 1H 2017 1H 2016 1H 2017
1 Adjusted EBITDA is a non‐GAAP financial measure. For more information and reconciliation of Adjusted EBITDA to net income, please refer to the Appendix of this presentation
28YTD Adjusted Net Income and Free Cash Flow
($ in Millions)
Adjusted Net Income1 Free Cash Flow1
1 Adjusted Net Income and Free Cash Flow are non‐GAAP financial measures. For more information and reconciliation to GAAP financial measures, please refer to the Appendix of this presentation
29June 30, 2017 Balance Sheet & Capitalization
Cash $36.6 million
Debt $675 million
Net Leverage Ratio 2.5x
Shares Outstanding 71.6 million
Enterprise Value1 $2.5 billion
1 Using the closing share price of $26.44 on September 22, 2017
30Affiliate Agreements – Background & Opportunity
Overview Inception Opportunity
6 affiliate relationships Contracts put in place at the Expiration of affiliate agreements
$170 million of revenue in 2016 time of the TEGNA acquisition expected to provide lift to
(including $25 million of in 2014 Revenue and EBITDA as these
unfavorable contract Wholesale agreements do not markets are transitioned into our
amortization) reflect fair market value, Retail Channel
4 contracts terminate Q4 2019 resulting in unfavorable Investments in expansion of
2 contracts terminate mid 2020 contract liability direct salesforce
Wholesale rates are $25 million revenue amortization
approximately 60% of retail annually through expiration of
wholesale agreements in
October 20191
1 Excludes Gannett and TEGNA wholesale agreements which expire in June 2020. We may decide to enter into new agreements but will be on arms‐length terms.
31Affiliate Conversion Provides Significant Upside
Indexed ARPD1 (base = month end of first month post transition)
160 Independent Franchise
Select markets demonstrate
150
potential of conversion to direct
140 Market 1
model to result in higher ARPD
Market 2
130
Market 3 ARPD growth of up to 35% over
120 12 months in select markets
Market 2
110
Market 3 Graph does not include the
100 Market 1 uplift in revenue expected from
billing at retail rates
90
0 1 2 3 4 5 6 7 8 9 10 11 12
Months After Transition
1 Average Revenue per Dealer
32Capital Allocation Priorities
• Investments in the business
• M&A
• Debt paydown
33Appendix
Non‐GAAP Reconciliations
Unaudited and in thousands 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.
35Definitions
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.
36Non‐GAAP Financial Measures
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
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.
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.
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