Cars.com, Inc. Stock

Good morning, and welcome to our second quarter 2026 earnings conference call. [Operator Instructions] Please be advised that this call is being recorded today, August 7, 2026.

I would now like to turn the conference over to Katherine Chen, Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us for the Cars.com, Inc. Second Quarter 2026 Conference Call. With me this morning are Toby Hartmann, CEO; and Sonia Jain, CFO. Toby will start by discussing business highlights from our second quarter. Then Sonia will discuss our financial results in greater detail, along with our outlook. We'll finish the call with Q&A.

Before I turn the call over to Toby, I'd like to draw your attention to our forward-looking statements and the description and definition of non-GAAP financial measures, which can be found in our presentation. We will be discussing certain non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted operating expenses, adjusted net income and free cash flow.

Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in the financial tables included with our earnings press release and in the appendix of our presentation. Any forward-looking statements are subject to risks and uncertainties. For more information, please refer to the risk factors included in our SEC filings, including those in our most recently filed 10-K, which is available on the IR section of our website. We assume no obligation to update any forward-looking statements.

And now I'll turn the call over to Toby.

Thank you, Katherine, and thanks to everyone on the call for joining us to review our second quarter 2026 results. We delivered another quarter of revenue growth and increased profitability. Q2 revenue of $180 million was within our guidance range and grew year-over-year on the strength of dealer subscription products. Marketplace was a highlight for the quarter on both revenue and subscriber growth. Our expanded adjusted EBITDA margin of 29.4% outperformed the high end of guidance for a second consecutive quarter. And we continue to generate strong free cash flow, which enables both investment in organic growth and a 28% year-to-date increase in buybacks to return value to shareholders.

Based on our results, we are pacing well to meet our 2026 financial targets, and we are positioned to deliver further improvement in 2027. As we laid out shortly after I joined in January, creating an interconnected marketplace-centric ecosystem is foundational to our long-term growth strategy. At its core, our marketplace flywheel is solid, and we remain a leader in driving vehicle sales at scale, integration between marketplace websites and appraisal solutions unlocks more opportunities to improve each component of this flywheel. For example, unifying our retail appraisal and vehicle insights helps build more trust and confidence in the purchase journey.

A more seamless and personalized experience between Cars.com and dealer websites also powers better shopping signals and conversion. And we can speed product development velocity as we improve technical interoperability. We are operationalizing these goals through our focus on product, process and organizational improvements, the 3 initiatives that have guided our year-to-date execution.

Marketplace results are already responding positively to the change in our strategy and operations. Marketplace revenue grew over 7% year-over-year in Q2. Putting this in context, outside of 2021's pandemic-related recovery, this is the fastest marketplace growth rate in our public company history. And as a result, dealer revenue growth more than offset the expected decline in OEM revenue. Underpinning this growth, in Q2, marketplace subscribers rebounded to their highest level since 2023 and marketplace ARPD reached an all-time high. We recently launched Dealer Verified Listings, a new feature that, for the first time, integrates aspects of AccuTrade and marketplace. Whereas AccuTrade has traditionally been a stand-alone dealership solution powering appraisals and trade-ins, we are now beginning to capitalize on its capabilities across the consumer marketplace.

AccuTrade dealers and soon those wanting to participate in our dealer verified listings program can display current vehicle condition reports directly onto listings. This is a differentiated alternative to the traditional backward-looking vehicle history report. And for shoppers, the Dealer Verified badge is an additional trust signal unique to our marketplace. Dealer Verified Listings are the first step as we build cross-platform VIN-specific intelligence that helps maximize the value of each car.

Compared to process and people changes, product typically requires a longer runway before results come to fruition. Therefore, it was exciting to see Dealer Verified Listings go from development to launch within just a few months. Overall, in 2026, our deployment rate for new features has already increased by 80% year-over-year. This new operating cadence underscores our growth potential as product momentum builds across our interconnected marketplace. We also continue to enhance the consumer product experience, adding our Carson's AI shopping assistance to more marketplace surfaces. Today, around 20% of active searches on Cars.com are engaging with Carson. Carson users are 4x more likely to submit a lead and accounted for nearly 30% of total leads submitted in the month of June, demonstrating our platform value.

Offering an AI-first option for car shoppers boosts conversion, contributes to overall marketing efficiency and gives us additional bandwidth for strategic growth investments. Additional Carson features are slated for release this year, such as better comparison tools and more personalization that we expect will further improve consumer satisfaction.

In terms of our overall marketplace audience, the year-over-year decline in Q2 traffic and visitors primarily reflects strategic shifts to prioritize value delivery. Adhering to a more rigorous marketing investment approach has helped us better target and convert high-intent shoppers. Q2 lead conversion was up double digits year-over-year and performance marketing cost per lead also improved throughout the quarter. Based on the clearly favorable customer response that fueled marketplace revenue and subscriber growth in Q2, we will continue to deemphasize lower quality traffic, opting instead to drive more value to dealers. We're also excited to have our new CMO leading these efforts. Leveraging her deep consumer and marketplace background will help us shape and refine our tactics.

We believe marketplaces remain central to the car buying experience for shoppers. First, automotive is a considered purchase for the majority of consumers and requires deep vertical expertise and proprietary first-party insights like Dealers Verified Listings. Adding richer vehicle insights will continue to draw shoppers onto our marketplace. Second, organic traffic has consistently remained around 60% of our total traffic. SEO declines appear to have bottomed in late 2025 and direct traffic, our largest organic channel, grew year-over-year in the first half of 2026. Third, we view AI as a net benefit to the car shopping experience and seek to be a valuable partner in this expanded ecosystem. We are the #1 most cited public automotive marketplace amongst leading AI platforms. We also recently added 25-plus years of editorial content into our Cars.com ChatGPT app to enhance the consumer experience. In the medium term, we anticipate that pursuing a thoughtful AI strategy should be additive to our growth ambition.

Each incremental step on product integration, process optimization and organizational improvement contributed to the meaningful uptick in marketplace performance in the first half. Simply put, our playbook shows impact. And we will reverse the recent decline in website customers by applying these same principles, particularly product innovation. Our goal is to accelerate product development velocity for websites first by adding current marketplace capabilities. This includes personalization, AI features like Carson and interconnected data insights between our products.

For consumers, that means a more seamless and customized shopping experience when moving across Cars.com and Dealer Inspire websites. We will provide seekers with more options and choices for an interconnected marketplace experience. For dealers, aggregated consumer signals yield richer leads and a distinct advantage to closing sales. These enhancements plus further technical and product investments slated for 2027 are expected to position our website business for renewed growth.

In summary, we have made solid progress to deliver our goals and objectives. Our 2026 financial performance has consistently met or exceeded guidance. Marketplace results are especially encouraging and reflect strong execution of our new strategy. Operating leverage is also improving via cost efficiencies, tighter internal processes and a leaner yet more productive organization. And product green shoots are showing the untapped potential of an interconnected marketplace platform.

I want to acknowledge the discipline, hard work and focus of our team whose execution and collaboration has been instrumental to these initial successes. We are confident that these efforts will compound to drive long-term sustainable growth and shareholder value.

Now Sonia will discuss our financial results and outlook. Sonia?

Thank you, Toby. Second quarter financial performance highlighted strong execution of our marketplace first strategy and improved operating leverage across our business. Revenue of $179.9 million was up 1% year-over-year and within our guidance range. Dealer revenue growth was up 3% year-over-year and was slightly offset by the anticipated decline in OEM and national revenue, which was down 18% year-over-year. Within dealer revenue, robust marketplace growth more than offset flat to down performance for Solutions and Media products. ARPD and dealer count also broadly followed these same trends.

Q2 ARPD of $2,500 was up 3% year-over-year and 1% quarter-over-quarter. Marketplace was the primary contributor to this year-over-year improvement, and we set a new record for marketplace-only ARPD during Q2. Premium Plus was up quarter-over-quarter and the fastest growing of our 3 marketplace packages, further supporting favorable pricing mix. We're making progress towards our stated 15% target adoption rate for 2026. However, lower uptake of add-on dealer media products remained a near-term headwind, partially offsetting gains from core marketplace adoption.

Consolidated dealer count reflected similar puts and takes. Marketplace subscribers were up year-over-year and quarter-over-quarter. However, website units declined compared to a year ago, consistent with our view that future DI growth hinges on product innovation and packaging rather than unit volume expansion. Therefore, we're applying the same product-led approach that has worked well for marketplace. Step 1 is bringing existing marketplace capabilities to websites in Q3 and Q4, an efficient way to strengthen our focus on DI product innovation.

As Toby also mentioned, we launched Dealer verified listings in June. This is an important first step as we integrate our product offerings to capture greater platform value, simplify go-to-market motions and unlock new cross-selling opportunities. Dealer Verified Listings are currently available to existing AccuTrade customers. And in Q4, we will begin expanding this feature to marketplace customers to drive further growth and adoption. As we migrate towards a more integrated marketplace and appraisal bundle, individual point sales of AccuTrade will become less relevant to our strategy. However, it's worth noting that AccuTrade subscribers were roughly flat sequentially in Q2, even as we retool our offering. Rounding out our revenue discussion, OEM and national revenue was down $3 million year-over-year in Q2. We signaled in May that this quarter would represent a trough in OEM revenue. And based on positive performance in July and incremental spend commitments for the remainder of the year, we anticipate quarter-over-quarter growth in Q3.

Now to discuss cost. Second quarter operating expenses were $152.1 million, down 7% year-over-year. We drove operating leverage across the organization, maintaining strong cost discipline and a continued focus on process efficiencies. A meaningful decline in depreciation and amortization expense following the full amortization of customer list tied to our 2017 spin-off, combined with lower compensation costs accounted for the majority of the year-over-year delta.

Q2 adjusted operating expenses were $144.3 million, down 6% year-over-year from the same cost levers. For the following line item detail, all comparisons are on a year-over-year basis unless otherwise noted. Product and technology expenses decreased $2.7 million on a reported basis and $2.5 million on an adjusted basis. Lower compensation expense related to streamlining our processes and improving interconnectivity and improvements in our capitalization rate drove both the reported and adjusted decrease.

Marketing and sales increased roughly $2.7 million on both the reported and adjusted basis, largely driven by targeted marketing to prioritize value delivery. General and administrative expense was down $3.5 million on a reported basis and roughly $1 million on an adjusted basis. The reported decrease was primarily due to the elimination of the D2C earn-out expense accrual and lower compensation expense. As a reminder, the D2C earn-out is considered a special item and not included in adjusted operating expenses, which accounts for the delta between the decline in reported and adjusted G&A expense.

Second quarter net income was $14.3 million or $0.25 per diluted share compared to net income of $7 million or $0.11 per diluted share a year ago. Net income was primarily driven by improved operating income. Adjusted net income for the second quarter was $28.7 million or $0.51 per diluted share compared to $26.4 million or $0.41 per diluted share a year ago. Adjusted EBITDA of $53 million in the second quarter was up 4% year-over-year, healthily outpacing revenue growth and clearly showing the early impact of our process, cost and organizational improvements. Adjusted EBITDA margin of 29.4% was up nearly 100 basis points year-over-year.

Moving to the cash flow statement and balance sheet. Net cash provided by operating activities totaled $55.6 million for the first half of the year compared to $55.7 million a year ago. Free cash flow was $43.5 million year-to-date, up modestly from $41.8 million a year ago when we had higher spending related to the build-out of our office headquarters. Share buybacks totaled 6.2 million shares for $57 million year-to-date. Since the start of the year, we have bought back and retired over 10% of shares outstanding. We are pacing well towards our 2026 share repurchase target of $90 million through opportunistic deployment of our free cash flow in the first half of 2026. Lastly, debt outstanding was $450 million as of June 30, 2026, which includes a $5 million debt payment during the second quarter. Total liquidity was $333.3 million as of June 30, 2026, and we have ample capacity for our capital allocation needs.

Finally, we'll conclude with outlook. Third quarter revenue growth is expected to be flat to up 2% year-over-year based on continued dealer revenue growth and marketplace improvement and quarter-over-quarter improvement for OEM and national revenue. Third quarter adjusted EBITDA margin is expected to be between 28.5% and 29.5%, benefiting from continued cost and operational discipline. Lastly, we are also reaffirming our full year 2026 guidance of flat to 2% revenue growth and adjusted EBITDA margin of 29% to 30%.

And with that, I'd like to open the line for Q&A.

[Operator Instructions] We now take our first question, and this comes from Thomas White from D.A. Davidson.

So I guess just first off, marketplace, looks like a nice quarter there, 7% growth. I was hoping maybe you could just unpack a little bit more kind of the drivers there kind of between maybe some of the premium package adoption and the momentum from the new products and just sort of talk a little bit about the sustainability of that kind of trajectory? And then I've got a follow-up.

Thanks for the question. No, we're excited about the marketplace performance that we saw in Q2. I would say that it was driven by a combination of both improvements in dealer count, which really helped accelerate the marketplace flywheel and continued progress on ARPD, a chunk of which was driven by the new Premium Plus package that we rolled out last year. We continue to see good adoption there. Our target, as a reminder, is to get to a 15% penetration rate by the end of the year.

Okay. Great. And then -- so you called out growth in lead volume, but there's still a pretty sharp decline in Uniques. Toby, maybe can you help us -- or so can you help us reconcile that a little bit. It didn't sound like SEO headwinds for you kind of have gotten worse, although there's some other kind of Internet marketplaces who are talking about that. So I don't know, just help us kind of reconcile what's going on there with Uniques. And eventually, I presume that, that trend has to change, particularly if you're going to look to be adding more dealers to the marketplace.

Yes, sure. As we laid out and shared, this is really an intentional shift. We looked at our marketing spend and our marketing practice, and we figured that there are some inefficiencies. We drove a lot of traffic in the past, a lot of clicks that didn't convert into leads. So we do not want to do this anymore. So we are intentionally shifting to prioritize the value delivery versus the pure audience reach. And they're very happy to see that this is actually kicking in. So a lot better conversion and lead volume also kicking in. We also have a new CMO who started, so she's going to take it to a new level. So you saw with marketplace. Obviously, it's a good sign that it's working. You saw the growth kicking in. We saw also the dealer growth and the revenue growth. So we think this is the right strategy. And of course, we'll create the right momentum to also reinvest in the right spots, but again, lower funnel versus just half of funnel.

And the next question comes from Marvin Fong from U.S. Bancorp.

Just would like to ask a question on the subscribers for solutions. You talked about turning that around with more innovation and new products. Can you just kind of talk about the time line you have for rolling out those new products? And do you have a time line in mind for when we can expect that the dealer or the subscriber count there to stabilize and turn positive?

And then second question, I know it was just launched in June, but can you just talk about what you're seeing in terms of leads and conversion rates that you're able to on the dealer verified product? And what's the monetization strategy for that? What packages would it be included? And how would you monetize outside of in specific subscribers.

Marvin, it's Toby. Thank you for your questions. Let's talk about the first part, which is the website part and the DI part. First of all, we'd like to recall that we did tell you in the future -- that the future growth will be a little bit slowing down and given the fact that we actually repackaged and this is actually what we did. So it's not just about a mere volume, but it's also the price points and the packaging. So we pushed that and that's totally in line with strategy.

Having said that, our value delivery remains really, really strong. We're really scaled provider. We are endorsed by pretty much every major OEM, and we're still winning new customers. But let's also talk about the weakness, which I'd like to address. First of all, there's a slower pace of new feature releases to date. And what we've done is we've rolled out the playbook for marketplace. We talked about it. We are seeing great productivity enhancements and acceleration, and we are going to apply that same playbook also for the solutions business. So we have a pretty exciting road map ahead that we work behind closed doors, which will actually focus on the interconnectivity with some of the marketplace functionalities.

And then another point I'd like to mention is, we do have some organizational and process misalignment in the past, which we're also addressing as part of our reorganization. We've named the new GM, and we're really picking up speed there. So over the next 2 to 3 quarters, there will be a focus on really product innovation and applying the same playbook. So we're very confident that we'll get this back on a growth trajectory.

Now regarding your second question with the dealer verified listings, we're really very happy about that because it took us only a few months to launch that. And what it does is in terms of impact, it's basically creating already more impressions, which then converts into higher click-through rates to BDPs, which essentially then drives faster listing terms. Why? Because this is a major trust signal that we are integrating into marketplace to stand out and help consumers really getting a better coordination between lots of vehicles, and there's either CPOs or nothing.

And this is another alternative that looks at not just the historic vehicle report, but at the actual condition and the actual inspection that a dealer had to go through by applying some of the assets from AccuTrade. So view this as a really important step, first step, we'll share more data points. We just rolled it out. So it's too early, but we are testing heavily towards an interconnected experience with a focus on trust signals and guiding consumers. So hopefully, this is some context for you. Thank...

And the next question comes from Gary Prestopino from Barrington Research.

Toby, good progress here. I guess with some of the marketplace revenue growth, is that really somewhat of a function of that you're -- now got the sales force selling an integrated product and you're getting more uptake because of that integrated product sales approach?

Yes. Thank you. There's a couple of factors. That's certainly one. I'm glad you called it out. We made good progress there as well. But the other piece is we're bundling it and it's easier to understand, it's easier to package and it's easier to roll it out. So away from point solutions more towards an interconnected subscription with a clear value delivery. And then also, let's not forget about the marketing piece that we just called out, we are focused on delivering more leads as opposed to just more traffic. And that is the -- at the very end, that's the value delivery that dealers want. So it's a combination of the process and organizational adjustments we made plus the clear interconnectivity. First steps we are by no means done. Thirdly, sales efficiency and packaging. And fourthly, support from marketing efficiency and greater lead volume.

Okay. And then just a follow-up on the verified product, which is being generated by AccuTrade. Is the data that is being shown there very similar to some of the output that we were shown in Las Vegas? Or is it more or less just a deeper dive on versus a CARFAX where it's going to say no mechanical issues, et cetera, et cetera, things like that?

Yes, it's a great question. Thank you. So the main difference between what you saw in Vegas and how we're utilizing it currently is it was very much dealer facing in Vegas, which is, if you remember, this was used as a tool to determine the best price, how to price the vehicle from a dealer's perspective to then put it onwards to consumer-facing potential sale listing. Now what this does today, our focus is really on guiding consumers to shift more towards consumers, giving them additional data points to really understand that this is a vehicle and a VIN number that went through an additional loop of 15, 18 points inspection, which, by the way, the dealer adhered to and signed off. So that's the difference. It's more consumer-facing as opposed to just price labeling.

So I don't want to -- I know I only have 2 questions, but I just want to be clear. In order to do a verified have this program, the dealer does have to do some kind of certified inspection and guarantee that inspection before for the purchaser of the car?

Yes. They need to go through a rigorous process, which is obviously part of the AccuTrade assets and then they can put it up online. That's correct. Thank you.

The next question comes from Naved Khan from B. Riley.

Two questions from me. One, maybe just on the traffic, website traffic between unique and visits. So you said that you're focusing on higher-quality traffic, not just the volume of traffic, which I understand. But if I just look at sort of marketing and sales as a percentage of revenue, that's up year-on-year. You're spending more money. So is it that you have to spend more money to kind of acquire the high-quality traffic? How should I understand that deleverage in the marketing line versus what you just spoke about in terms of quality trade-off? And then I have a follow-up.

Yes. Good catch there. We anticipated that question. But there's something else that we're trying to catch up with and trying to have proper allocation, which is really, call it, brand. Remember, we still need some brand investments for the long-term interconnected strategy. So we need to position this not only just a listings destination, but instead as a transaction enablement platform. So the focus we just called out is really on the performance and growth marketing piece where we're really focused on driving more value. Separately from that, we are continuing and actually, we are spending money on positioning this right in terms of branding. And that's an important part of the journey because we are here for long-term success. So yes, that's why you see those numbers.

Okay. That's great. The second question I have is just on the verified listing. So it looks like you're creating a greater value proposition for the dealers that buy AccuTrade and ultimately, that should drive sales for this product. Is that the right way I should be understanding this? Or are you just going to expand the verified listing to more dealers regardless of whether or not they are AccuTrade customers?

Yes. Good question, too. As Sonia shared, we started with the AccuTrade customers. Why? Because they are used to the procedures and the processes. And obviously, they're closer to our intentional shift of driving a differentiated listing and providing a different trust signal. That's the current testing. Now again, this is early innings. We are only out there for a couple of weeks, but the intent is to then also make this available to a broader audience of dealers, and we are seeing very positive and very encouraging signals right now.

But also to be fair, we are learning because these are the power users, and they're giving us incredibly fundamental and good sound feedback on how we can further improve that. So in summary, correct, we started with activate customers only and also only a subgroup of those. We're getting their feedback. We're monitoring. We are financing the product, but the intent is to roll it out and expand it and make it available to other dealers.

The next question comes from Alejandro Nuno from UBS.

Maybe you can just sort of help us out with the guidance. The EBITDA guide basically implies margins are relatively flat quarter-over-quarter, but it sounds like you continue to make good progress on optimizing the cost structure and expect sort of return growth in OEM revenues. So why are margins sort of flat quarter-over-quarter? And then maybe sort of on top of that, like the fourth quarter margin sort of implies close to sort of 31%. Like what drives, I guess, the step-up then from Q3 to Q4?

Yes. No, thank you for the question. We're happy with our EBITDA performance on a year-to-date basis. As you heard, we've kind of reaffirmed the full year guide. I think the shape of the year maybe looks a little bit different from a margin perspective than you may have originally anticipated. But we're definitely committed to finding those ongoing efficiencies. Some of them unlocked in Q2 with the changes that we made to streamline the organization. But you've also heard us talk about the importance of innovation in driving forward growth in the business. So we're fairly committed to identifying and reallocating resources as needed to deliver on the growth profile. And we would also expect as innovation takes hold, as we get more of these efficiencies, as we see revenue growth, we should see more scale in our EBITDA numbers as we progress quarter-over-quarter.

Got it. And maybe just sort of one more follow-up, if I can. I'm sorry if I missed this, but on the new Premium Plus package, you highlighted that you're targeting sort of 15% by the end of the year. Like can you just give us an update of where you stand now?

We're making good progress. We're midway through the year, and I think we're seeing a lot of momentum in terms of those sales. Premium Plus was the fastest growing of our 3 packages in Q2. And as we continue to add more features and improve the interconnectivity of our marketplace experience, we believe a lot of that value will accrete to the Premium Plus package. So we're focused on delivering the 15% by the end of the year.

Do you have a penetration number for the quarter so far, like where you stand right now?

We're getting -- we're basically at double digits or close to double-digit penetration.

The next question comes from Rajat Gupta from JPMorgan.

This is Josh on for Rajat Gupta. I just wanted to start off with one on the FTC's push around dealer pricing transparency. I was just wondering if you could expand on how you've changed the platform to just adhere to that increasing pricing transparency standard. You said a step removed since dealers do the advertising. So does all-in pricing play to a marketplace built on trust? Or does it create somewhat of a friction for your dealers? And is your approach any different from that, that is employed by your peers? I have a quick follow-up.

We tried to take a role in helping dealers ensure that they are able to get their information out there and be trusted partners to consumers. If you think about our vision for marketplace, it is embedded in trust, transparency. And so we've been supporting them through this process, encouraging compliance and just better information, right? Because when the consumer understands what they have to pay before they walk into a dealership, it reduces the friction of the transaction, right? It increases lead to sale conversion. So we feel like we're taking the right steps.

Understood. That's very helpful. And then just as a quick follow-up, could we get an update on where Cars.com's dealer-to-dealer wholesale initiatives stand just around Dealer Club? -- with AccuTrade connected dealers not yet seeing meaningful upward pressure. Just curious how that flywheel starts turning and what's the unlock that gets that system -- that ecosystem to compound?

Yes. Currently, we are focused, as we just laid out, on really taking some of the AccuTrade assets and making them more interconnected. So that's the first step. That's plenty of stuff to chew on. So we're going to take it step by step. And the Dealer Verified Listings program as we just launched it is going to keep us busy for quite some months. So we'll give you more updates on the other stuff, but that's the focus -- that's the current focus right now. The other part that we're really embedding and making it more connected is also anything that's related to our Premium Plus features. So we've developed a stack of new features that are going to be launched as part of our rollout and our future subscription services. But again, too early to talk about in public, but there's a lot of work behind closed doors. So stay tuned. Thanks.

Thank you, and no further questions that came through. This concludes our conference call for today. Thank you all for participating. You may now disconnect.

Good morning, ladies and gentlemen, and welcome to the Cars First Quarter 2026 Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, May 7, 2026.

I would now like to turn the conference over to Katherine Chen, Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us for the Cars.com Inc. First Quarter 2026 Conference Call. With me this morning are Tobi Hartmann, CEO; and Sonia Jain, CFO. Tobi will start by discussing business highlights from our first quarter. Then Sonia will discuss our financial results in greater detail, along with our outlook. We'll finish the call with Q&A.

Before I turn the call over to Tobi, I'd like to draw your attention to our forward-looking statements and the description and definition of non-GAAP financial measures, which can be found in our presentation. We will be discussing certain non-GAAP financial measures, including adjusted EBITDA, adjusted EBITDA margin, adjusted operating expenses, adjusted net income and free cash flow. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in the financial tables included with our earnings press release and in the appendix of our presentation. Any forward-looking statements are subject to risks and uncertainties. For more information, please refer to the risk factors included in our SEC filings, including those in our most recently filed 10-K, which is available on the IR section of our website. We assume no obligation to update any forward-looking statements.

And now I'll turn the call over to Tobi.

Thank you, Katherine, and thank you to everyone joining us to review first quarter 2026 results. On our call in February, we set forth near-term goal to better realize the potential of our business and put Cars.com on a stronger growth and value-creation trajectory. We have made solid progress against those objectives in Q1 and early Q2 as we build a leading automotive marketplace experience.

First, we delivered on our financial commitments. Q1 revenue of $180.2 million was towards the high end of guidance and the third consecutive quarter of year-over-year growth. Adjusted EBITDA margin of 28.3% exceeded guidance by over a full percentage point. And free cash flow remained strong, up 42% year-over-year and reflecting higher conversion from EBITDA. Second, we have taken immediate cost actions. We closely examined operations to identify efficiencies and opportunities to reshape our organization into more nimble marketplace-focused teams. During this process, we identified $25 million to $30 million of recurring annualized operating cost savings to create a healthier foundation to support future growth.

Third, we are leveraging existing assets and data to rapidly launch new features that improve our marketplace value. Cars.com MCP integrations for agentic AI platforms and conversational capabilities for our cars and shopping assistant are examples where we have adopted to match new shopping behavior. Consumers were more than 4x as likely to submit a lead after having a conversation with Carson, demonstrating our efficacy at stimulating purchase intent. These are positive and necessary steps to start the year and reinforce our confidence in our 2026 growth guidance. We also increased our 2026 share repurchase target to $90 million to further enhance shareholder value creation.

Overall, the start of the year has been productive and the teams have moved with speed to secure wins. In terms of our three 2026 initiatives, we have pushed hard on controllables such as cost containment. Other changes like the green shoots and product and marketplace are compelling, they will take some time to mature, but we are clear on the strategy that we need to execute for the rest of the year.

Historically, we have grown our product as distinct and loosely affiliated pillars. But moving forward to truly maximize our value, we must integrate into one interconnected marketplace-centric ecosystem. For car seekers, we will offer relevant and desirable listings across marketplace and dealer websites, trusted data insights and an AI-first user experience. For car sellers, our combined marketplace and appraisal capabilities will evolve into an essential resource for used car insights. And dealers and OEMs will continue to benefit from our scale in market audience but with even better ROI based on our unique first-party retail signals across marketplace, websites and media. Our marketplace model will drive vehicle transactions at scale by focusing on these differentiators.

Investing in product is key to powering our marketplace flywheel and long-term growth. Let me give you some examples of our accelerated product output in the first 4 months. Starting AI. Model context protocol integrations are helping our discoverability on leading agentic AI platforms such as ChatGPT. Consumers can now browse our marketplace inventory directly with a native LLM environment before submitting leads on Cars.com. And this has added value for existing marketplace dealers who are eager to tap into agentic commerce. LLMs are still sub-1% of our traffic, and we are well positioned to benefit as these platforms grow.

Turning to our own platform. Conversational Carson is a positive step towards continued personalization of the marketplace shopping experience. Finally, the Cars.com dealer app just launched in April, putting a mobile command center in the hands of marketplace dealers. Early features include AI-generated summaries of performance metrics, lead follow-up alerts and pricing intelligence. We believe our app has the broadest analytics set among our competitors translating to the best ROI on every sales appointment and wholesale transactions. We expect greater product development velocity will continue to deliver a steady and diverse cadence of future releases. Cross-pollination, such as bringing AccuTrade data into marketplace listings will be an increasing focus in the second half of the year.

Turning to the remaining initiatives. Sonia will offer more cost detail in her remarks. The actions we took in April supports our stated intention to grow adjusted EBITDA at a faster rate than revenue. We've also been clear that we must operate with better processes and organizational structure to successfully execute our marketplace strategy and grow LTV.

From a go-to-market perspective, new product bundles will help clearly articulate platform value. Our products will be packaged according to integrated value delivery, which we expect to drive faster adoption than selling individual point solutions. For example, our data shows that customers with both AccuTrade and the Cars.com marketplace, the inventory turns speed up by an average of 6 days. A combined marketplace and appraisal offering would not only drive dealership gross profits, but also eliminate the paradox of choice for a customer facing too many a la carte options. We have reorganized the sales team accordingly to break down product-based silos, eliminate duplication and make the sales process simpler for dealers. Combined with our ongoing localization efforts, we feel front-footed in our ability to increase overall sales productivity.

For our current customers, we are fully focused on enhanced value delivery. Our leads and connections already influenced more than 30% of our customers' vehicle sales. We will keep pressing this advantage with a balanced approach to top and lower funnel activities that maximizes ROI on our platform. We are committed to operating a scaled platform, though metrics like traffic and UVs may move depending on quarterly marketing mix.

Most recently, Q1 traffic and UVs were pressured by a tough year-over-year comp from pull-forward tariff demand in the broader industry in 2025. Setting aside this onetime impact, our underlying direct traffic remains strong. Organic traffic was close to 60% of total mix in Q1, which is similar to our historical average, even with the advent of LLMs. Direct traffic conversion was also up meaningfully year-over-year and reflected a robust lead volume growth. Longer term, we have confidence that our strong brand improving user experience and listing inventory will fuel continued marketplace strength.

To recap, we delivered against revenue expectations and outperformed on adjusted EBITDA. We are changing the way we operate to drive stronger financial results and operating metrics. We are executing to transform into the leading trusted automotive marketplace, connecting consumers, dealers and OEMs. And in the process, we will create meaningful and sustainable shareholder value. Now Sonia will discuss our financial results and outlook. Sonia?

Thank you, Tobi. The first quarter was another positive step in improving our growth trajectory and profitability. Revenue was in line with expectations, while adjusted EBITDA beat our guidance range by over a full point. As Tobi stated, we are focused on our marketplace-centric strategy and are pleased with the performance of this core piece of our business. And as you read in our April announcement, we are focused on more product integration and innovation while working diligently to enable operational efficiencies. These cost benefits are beginning to manifest in our results, all revenue-driving measures will compound and support accelerated growth as we move through the year.

Now to discuss the quarter. First quarter revenue of $180.2 million was up 1% year-over-year, above the midpoint of our guidance range. Dealer revenue growth was driven by enhanced value delivery across websites and marketplace as well as dealer count growth, which was up 140 customers year-over-year based on core marketplace strength. We're encouraged by steady marketplace improvement given its criticality to our strategy and importance to our revenue, profitability and cash flow profile. ARPD of $2,473 was consistent on both a year-over-year and sequential basis. Over the medium to long term, we expect this metric to continue growing based on underlying value delivery and increased product adoption.

More immediately, we've made good progress in aligning marketplace and website packaging to our value proposition. For example, in marketplace, Premium Plus, our top-tier offering has grown to nearly 7% of subscribers, and we anticipate reaching 15% adoption across marketplace customers before year-end. For new and renewing website customers, subscription demand for our top website packages remain steady. Our work on core web vitals has improved site speed for many of our customers by nearly 30%. We have also released timely features like improved EV data, which is particularly important as dealers are now selling a growing supply of used EVs without the benefit of government incentives.

The dealer media performance continues to temper otherwise favorable ARPD drivers, the planned refresh of our media suite, including AI VIN videos should set us up for a better traction in the second half of the year. In addition to these product-specific refinements, our new marketplace-first approach requires our distinct product pillars to evolve into more integrated subscription offerings. With these integrated offerings, we are entering a new phase of our cross-selling strategy, which we expect will deliver a distinct lever for ARPD growth. We'll share more updates on our work here in the coming months.

Turning to dealer count. While our customer base was up year-over-year from marketplace net add, on a quarter-over-quarter basis, we experienced some pressure in solutions that resulted in overall dealer count decline. Recall, the website business has grown significantly over the last few years as we became a preferred OEM vendor and gained share. We're now in a different phase of growth that is more oriented around innovation and package value versus pure market share gains. And recent investments that we've made to improve technical performance on site speed, security and other metrics are garnering favorable customer feedback. Rounding out the solutions discussion, AccuTrade subscribers were down sequentially. As you heard Tobi mention, we expect AccuTrade sales to improve as it becomes more fully integrated with our marketplace.

The strength of dealer revenue and more specifically Marketplace is encouraging, and we expect this momentum to drive total revenue growth in 2026 and balance softness in OEM advertising. In the first quarter, OEM and national revenue was down $2 million year-over-year. There has been ongoing signals that OEM budgets are in flux. As an example, some manufacturers are opting to invest in vehicle incentives to offset the impact of tariffs rather than advertising in Q1. Based on proactive and positive conversations with our partners, we are cautiously optimistic that Q2 represents a trough for OEM media and that we will begin to grow on a sequential basis in the latter half of the year.

Moving to on cost. First quarter operating expenses were $163.6 million, down 5% year-over-year. The decrease was primarily due to lower depreciation and amortization expense, specifically, the amortization of customer list associated with our 2017 spin-off as well as more efficient marketing spend. Q1 adjusted operating expenses were $145.9 million, down 6% year-over-year from lower depreciation and amortization and strong cost controls across the organization.

For the following line item detail, all comparisons are on a year-over-year basis, unless otherwise noted. Product and technology expense increased $900,000 on a reported basis and decreased $300,000 on an adjusted basis. Higher severance costs and licensing and hardware expenses were the primary drivers of the reported increase. For adjusted expenses, lower compensation more than offset the aforementioned technology spend. Marketing and sales decreased roughly $700,000 on both a reported and adjusted basis, benefiting from a more efficient marketing mix.

General and administrative expense was up nearly $1 million on a reported basis and up $2 million on an adjusted basis. The reported increase was primarily due to severance compensation and third-party costs, which were partially offset by the elimination of the D2C earn-out expense accrual. On an adjusted basis, compensation and third-party costs combined to push total adjusted G&A higher for the quarter. Several of these were discrete items that while individually insignificant, aggregated into slightly elevated total expense. Over the medium to long term, we still expect to realize operating leverage in this line.

First quarter net income was $5 million or $0.08 per diluted share compared to a net loss of $2 million or $0.03 per diluted share a year ago. Net income was primarily driven by lower depreciation and amortization. Adjusted net income for the first quarter was $26.7 million or $0.45 per diluted share compared to $24 million or $0.37 per diluted share a year ago. Adjusted EBITDA of $51 million in the first quarter was up slightly year-over-year, while adjusted EBITDA margin of 28.3% was consistent year-over-year and more than 1 percentage point above our guidance range.

On to the cash flow statement and balance sheet. Net cash provided by operating activities totaled $39.8 million for the quarter compared to $29.5 million last year. Free cash flow was $33.5 million for the quarter, up from $23.7 million a year ago, primarily due to favorable working capital changes from compensation accruals and the 2024 federal tax refund.

In the first quarter, we bought back 2.5 million shares for $20 million, returning approximately 60% of in-period free cash flow to shareholders. Through April 30, 2026, we have bought back 3.8 million shares of common stock for $32.9 million, an efficient use of capital at current valuation levels that reduced shares outstanding by 5% since the beginning of the year. Driving shareholder value remains a priority and is reflected in our recent decision to increase our 2026 share repurchase target by 50% from $60 million to $90 million. Based on year-to-date activity, we are pacing solidly towards this target, and we'll continue to opportunistically leverage strong free cash flow conversion for capital returns and debt paydown.

Lastly, debt outstanding was $455 million as of March 31, 2026, for a total net leverage ratio of 1.8x. Total liquidity was $359.6 million as of March 31, 2026, providing the capacity and flexibility to meet our capital allocation priorities.

And now we'll conclude with outlook. Second quarter revenue growth is expected to be flat to up 2% year-over-year. Dealer revenue should continue to be a growth driver based on better value delivery and product upgrades and adoption. Based on year-to-date performance, we expect second quarter OEM and national revenue to face similar year-over-year pressures as Q1. The episodic nature of advertising and media investments is also driving our slightly wider than usual quarterly guidance range to account for possible timing variances in customer spending.

Second quarter adjusted EBITDA margin is expected to be between 28% and 29%. And our priority is to grow adjusted EBITDA dollars year-over-year at a faster rate than revenue. Embedded within our guidance range is also a partial quarter of savings from the cost reduction program that was initiated in April. We are also reaffirming full year 2026 guidance of flat to 2% revenue growth and adjusted EBITDA margin of 29% to 30%.

And with that, I'd like to open the line for Q&A. Thank you.

[Operator Instructions] Our first question comes from the line of Tom White from D. A. Davidson.

One on AI and then I have a follow-up. But Tobi, I was hoping maybe you could share your latest thoughts on how you feel about the prospect of consumers increasingly relying on horizontal LLM and increasingly maybe sort of personal agents to help them shop for cars. And what does that mean for Cars.com's ability to interface directly with consumers? And are there ways that you guys can maybe make your business more resilient or sort of better positioned for that sort of future maybe by making some of your data sort of more proprietary or protected or anything else?

Thanks for your questions. Yes, we do think that we are in a highly relevant space because car purchasing is very complex, and we have data accumulated over the past 20-plus years. As we talked over during this call, we make that data more discoverable, which we're in the midst of past. We've made some great progress there. And then we have a great brand, which is also something that we see increasingly become more important that the people start initially at a high level of searching, but then once they're getting down into deeper funnel metrics, they do rely on the branded context and the branded information that comes from Cars.com.

So big picture, automotive is obviously a complex industry, and it requires deep vertical expertise. A car is the second largest purchase for consumers. And obviously, the vast majority of consumers spend time researching in depth, actually, on average, 8 to 9 hours. And we have a great brand, and we are in the process of making it more discoverable and bring it up front to the size and the site experience. So that will be a major focus for our future product development. But let me just add, it also in the spirit of -- I talked about the interconnectivity. So that's why it's important to interconnect everything as opposed to driving in siloed subsidiaries. So that's actually what we're doing underneath the platform and across different data cycles. Thank you.

Great. Maybe just a quick follow-up on AccuTrade and was hoping maybe just get a bit more color on kind of what's happening there. I think you mentioned subscribers down sequentially. Is there maybe any seasonality happening there? Is the -- is what's happening with subscribers sort of a function of just the automotive backdrop more generally? Or is this sort of more of a product market fit thing that you guys sort of plan to work to maybe via bundling with kind of core marketplace? Just a little bit more color on what's happening at AccuTrade.

Sure thing. Yes, I want to be very transparent. We're in the midst of rearranging and refocusing towards a more interconnected experience and more interconnected product. And that means that we are deemphasizing the stand-alone solution as opposed to really bundling it up and making it as part of an integrated marketplace experience. So we have a pretty exciting product road map. We will hear more over the next couple of months and quarters. There's a lot in the making. And that's why you see temporarily, maybe the number is going down a little bit because we are deemphasizing again on just selling them on all solutions as opposed to making this an integrated part. So I wouldn't call this like a trend in the industry or anything. It's more the result of what we're doing internally. And I would say it's according to plan. Thanks.

Our next question is from Rajat Gupta from JPMorgan. Again, Rajat Gupta from JPMorgan.

Sorry, I was on mute. Could you clarify the MCP integration opportunity? How many agentic AI platforms have connected? What does that usage funnel look like in terms of used quality for dealers? I have a quick follow-up.

Right now, it's just one. And we're working towards other opportunities and channel integration, but not just with the ChatGPT. But again, we also mentioned the traffic is well below 1%.

Got it. And the -- it looks like OEM and national is coming in weaker than expected, both in 1Q, including the 2Q guidance that Sonia had mentioned. But it seems like you feel comfortable reiterating the margin guidance. Is it just the cost out that are offsetting some of the drop-through from the OEM national weakness? I'm curious, any other color you could give? And also an update on the OEM and national for guidance. I think the previous outlook was flat year-over-year.

So I think in terms of the margin guidance, certainly, some of the actions that we took in April were helpful. And in addition to that, we continue to be focused on driving efficiencies in the business. I think you heard Tobi talk a little bit about the shifts that we're making in terms of marketing and focusing on lead generation versus solely kind of these top of funnel metrics. At the end of the day, that's what dealers really value from us. And so those are some of the levers we have at our disposal to deliver on margins in addition to, over time, the interconnected nature of the platform will naturally lend itself to more efficiencies. And marketplace in and of itself is also a fairly high margin business.

Our next question is from Marvin Fong from BTIG.

I guess I'd like to start just to dive a little deeper into the solutions business. I think you did describe entering a new phase of growth there. And just any commentary on should we expect the count of use customers to continue to decline for a fewer quarters here? I think last call, we talked about how some dealers are striking out on their own, developing their own kind of solution. In fact, that dynamic go up for year just some additional coming through would be great.

Yes, I do think we are entering a slightly different phase of growth. You've talked about it a little bit over the last several quarters, which is initially on websites, in particular, as we got onto OEM programs, we have the opportunity for rapid market share gains and the business is really switching to a mode where it's not just a unit count growth. It is, in fact, even more important to think about the packages that we're putting forward to dealers and how we integrate some of what we're doing from an innovation perspective an improvement and enhancement perspective into these packages. So it becomes a little bit more basically of an ARPD game.

I think we certainly would like to see that unit count numbers stay stable over a longer period of time with maybe some modest upward improvement. So we feel pretty good about -- some of what we're -- some of the steps we've taken over the last several quarters, improvements we're making in site speed, enhancements that we think we're somewhat uniquely bringing to market on the security side of things to improve the technical performance of websites, not to mention being able to integrate some of what we've done for marketplace with solutions. So a good example of that are how we can leverage Carson, the marketplace AI assistant to enable experiences on DI websites in a more intuitive way. How we can take AI videos, which we launched as part of our IMV product and bring that also over to the dealer website experience. So I think things don't always move as linearly as you would like them to, but we believe that we're making the right steps or taking the right steps to continue to grow websites.

Got it. And then my follow-up question, just on the repackaging, I just wanted to more fully understand like how that's going to roll out. The last time we repackage major repackaging that was on dealer churn granted, I believe that they also have an embedded price increase. But just how you're thinking about or how we should think about your deal counts as you roll out the new set of packages? Do you expect that there will be a period of some choppiness? Or you think you can just start growing the dealer base right out of the gate as you package?

Yes. I think in terms of what we saw in dealer count this quarter, the decline that we saw was largely related to solutions. And as I sort of alluded to, we do believe we have a pretty robust plan on how to tackle that. The goal is to grow dealer count. It is critical to how we think about continuing to grow our marketplace business, growing dealer count is one of those things that brings more inventory to us. It's one of the things that, that brings more consumers to us. And so it's naturally just important to how we think about marketplace flywheel dynamics.

I think critical to our ability to grow dealer count is how we go to market with more interconnected solutions. There's a lot on the product road map that we're excited about. Tobi alluded to it earlier, which is the integration of Accutrade and marketplace, is something that puts really powerful data tools in the hands of dealers and allows them to manage one of their biggest assets more effectively, which is inventory.

Maybe let me just add what Sonia mentioned. Historically, this has been not the tender of rail for the company. So by just looking at the market and in terms of what the different segments are in the customer penetration we have in dealership penetrations in those segments. We just feel there's a lot of room for us to grow. But we need to treat the product. We need to have the right product fit to really cater towards the needs of the dealers. And it's not just a different product type. It's more like -- there's 6 to 8 different product types going forward. So that's what we're working behind the scenes.

So to sum it all up, we do believe there is significant headroom for us to grow. At the same time, we do not want to create the impression that all of a sudden, overnight, the number of dealers will jump through the roof. This is a concentrated effort that will take a couple of quarters by it's going to be product less than products first and data first and AI first, and that's what we're working on.

Next question is from Gary Prestopino from Barrington Research.

Two questions. One dealing with the cost savings, Sonia. You're saying you annualized the $25 million to $30 million for 2027. Is that an absolute number that we should expect to capture as we model, and where are those costs coming out of? Is it SG&A cost of goods sold? Can you help us out there?

So I think that is -- the $25 million to $30 million is kind of the discrete value on an annualized basis of the changes that we announced in April. It doesn't necessarily mean a $25 million to $30 million year-over-year step down, if that's kind of your question. But what it to enable us to do is be more thoughtful about reallocation in the business as we work to build out more of the interconnected nature, the market -- the interconnections to marketplace.

In terms of where the costs are coming out of they are distributed across the lines of our P&L. We took a hard look across the business, whether it's operations, product and technology, marketing and sales, G&A, those were all important areas for us to look at how can we simplify our go-to-market process. how can we foster from a product impact perspective, more of the connectivity tools have obviously improved also really materially over the last couple of years that allows us to work more efficiently. And then reducing layers in the organization is also really important as a way to see decision-making. So those are some of the changes that we made.

Okay. That's helpful. And then just a question, Tobi, on -- as you're going out to market with an integrated sales product offering, you're going to bundle it, right? I would assume that will drive an increase in average revenue per dealer just from bundling. But at the same time, does that preclude a salesperson from going into a dealership and also selling a single point solution? I guess, are they still going to have the autonomy to sell a single point solution or you have to bundle in order to get the full ball of wax from Cars.com?

It's a great question. It's the trade-off, but by and large, we would say point solutions will be deemphasized and not because they're not important, but just because you need to understand the holistic nature of a dealership infrastructure. And there's many systems that are in process at replacing one by one is a much harder to sell and it's much less convenient for dealers than coming in with the core, which is -- we are a marketplace partner. It's very easy to interact with us. It's very simple to get activities going, i.e., listings. It's very easy then to just activate or deactivate certain features that come as an embedded function with that marketplace integration.

So that's the way how we're thinking about it. We want to make it as easy as possible for the dealers to use different features depending on what their needs are as opposed to on go to use this one solution only, and we are competing with 2 or 3 other legacy systems that are in place. So that's our high-level strategy. So in a nutshell, is it allowed to still sell point solutions? Will we still sell point solutions? Yes. If it makes sense and if there's a very specific need by a dealer, but the broad stroke strategy will be we are leading with marketplace and will provide an interconnected experience.

Our next question is from Naved Khan from B. Riley Securities.

Just a couple of questions from me. One, maybe just on the website business. We saw a decline in dealer customers. And I think last time around Q4, I think you said maybe some -- maybe passing trend or just more noise than anything. But what -- is there a change in the competitive dynamics or there have thing else in on that's causing this sequential decline again in the website customer count. And what are the things you can do to kind of correct it? And then the second question I have is just around the organic traffic, around 60% where it has been historically. But as more and more traffic goes to AI overviews, AI mode and things like that. What are the things that you can do on your end to stay in that organic result mix that the technology -- the top of the final providers are kind of unleashing for everyone?

Thanks, Naved. I'll start with the website question. So I do still think some of this is a little bit of noise. We are entering and we've talked about it for the last couple of quarters, a slightly different phase of growth for website, we initially grew through pretty significant market share gains as we got onto OEM programs and have the ability to bring in a significant number of dealers at a time. That dynamic has shifted a little bit since we're basically on program with everybody.

The dealer acquisition side is coming in smaller it's still there in terms of a very active launch pipeline. But what we're focused on more is not necessarily unit growth. It is how do we think about the packages that we're putting forward to market. How do we think about more interconnectivity between marketplace and websites, specifically leveraging innovation happening in the marketplace side of our business and putting it on to dealer websites to make those tools available. Carson is a good example, Carson conversational search for dealer websites, bringing AI videos to dealer websites, not having it solely be a marketplace product.

Those are some of the things that we're excited about, and there is a real opportunity for us to continue to push website customers into higher tier packages since 50% of them are still in the base package. So we feel good about this business. We have a solid foundation. Sometimes they're going to be click when it comes to the trade-off of volume and ARPD, but there's -- but I think it's largely in the noise at this point.

Yes. Regarding your second question about the traffic. Let's just put things in context. We love the discoverability with LLMs, but the traffic is well below 1%. And we do know what people are searching for and we do know that it's a really great tool and a really great entry point for very high-level searches. But again, we got the advantage. We are in a highly complex industry where it really matters on the purchasing intent and decision journey to go deep into the specificity of a particular vehicle. And that's where our strength comes into play.

So you will see us being focused more on leads and the right leads and investments and reallocation towards generating those leads in the future than pure traffic. So I guess the punchline is whereas in the past, we were chasing traffic and visitors only as a key metric. We will now focus more on the right leads because if we think this through as part of an interconnected marketplace experience, it means that they need to get the lead allocation and lead generation right because smaller dealers have completely different needs per specific led than larger dealerships, which are driven by the value they proposed and the vehicles they can. So that's to summarize our opportunity also in context of AI.

Our next question is from Joe Spak from UBS.

Sonia, I just want to go back to some of the OpEx comments and maybe get a better understanding for the trends? Because I know you mentioned OpEx was down a lot year-over-year, but really, it was D&A, right, which I think was sort of a result of some of the actions in the fourth quarter. So that's sort of the lower trend. And you still had like G&A up year-over-year. So maybe back to the earlier questions, like how should we expect maybe some of the individual line items between product, marketing, G&A sort of really trend here over the balance of the year?

So you're right to point out that a lot of what we saw on a year-over-year basis in operating cost was really tied to D&A. And I think there are 2 pieces there. One is just some customer list that were part of the spin. We fully amortize those. So that's kind of like a permanent step down and then there's some of the reduction is also due to accounting for our office leases. You won't see the benefit of the April actions in our Q1 numbers. So that's going to start trickling through and flowing through our numbers in Q2. The majority of the actions took place in April. Some of them are in May. So even in Q2, you don't see necessarily the full the full benefit of what we're doing, but it is reflected in the guidance numbers that we've put out, both for Q2 and on a full year basis.

With regards to G&A, I do recognize it looks a little bit maybe wonky the G&A trend for Q1. But at the end of the day, we're talking about like pretty small, pretty small delta on a year-over-year basis. Most of this was tied to some like, again, a couple of different discrete items, third-party costs, things like that, that had a blip. We would ultimately on a longer-term basis, expect to get leverage out of the G&A line. And transparently, we would expect to get leverage across our P&L. So that's the goal in terms of driving expanded margins in the business.

Okay. Second question is, I was going through the NADA annual book that they put out every year over the weekend. And it mentioned that dealer advertising in 2025 is up like high single digits and then they sort of break down where that's spent and third-party listings that is 20%, so one of the larger buckets, but it was actually down 1 point versus '24, so overall drove third-party less share down a little bit. And I'm not exactly sure, to be honest, how they're bucketing it and whether how I should sort of compare that to your business, whether it's sort of that display advertising and other line that is sort of most relevant. But like -- if it is, like you grew pretty nicely within that sub revenue line in, I guess, what was implying there's sort of, I guess, decent share.

So I don't know if you could sort of just help me put into context, like how you think you're performing within some of those high-level dealership spending metrics. And which line really should we be looking at?

This is Tobi. Thanks for your question. Maybe just some more generic response to your question. We think we should do better, and we think the market is attractive, we don't see any major headwinds from a dealership perspective for massive changes in behavior. But we do see the opportunity for cars to grow by having a better product fit and tailoring it towards the needs of the dealers, again, going back to selling 5 different point solutions as opposed to, hey, here's what we can do. And by the way, here's how we are combining those assets. Imagine the dealer website and inventory that's listed on that and the subscription that we have on marketplaces. And imagine that there was some sort of a connection, which, by the way, in the past, we didn't have. Those were siloed solutions.

So from a dealer's perspective, you look at it from a budget and you're like, okay, I got a dealer website that cost me I got listings there. I got my own listings. We got listings on third parties, and I look at the entire bucket of expenses. And you're like, "Okay, great. Now I have a partner who can actually drive efficiency and bring synergies to the table." So that's why we think we have headroom. So we actually don't think that there's a major change for in our hands to make this work and grow.

Our next question is from Doug Arthur from Huber Research.

Sonia, you might have covered this. I was sort of we're throwing out a lot of numbers. Did website management grow in the quarter? And I realize in the integrated strategy you've got and might not be as relevant in a number, but did that -- was that up quarter-over-quarter, the number of [ guest ops ]?

I think when you -- if you're asking about website units, we did see some volatility in that number. So they were down a little bit on a year-over-year and quarter-over-quarter basis.

There are no questions at this time. This concludes today's conference call. Thank you for your participation. You may now disconnect.

Good morning, ladies and gentlemen, and welcome to the Cars' Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, February 26, 2026.

I would now like to turn the conference over to Katherine Chen, Vice President of Investor Relations. Please go ahead.

Good morning, everyone, and thank you for joining us. It's my pleasure to welcome you to the Cars.com Inc. Fourth Quarter and Full Year 2025 Conference Call. With me this morning are Tobi Hartmann, CEO; and Sonia Jain, CFO, who will share business highlights and our financial results and outlook. We'll finish the call with Q&A.

Before I turn the call over to Tobi, I'd like to draw your attention to our forward-looking statements and the description and definition of non-GAAP financial measures, which can be found in our presentation. We'll be discussing certain non-GAAP financial measures today, including adjusted EBITDA, adjusted EBITDA margin, adjusted operating expenses, adjusted net income, and free cash flow. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the financial tables included with our earnings press release and in the appendix of our presentation.

Any forward-looking statements are subject to risks and uncertainties. For more information, please refer to the risk factors included in our SEC filings, including those in our most recently filed 10-K, which is available on the IR section of our website. We assume no obligation to update any forward-looking statements.

And now I'll turn the call over to Tobi.

Thank you, Katherine. It's a pleasure to welcome everyone to my first earnings call with Cars.com. I would like to start by acknowledging Alex's leadership and dedication to Cars for over 2 decades. He guided the company from its print classifieds origins to a multifaceted technology platform with capabilities, including websites and trade and appraisal features.

Now we are starting the next chapter with a portfolio of B2B products that supports and enhances our marketplace flywheel. As some of you may know, I have dedicated more than 20 years to building, enhancing, and growing online classifieds, marketplaces, and digital businesses in the EU and the U.S. Most recently, I was CEO of Scout24, a leading player in European real estate classifieds. The company increased its market capitalization significantly to approximately $8.5 billion and delivered 195% TSR during my 6-year tenure. Through Scout24's large automotive vertical, I also gained a valuable lens into consumer car shopping behavior, dealership operations, and the OEM landscape. This will complement our strategic planning for Cars.

No matter the vertical, I strongly believe the fundamental drivers of sustainable success as a marketplace company are the same. These principles are as follows: One, attracting and harnessing relevant inventory. Two, leveraging our strong brands to build a trusted environment that drives scale and engagement for all stakeholders. Three, interconnecting products and solutions to deliver the best user experience and ROI. And lastly, infusing all aspects of the business with unique and proprietary data insights. Without these core fundamentals, the flywheel cannot accelerate.

Over many years, Cars has maintained strong marketplace fundamentals and build advantages in the brand and the data aspects of this flywheel. The Cars.com brand remains synonymous with online automotive marketing and retail. We also own data and have developed powerful capabilities that help customers improve efficiency and sales outcomes. These assets contribute to our differentiation and competitive mode, and this is why I was attracted to this company. But there is an imperative to strengthen important and critical marketplace elements. We will achieve this by focusing on product, processes and cost, and organizational improvements.

For product, delivering sustainable future growth requires us to prioritize integration of the marketplace instead of trying to scale distinct product verticals. A well-oiled marketplace flywheel is, therefore, the growth engine for the platform and all products. With focused execution, we can create meaningful value while becoming the most trusted marketplace connecting consumers, dealers, and OEMs. I want to be clear that we will achieve our future growth in a responsible manner through process and cost optimization even as we deliver product advancements. As a tech-driven product company, we believe that favorable economics will naturally follow as we consistently increase the value we provide to all stakeholders.

I'm now 6 weeks into this journey and working at full speed with the team to formulate the future initiatives and plans. Organic growth has been challenging in the past. We have good assets, but scaling them will require better integration, simplified processes, and efficient cost and organizational structure. However, our direction is clear, and the team is already executing on a number of opportunities to position Cars as an even more relevant marketplace player.

Before I discuss those details, let me turn to Sonia to cover fourth quarter performance and 2026 outlook. Sonia?

Thank you, Tobi. It's been great collaborating with you over the past several weeks, and I'm excited about the fresh perspective you're bringing to the business. I will now recap 2025 and provide guidance before turning it back to Tobi to expand on our 2026 priorities.

Let's start with full year performance. In 2025, we managed through early challenges to deliver low single-digit revenue growth in the second half while also maintaining profitability and returning capital to shareholders. Improving dealer revenue trends in the second half produced total annual revenue of $723 million, up 1% year-over-year and in line with our expectations. As you may recall, our path to returning to top line growth relied on volume and pricing levers, which both improved throughout the year.

We expanded our customer base to close Q4 with 19,544 dealer customers, adding 338 dealers year-over-year. And while ARPD was flat year-over-year, favorable pricing and repackaging for both websites and marketplace helped drive sequential improvement in ARPD in Q3 and Q4. Profitability and cash generation remained steady. Full year adjusted EBITDA margin of 29.2% was within our range of expectations. Adjusted EBITDA dollars grew 1% year-over-year, keeping pace with revenue growth. We delivered another year of strong adjusted EBITDA to free cash flow conversion of roughly 60%, which translated to free cash flow of $126 million for the year.

Our capital allocation plan tilted towards share buybacks in 2025, and we repurchased $86 million of shares, up 75% year-over-year and at the high end of our targeted $70 million to $90 million range. In total, we retired roughly 9% of the outstanding share count in 2025. Overall, dealer revenue health has improved throughout the year. So let's unpack Q4 and the green shoots that we're seeing in key parts of the business.

Fourth quarter revenue of $183.9 million was up 2% year-over-year and achieved our guidance. Dealer revenue was up 3% year-over-year, a further improvement over the Q3 growth rate. As I previously mentioned, both dealer count and repackaging were positive revenue contributors in Q4. On a year-over-year basis, dealer count was up 338 customers with marketplace accounting for over 80% of unit growth.

On a quarter-over-quarter basis, strong underlying marketplace performance was partially offset by elevated website cancels, which muted total customer growth to 18 units. Given our focus on accelerating the marketplace flywheel, it is important to note that we reversed historical seasonality in Q4 and added over 100 marketplace dealers on a sequential basis for the third straight quarter. As you heard from Tobi earlier, marketplace traction is critical given its outsized impact to revenue, margin, and free cash flow, and our priority is to build on these positive trends in 2026.

Turning to our other dealer KPIs. Fourth quarter ARPD of $2,472, was up slightly quarter-over-quarter and flat year-over-year. For Marketplace, new premium and Premium Plus tiers were rolled out midyear to align pricing and product value. We more than doubled the number of Premium Plus subscribers from Q3 to Q4, a promising sign of customer appetite for our media offerings. Website repackaging has also been a success with some benefits continuing to quarterize through 2026.

However, as we saw during the year, small customer and product mix shifts can result in short-term ARPD variance. In particular, softer uptake of dealer media products has somewhat offset solid monetization improvements for the rest of our product suite. Overall, these are small variations in dollar terms, and we expect to return ARPD to more robust growth through continued cross-selling, upgrades, and other pricing and packaging levers.

Let's wrap up the dealer revenue discussion with quick updates across our interconnected product suite. Starting with our core marketplace, we attracted total traffic of 627 million visits from nearly 26 million average monthly unique visitors in 2025. Organic traffic remained stable at nearly 60% of total visits. We also continue to be the #1 most cited public automotive marketplace across some of the largest AI services such as Google AI overviews and ChatGPT.

Our newest marketplace feature is designed to surface the most relevant vehicle listings for each shopper and speed the marketplace flywheel have performed well since launch. Carson, our AI-powered search assistant, has further improved consumer engagement, now prompting 4x more safe vehicles and 3x more vehicle listing views from its users.

For dealers, our market area expansion product helps them extend the searchability of their inventory to nonlocal markets and ship cars to interested buyers. Consumers are also benefiting from increased access to inventory, and our survey data shows that 80% of recent car buyers are willing to purchase the right vehicle even if it's outside of their market. As we continue to scale our marketplace, including listings inventory, we will also keep developing additional products and features that reduce complexity and enhance the user experience in each part of the flywheel.

While taking a slight step back in terms of customer growth in Q4, website solutions still added approximately 130 total subscribers in 2025. And lastly, our AccuTrade subscriber base grew to roughly 1,180 customers in Q4. The average number of vehicles appraised per customer was up another 15% quarter-over-quarter, a record sequential increase that speaks to the product's growing efficacy and value.

We also recently launched AccuTrade IMS, the only full life cycle inventory management system that will be fully integrated with the Cars.com marketplace and DI websites. Our IMS sets itself apart by powering profitability on every vehicle, combining optimized VIN-specific pricing with retail or wholesale exit strategy recommendations. Early feedback has been positive, and we are well positioned to tap into the growing demand for AI and data-driven dealership tools.

We're pleased that dealer revenue and products, which represent roughly 90% of our total revenue mix, continued to move on a positive trajectory in Q4. This strength helped us manage through softer-than-expected OEM and national revenue, which was down roughly $1.5 million year-over-year. Our original OEM outlook was for year-over-year growth in Q4, but the weak October performance we pointed to on our last earnings call opened up a wide gap that weighed on the total quarter. In contrast, November and December rebounded to be basically flat compared to those same months in 2024.

Q4 is a prime example of the episodic nature of OEM media investments and why we are more focused on driving growth in stickier reoccurring dealer products. Looking ahead, early signals to start the year, such as the notable absence of most automakers from Super Bowl ads continues to point to evolving marketing and advertising strategies by OEMs. We'll closely monitor those signals to manage potential volatility while remaining anchored to our plans for dealer-driven growth for 2026.

Now to discuss costs. Fourth quarter operating expenses were $162.2 million, up 1% year-over-year. The increase was largely driven by marketing investments and severance and stock-based compensation expense that were partially offset by lower depreciation and amortization expense. Q4 adjusted operating expenses were $145.5 million, down 3% year-over-year from lower depreciation and amortization expense that more than offset the aforementioned marketing investment. On a full year basis, operating expenses were $663 million, nearly $3 million lower year-over-year. The bulk of the decline was due to certain assets being fully depreciated and amortized in the current year as compared to the previous period.

In terms of offsets, new DealerClub expenses were worth roughly a point of margin, in line with our initial assumptions when we acquired the company in January 2025. Full year adjusted operating expenses were $604 million, down 2% year-over-year, with largely the same puts and takes as mentioned above, supplemented by efficiencies from targeted headcount reduction in Q1 of last year. We ended the year with approximately 1,700 employees compared to 1,800 employees a year ago.

For the following line item detail, all comparisons are on a year-over-year basis, unless otherwise noted. Product and technology expense decreased $1.3 million on a reported basis and was roughly flat on an adjusted basis in the fourth quarter. For the full year, product and technology spend was roughly flat on a reported basis and increased $1.6 million on an adjusted basis. Lower overall compensation was driven by less stock-based compensation, which had a slightly unfavorable mix effect on adjusted expenses.

Marketing and sales increased roughly $5 million on both a reported and adjusted basis for the fourth quarter, largely reflecting a modest increase in marketing investments. For the full year, marketing and sales expenditures were up $7.1 million on a reported basis and up $3.7 million on an adjusted basis. Higher compensation and severance-related expense followed by marketing were the drivers of increased reported costs. Similar drivers account for the full year increase on an adjusted basis.

General and administrative expense was up $6.2 million year-over-year on a reported basis, but decreased $600,000 on an adjusted basis in the fourth quarter. The reported increase was primarily due to stock-based compensation and severance costs that were partially offset by savings from the lease amendment completed in Q4 2024. For the full year, general and administrative expenses were up $7.1 million on a reported basis and down $1.1 million on an adjusted basis. We made strong efficiency gains that will have long-term benefits for our cost structure, though these improvements were masked on the P&L by certain onetime expenses.

Fourth quarter net income was $7.4 million or $0.12 per diluted share compared to net income of $17.3 million or $0.26 per diluted share a year ago. Full year net income of $20.1 million or $0.32 per diluted share compared to net income of $48.2 million or $0.72 per diluted share a year ago. The difference in fourth quarter net income was due to the prior year gain on the sale of an equity investment, while the difference in full year net income also included changes in the fair value of contingent consideration for prior acquisitions recorded in 2024.

Adjusted net income for the fourth quarter was $27.4 million or $0.44 per diluted share compared to $32.5 million or $0.49 per diluted share a year ago. For the year, adjusted net income was $108.1 million or $1.71 per diluted share compared to $114.9 million or $1.71 per diluted share a year ago. Adjusted EBITDA of $55 million in the fourth quarter was flat year-over-year and adjusted EBITDA margin of 29.9% was 90 basis points lower year-over-year due to the marketing investments mentioned above. For the full year, we delivered adjusted EBITDA of $211.1 million and adjusted EBITDA margin of 29.2%. Our adjusted EBITDA margin was essentially unchanged year-over-year and in line with revenue growth.

Moving to the cash flow statement and the balance sheet. Net cash provided by operating activities totaled $151.6 million for the year compared to $152.5 million last year. Free cash flow was $125.7 million for the year, down modestly year-over-year from slightly elevated CapEx. In 2025, we bought back 7.1 million shares for $86 million, returning more than 2/3 of free cash flow to shareholders as we delivered at the high end of our targeted repurchase range of $70 million to $90 million. We also utilized free cash flow to pay down net $5 million of our revolver.

Debt outstanding was $455 million as of December 31, 2025, for a total net leverage ratio of 1.9x. Total liquidity was $351.2 million as of December 31, 2025, offering us flexibility and ample capacity to fulfill capital allocation priorities. As we consider our capital allocation framework, our goal continues to be driving shareholder returns and long-term TSR while operating from a position of financial strength. Our strong free cash flow conversion gives us the opportunity to not only continue to return capital to shareholders, but also pay down debt. With value creation as our foremost consideration, we are focused on beginning to pay down our revolver while also remaining committed to return capital to shareholders through robust share buybacks. In aggregate, we expect to buy back at a minimum $60 million of shares for the year with an opportunistic approach to increasing repurchases with excess free cash flow, much as we did last year.

Finally, we'll conclude with full year and Q1 2026 outlook. For the full year, we expect revenue to be flat to up 2% year-over-year. Importantly, we expect dealer revenue to continue growing year-over-year as it has for the last 2 quarters based on marketplace and website repackaging, customer base growth, and further product adoption. OEM and national revenue, which is 9% of our business, experienced some year-end pressure as automakers made fewer investments into our advertising and media solutions. We have seen similar trends persist in Q1 and therefore, believe it's prudent to moderate expectations for this portion of our business until we see improving signals from our partners.

Based on those near-term trends, where a favorable Q4 exit rate for subscription-based marketplace and website products is being balanced by pressure in OEM advertising, first quarter revenue is expected to be flat to up 1% year-over-year. Full year 2026 adjusted EBITDA margin is expected to be between 29% to 30%, and we expect to grow absolute adjusted EBITDA dollars year-over-year. Note that DealerClub is expected to generate EBITDA losses in 2026 with the impact more pronounced in Q1 given the timing of the acquisition. And as a result, first quarter adjusted EBITDA margin is expected to be between 26% and 27% due to a lower mix of margin-accretive OEM and national revenue as well as slightly elevated technology and compensation expenses.

Now let me turn the call back to Tobi to share his preliminary thoughts on 2026.

Thank you, Sonia. Let me put my earlier thoughts in perspective and in context of the details Sonia just provided. I shared with you that the team and the company needs to work on 3 dimensions: Product, processes and costs, and organizational structure. These will take time to implement and are necessary preconditions to scale. Over the medium to long-term, our goal is to increase the Cars.com growth rate beyond a low single-digit rate, but this requires some difficult decisions and focused work. We know investors have higher expectations than our recent performance, and we are committed to delivering against these expectations.

To accelerate growth and reverse this trend, we will begin by strategically addressing the marketplace flywheel and dialing up the team's execution. Making marketplace the priority will drive numerous benefits such as simplifying the go-to-market motion, delivering more inventory to our consumer audience and providing unique data to inform dealer success. So here's the plan. We will accelerate the company in our marketplace by focusing on operating at scale with healthy cost structures whilst pushing for interconnected product and customer experiences for consumers and dealers.

First, we will put the existing assets to work from a rather isolated and disconnected offering to an interconnected marketplace offering. We do have solid assets, but they currently lack sufficient integration to deliver a full end-to-end value proposition. Our new products are being designed with integration expressly in mind. Those of you who saw our NADA demos got a first look at how our new AccuTrade IMS integrates with the marketplace to create efficiency gains and a unique user experience. What this means is subscribers making a price or inventory change in AccuTrade IMS will see those changes instantly populate across the Cars.com product suite. Why is this important? We will have the only solution in the market that enables these types of changes in real time, giving dealers meaningful operational velocity.

Our product development approach will create even more data and feature linkage as a marketplace ecosystem. We believe this will unlock cross-selling and therefore, ARPD expansion. For example, our new AI-powered VIN videos can turn marketplace vehicle listings into eye-catching video assets in minutes. And early results show a 2x lift in website lead conversion for those AI videos versus other media tactics. We are removing barriers for marketplace dealers to run video campaigns at scale, meaning time and resources savings as they adopt multiple Cars products. We already bundled other interconnected media products into the marketplace packaging last year and saw encouraging customer uptake. Expect further evolution over time in tandem with growing value delivery.

Second, we will accelerate developing the right features as a trusted platform for all stakeholders of the marketplace. We have a clear objective to provide the best possible guidance for all stakeholders to empower car transactions in a trusted environment. As one example, we plan to roll out advanced shopper alerts for Premium Plus subscribers in Q2. Directly integrating shopper engagement marketplace data into the dealer CRM helps dealers easily find clear signals to close sales. This helps dealers build confidence in our marketplace as a critical and trusted partner. Nearly 2/3 of marketplace dealers are using the current version of shopper alerts, another step-up from roughly 50% penetration in Q3. We believe that the upcoming CRM integration will drive further customer interest in up-leveling to Premium Plus and lead to ARPD growth over time.

Third, we are very clear about our role, positioning, and priorities as we execute our plans. As a reminder, our guidance calls for adjusted EBITDA margin in the high 20% range, which is consistent with prior year performance. Baked into our guidance is an intentional reallocation of existing resources towards marketplace. We are already utilizing internal AI tools that can also help teams bridge some of this transition. We are also closely scrutinizing our cost structure with a goal to improve efficiencies in 2026. Our cost containment, operating leverage, and highly cash-generative model should yield another year of strong free cash flow.

As Sonia mentioned, we will continue to buy back shares whilst also paying down debt as we pursue a balanced capital structure. We have started the work already, and I'm excited to share more details as we accelerate our pace. Finally, let me make this clear. Our job is to drive long-term shareholder value, and the team is ready to be focused on that.

Let me now open the call to Q&A.

[Operator Instructions] The first question comes from Tom White with D.A. Davidson.

Welcome aboard, Tobi. I guess first one, just on the plan to kind of refocus your priority on marketplace, I think you talked about kind of getting the flywheel going, and I heard some discussions about product. Curious how marketing investments and audience growth might play into that this year and how you're thinking about that? And then I've got a follow-up on AI.

Hello. Thank you for your question. Nice to meet you over the phone. Yes, we're refocusing on marketplace fundamentals, which is literally what we just talked about, which is focused on getting the right inventory and driving engagement. And that means that it's not a lack of marketing that we are currently doing. It's just a lack of focus. We will just refocus on really being centered around the marketplace fundamentals as opposed to driving other isolated solutions. So the current plan foresees that we're not going to dial back on marketing investments, but it's going to be more focused and centered around the marketplace flywheel.

Okay. Great. And then just on AI, a lot of marketplace companies are getting this question from investors. It poses opportunities and risks and the investors seem more focused on kind of the risks as it relates to disintermediation and the companies sort of touting the opportunities if they can kind of incorporate AI into their businesses. Just curious how you envision AI and Agentic AI kind of evolving in this space in kind of automotive? Thanks.

Sure. Thank you. So just starting with the big picture, we probably agree that automotive is a pretty complex industry that requires deep vertical expertise. Also from a shoppers' perspective or consumers' perspective, the car is really the second largest purchase for consumers, and that means that the vast majority of consumers spend a lot of time researching in depth. Now the researching in depth is exactly where we play a competitive role because we have data and we've accumulated the data over the past 25 years. We have it at a local level. We have it at a customer level. We have it at a VIN level. And there's an opportunity to really accompany that research for consumers and then drive through attribution models, a very unique value prop that we believe is very hard to replicate in being disintermediate.

Now will AI play a significant role in our vertical? Absolutely. Now are there a couple of things to think through how it all evolves? As I guess, nobody on the call really knows what will happen next. Absolutely. But we feel confident about our opportunity because we also have something that's key for any LLM and any future AI, which is the brand. And LLMs will always have to revert back to the brand, especially for those consumer verticals that are so deeply engraved in the capital household spend. So more to come on that.

The next question comes from Naved Khan with B. Riley Securities.

Two questions from me. Maybe just on the new product launched recently at NADA. You showcased the AccuTrade IMS and the market area expansion and video ads. I'm wondering what is contemplated in your annual guide in terms of contribution from these new products? And Tobi, when you talked about accelerating the growth for the company up from the low single digits to some higher pace. What kind of time frame do you have in mind? Do you expect that to show up in 2027? Or are we thinking about 2 to 3 years from now? Just give us your thoughts there.

The second question I had is just around the website customer count. I think it saw a decline quarter-on-quarter in Q4. Is there any seasonality there? Or were there any changes that kind of led to this decline? Just any clarification there would be helpful.

Maybe -- thanks for the questions, Naved. Maybe to start out with the NADA product launches. Both IMS market area expansion, our AI-based VIN videos. Those are incorporated into our guidance. They're obviously new products, right? So they're going to take some time to scale. I would also tell you that the sales cycle for each one of these is going to be slightly different. Market area expansion, AI-generated videos, those are relatively familiar into our product -- existing product suite, right, of media solutions and marketplace attached products. I would say the IMS sales cycle is going to be a little bit different because it is so core to kind of dealer operations. So you can expect a different sales cycle, but they're already captured in terms of our -- in terms of our full year guide for 2026.

I think you had a second question related to website customer count. I think I would say one of the things we're observing is that some of the dealer groups, and I think you've seen this periodically, they want to strike it out on their own with some of their technology solutions. We find that in many cases that even though they have this ambition, building kind of the full service suite that includes things like information security, integration with third-parties, it's hard to do on your own. And so I don't think there's like any specific seasonality or any broader sort of long-term concern or trajectory. We would expect many of these dealers to come back to us over a period of time as they kind of test and find the value in the products that we have and can bring to bear.

The next question comes from Rajat Gupta with JPMorgan.

Just wanted to clarify as a follow-up to Naved's question around the website. I mean, is there like a different phenomenon potentially this time where the dealers might be opting to maybe test out some of these Agentic AI tools to build out these websites? I'm curious if that is something that you're seeing? Or if this is just like how you described it, where they're just trying to attempt it through other areas to build out these website and services? I'm curious if that is a risk that you see to the business? And how would you navigate that? I have a quick follow-up.

Hello. Thanks for your question. I'll take this. So if you think about the website business and a dealer taking on their own website, this has gotten a lot more complicated than a year ago or even 2 years ago. The number of changes that the OEMs are posing, the request that you're getting from a fraud and security standpoint, the fraudulent AI bots that are out there opposing a new threat. So we actually view this as an opportunity because, obviously, by consolidating and operating this from a sheer size and volume perspective, there's advantages. So yes, absolutely, we are embedding AI tools. We make those available to those dealers.

And again, the punchline here is this business is getting a lot more complex you want to solve for that on your own as opposed to having someone like ourselves providing an end-to-end solution. So yes, we are already integrating more and more AI features, and we are also getting some great feedback on some of the roadmaps that we have planned for the website business.

Understood. Thanks for that color. And then maybe if you could help us a little bit -- and thanks for all the candid assessment about the business and the areas you want to focus. But curious, with the pickup in product and technology expenses and also the sales and the marketing side, is there a timing or a timeline you can provide us on when you expect growth to start reaccelerating, not like in -- not from 1% to 2%, but maybe more in like the mid-single-digit type range or higher? Curious what kind of visibility do you have early on here? Thanks.

Yes, sure. So as I've mentioned, I'm now 6 weeks into the journey. And as you know, from the history of the company, the company has acquired a few other assets and companies. And I do expect that over the course of this year, which is, by the way, baked into our guidance that we just provided, we will make significant progress. But as you know, organizational improvements, system improvements, platform integration, data integration, process integration takes some time. So when we said we would like to deliver a higher growth rate going forward, we're not talking about 5 years out. We're talking about a short to medium-term outlook. But obviously, this year to date just focuses on 2026, and that's fully baked in what we just talked about and what Sonia shared in terms of guidance. But to be very concrete, it's obviously our ambition, and it's the expectation to drive further growth following 2026, and it's not 5 years out. It's rather 2 years out than 5 years. So that's probably the summary I can share.

The next question comes from Marvin Fong with BTIG.

Welcome, Tobi. First question, probably for you, Tobi, I just wanted to get a little deeper on what you're saying about prioritizing marketplace, more integration and things like that. So should we take that to mean -- how do the kind of ancillary products like AccuTrade, Dealer Club and Website Solutions? I mean, will those continue to sort of be standalone products in this new vision? Or do you envision sort of integrating those into like a unified subscription?

And then second question, just on the full year guidance, I mean, should we sort of think about the algorithm as being dealer revenue up 2 to 3 points and advertising on a consolidated level, detracting about 1 point of growth. Is that the right way to think about it? And just sort of like a little more explanation on what you're envisioning for the trajectory of OEM, will it be kind of flattish in absolute dollars throughout the year? Anything on that would be great.

Hello, Marvin, thank you. I'll start with the first question and I'll hand it then over to Sonia. So when we talk about a deeper marketplace integration, we really mean the fact how we're able on the other hand, like as a dealer to experience the solution. There is a difference. I hope you would agree whether you're selling 4 different solutions and you're basically showing up at a dealer's location and you say, look, I want you to use AccuTrade. I want you to use Dealer Club. I want you to do -- I want you to use marketplace. And by the way, there's also a great media play that we have that we would like you to use.

As opposed to imagine a world where, yes, you are unified as part of our subscription service and you have the opportunity to seamlessly use, let's say, AccuTrade because it becomes part of your listing service. So imagine a world where maybe there is a listings product, which is part of your membership or subscription service, be it the Premier Plus or Premier Plus Plus, where all of a sudden, with just one click, you can actually activate AccuTrade and it allows you to run whatever, 30 to 100 or 100 to 200 appraisals as an integrated part of your subscription service per month. That is a different value prop and it's easier and more convenient to consume as opposed to having 3 to 4 different applications where you need to train everyone and where you need to make sure that you have a separate subscription plan.

So yes, what we mean by that is a deeper integration when it comes to delivering the value prop from a dealer's perspective. What we also mean a deeper integration from a point of view, which is it's tied back to the marketplace experience, which means there's a lot of attribution modeling that we can do. There's a lot of data enhancement that we can do, which we will target towards individual dealerships and membership products, where I think based on the assessment, what I've seen, we can improve and we can do better. So it doesn't mean that we are not selling standalone, but it means that we are prioritizing the bundling and the integration over a standalone solution, if that make sense.

And on the second question, I will hand it over to Sonia.

Thank you. Marvin, regarding the full year guide, I think general -- I would say, directionally kind of correct, maybe a little bit of nuance in that I would probably say OEM is expected to be flat to down on a full year basis. And like very specifically for Q1, we do expect coming out of Q4, and you can kind of see what those Q4 numbers look like. We're expecting a similar sort of trajectory heading into Q1, and we will hope like over the course of time during the year, we can close some of that gap. But ultimately, we're expecting it to be flat to down.

The next question comes from Joe Spak with UBS.

I just wanted to dive in a little bit more to OpEx and costs. I mean you talked about slightly elevated technology. I think that make sense in the context of the plan you laid out. And it sounded like within marketing, maybe it was a little bit more of a reallocation of dollars. But I guess I'm wondering how we should think about the OpEx trend over your turnaround plan period because marketing used to be significantly higher as a percent of sales, I think 33%, 35%. Now it's been sub-32% for a couple of years. So as the reintegration occurs, as some of the products develop, do we eventually need to see a real acceleration there to help drive that growth? And then maybe just a little bit more on where you're looking to find actual cost savings, not just the reallocation of cost dollars?

Yes, sure. A couple of things. As we had shared during the call and as you probably know, there's still some work to do to integrate these assets. What this means that the fact that we're running these assets not being fully integrated produces costs that shows up as part of a duplication of certain functions, duplication of efforts, whether you look at processes, whether you look at personnel costs, whether you look at organizational structure. So there's an opportunity to really streamline the costs from an operational standpoint and an organizational standpoint. So that's where we think as we talked about during the earnings call, where we'll find some headroom to create capacity to then reallocate that, yes, towards technology, product investments and also marketing.

So our plan is not to dial down the marketing. And our plan is not to dial down the product and tech investments. But if you look at our personnel expenses, you will figure out that we're running at a pretty high percentage. So that's where we're focused, and that comes along with process changes and an optimization that we're driving internally. I hope that make sense.

Yes. Yes, sure. I guess the second question is, certainly, you sort of talked about the buyback, right, 70% of this year's free cash flow. You talked about how that's sort of still part of the continued capital allocation plan. But to be perfectly blunt, the money you've spent thus far has been value destructive. So like I guess I'm wondering how you're sort of thinking about that capital allocation process and plan and why continue right now, I guess, until you feel the business has sort of stabilized a little bit as I think you're clearly indicating it's going through a transition period?

Yes. I mean I think Tobi has articulated kind of our plan to reignite the marketplace flywheel and drive greater levels of growth in this business. We have a collection of, I think, really good assets that need to be connected together better in order to really unlock the revenue growth potential. I think we firmly believe this. The markets from time to time may not always operate in a smooth line. But as we think about creating long-term shareholder value, we see a clear path.

And as Tobi was kind of articulating, this isn't a 5-year mission we're on. We are targeting doing this quickly, aggressively and trying to turn the corner here within the next 2 years. And so it does make sense for us to be out in market. We believe the stock is undervalued. We believe there is a lot of growth potential here, and we think setting a floor at $60 million is prudent. You'll get quarterly updates from us on how we're progressing on our plan to turn around the business. And you also get quarterly updates from us on how we think about capital allocation on a broader basis.

The next question comes from Gary Prestopino with Barrington Research.

Hello, Tobi, let me -- I'm trying to understand here when you're talking about the integrated marketplace. And did you have separate sales forces selling point solutions as well as marketplace? And if not, what do you have to do to the sales force to start driving more of these integrated sales wrapped around the marketplace?

Yes, we did have separate sales forces at different levels. And I would also say at different levels of sophistication. And what we are doing and what is in flight already is that our colleague, our Chief Commercial Officer, has redefined the sales strategy and sales organization. So view it as there's more consultative selling that will be necessary going forward as opposed to a standalone solution for one service only. And so that has been in the making, and we are doing that as we speak. And I'm very confident that this is the right approach and that we are well on track.

Okay. And just let me understand again, you did say that you will still be giving the dealers the ability where you can, to sell a single point solution. You're not going to go into your dealerships and say, okay, we've got 5 products wrapped around marketplace. It's going to cost you x. And in order to be a part of the Cars Commerce universe, you have to buy all of these.

That's correct. There's absolutely the opportunity. View it as a -- like a restaurant, you can have an appetizer, you can have a main dish, but there's just also a menu and the menu is going to be a lot more attractive, and that's what we're aiming for. But yes, we are also selling it as a standalone. Absolutely.

At this time, we have reached the end of the question-and-answer session. This concludes today's conference, and you may now disconnect your lines at this time. Thank you for your participation.

Thank you, all.

Thank you.

Thanks for dialing in.

Good morning, ladies and gentlemen, and welcome to the Cars Third Quarter 2025 Earnings Conference Call.

[Operator Instructions]

This call is being recorded on Thursday, November 6, 2025. I would now like to turn the conference over to Katherine Chen. Please go ahead.

Good morning, everyone, and thank you for joining us for the Cars.com Inc. Third Quarter 2025 Conference Call. With me this morning are Alex Vetter, CEO; and Sonia Jain, CFO. Alex will start by discussing the business highlights from our third quarter. Then Sonia will discuss our financial results in greater detail, along with our outlook. We'll finish the call with Q&A.

Before I turn the call over to Alex, I'd like to draw your attention to our forward-looking statements and the description and the definition of non-GAAP financial measures, which can be found in our presentation. We'll be discussing certain non-GAAP financial measures today, including adjusted EBITDA, adjusted EBITDA margin, adjusted operating expenses, adjusted net income and free cash flow. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures can be found in the financial tables included with our earnings press release and in the appendix of our presentation.

Any forward-looking statements are subject to risks and uncertainties. For more information, please refer to the risk factors included in our SEC filings, including those in our most recently filed 10-K, which is available on the IR section of our website. We assume no obligation to update any forward-looking statements.

Now I'll turn the call over to Alex.

Thank you, Katherine. We were pleased to achieve record revenue and drive strong customer and product momentum in the third quarter on our path to reaccelerating growth. Revenue of $182 million reflected continued contribution from websites, trade and appraisal solutions and marketplace. Dealer count increased for the third consecutive quarter as we reached a new 3-year high with marketplace, in particular, outperforming expectations. Top line strength, combined with our strong operating model, enabled investments for innovation, while also producing adjusted EBITDA margin of 30%, up over 160 basis points year-over-year.

And resulting cash generation supported another $19 million of share buybacks in Q3 for a total of $64 million year-to-date. It's clear that our consistent execution is delivering compounding benefits, and we feel confident there is more improvement to come. Our strong focus on 2025 growth initiatives continue to deliver measurable progress for the business in the third quarter. First, sales velocity and driving unit volume has lifted marketplace and solutions performance. Under new sales leadership and enhanced go-to-market strategy, we added 270-plus dealers year-over-year with subscriptions up across all our leading products.

In total, we powered 19,526 dealers in Q3, our largest customer base since late 2022 and only a few hundred dealers away from an all-time record. New franchise dealer sign-ups also increased appreciably quarter-over-quarter in Q3, complementing the share gain amongst independent dealers that we achieved in the first half of the year. Dealers consistently cite our unique consumer audience, data insights and differentiated product suite as key factors that are motivating them to join our platform.

Second, our phased marketplace repackaging exercise intended to align pricing with product value and enhance platform benefits for dealers launched in early summer. By bundling media products and features in new Premium and Premium Plus packages, we are helping dealers drive up to 14% more leads per listing versus base packages. And we anticipate adoption of Premium Plus to accelerate with growing dealer awareness of these benefits.

Finally, our product team remains at the forefront of helping consumers, OEMs and dealers navigate the changing auto retail landscape. We are putting AI-powered search and recommendations in the hands of marketplace shoppers and simultaneously enhancing lead conversion for dealers through advanced analytics. Through our appraisal and wholesale capabilities, we are also directly helping dealers address used car scarcity and specifically how to profitably source attractive late model inventory. And we continue to be the only platform with integrated B2B wholesale and B2C retail capabilities, a key value proposition as dealers look for innovation and operating leverage.

Our multifaceted AI-first platform makes us essential for both consumer and dealer customers. We are seeing clear signals of traction in our platform strategy. Starting with marketplace, we fired on all cylinders in Q3 with momentum carrying into October. We drew 25.4 million average monthly visitors, up 4% year-over-year, leveraging better optimization of our visitor acquisition strategy to attract strong consumer demand.

Traffic year-to-date was 488 million visits through the end of Q3, setting a new record. Our leading editorial and brand expertise is evident from third-party data that shows that we were most cited public automotive marketplace across AI tools like Google AI overviews and ChatGPT with double the citations of our closest peer. And we continue to leverage our strong brand and steady stream of in-demand content as an integral part of our product and marketing strategy in this evolving landscape. AI is central to our product innovation road map as we enhance the quality of our marketplace to deliver a best-in-class personalized shopping experience for car buyers.

Carson, our newly launched natural language search assistant gives users an interactive experience more akin to a conversation you have with an AI agent to complement traditional search results. Carson currently assists 15% of searches and search refinement on web and mobile today. Compared to the average shopper, AI users also save 3x more vehicles to revisit later, a sure sign that we're fueling deeper consumer engagement. Just like we were a pioneer with AI integration on the Cars.com website, our next milestone will be integrating Carson into our #1 most downloaded automotive marketplace app.

Mobile apps are our highest converting channels, and we believe AI-powered targeted search results may lift conversion even further as we drive search efficacy and our marketplace flywheel. For dealers who subscribe to our marketplace, we continue to deliver high-performing tools for their sales and marketing teams, embedding into their tech stack to drive engagement, conversion and ultimately, sales.

Shopper alerts, which we launched in the third quarter to fast follow our new lead intelligence reports, proactively flag shopper engagement and buying indicators to dealers. Over 50% of marketplace customers have already used this feature at least once in its first 2 months of launch. And as you can see from customer feedback, shopper alerts are quickly becoming a key part of dealership workflow, helping salespeople identify the best prospects to close more sales. With such an enthusiastic response, we're quickly iterating to provide richer data and AI-driven insights directly into dealer CRMs, both with incumbent players and through new investments in disruptive technologies as we unlock the full potential of our platform with more AI and SaaS-based solutions.

Turning to our trading and sourcing solutions. AccuTrade and DealerClub continue to scale in Q3 as dealers increasingly gravitate to tech-first products that advance the industry's long-term goal of improving profitability. The recent success of digital dealers who rely heavily on acquiring vehicles directly from consumers has put an even finer point on the importance of a diversified vehicle acquisition strategy for driving up GPUs. AccuTrade and DealerClub address this gap by allowing dealers to acquire from either Service Lane or other trusted dealers backed by the most accurate vehicle values in the industry. Accu Trade grew to 1,150 subscribers in Q3 and DealerClub increased its active users by nearly 40% quarter-over-quarter. We're also pleased to share that AccuTrade surpassed 1 million quarterly appraisals, a milestone that points to enthusiastic and growing customer engagement.

Importantly, over 50% of vehicles acquired via AccuTrade are between 1 and 5 years old, highlighting the attractive pool of in-demand late-mile inventory that dealers access when they expand beyond traditional and physical auctions. New this quarter, dealers can now easily analyze their AccuTrade activity via profit funnel and trade capture reports, seeing how much profit is made on AccuTrade versus non-AccuTrade cars and conversion rates on appraisals.

We're excited to see these products and features further scale as we continue to innovate. Lastly, total subscribers for Dealer Inspire and D2C media websites reached nearly 7,900 in Q3. We have grown website subscriptions for 5 straight years, an impressive feat that speaks to our differentiated technical capabilities and support model. Similar to marketplace, website customers are also benefiting from our AI leadership. Our dealer websites also support discovery and data processing by popular AI search tools, and we are now proactively enabling customers to improve their own site visibility.

By building more consultative relationships and innovating on behalf of customers, we're confident we can further expand our market share. Across marketplace, websites and appraisal and wholesale, we delivered triple-digit dealer count growth for the second straight quarter. We also achieved ARPD growth on a sequential basis, consistent with our expectations that repackaging and cross-selling would lift performance beginning in Q3. We're on pace to surpass all-time records for both direct dealer customers and ARPD before the end of 2026 on our way towards greater targets as we expand and enhance our product offering.

While dealer revenue was at its healthiest level in several quarters, we did see some variability in OEM and national revenue, which was down 5% year-over-year in Q3. Specifically, 2 OEM partners significantly adjusted their media investments during the fall due to factors like internal agency changes that are unrelated to our performance or value. I'll also note that both of these customers remain advertisers on our platform, and we're in active talks to win a greater share of their forward spending.

As we discussed in prior calls, our OEM revenue pipeline is strong. Planning discussions for 2026 have been positive and our unique ability to drive better Tier 1 to Tier 3 outcomes via our marketplace is a winning asset for automakers as they compete for consumer demand. We're confident that this segment can resume its growth trajectory in the coming quarters and continue to be a strong contributor to revenue and margin expansion. Looking at this quarter as a whole, I'm pleased that our steady execution is showing up in the P&L and in positive trends that point to more gains ahead. We're driving our business forward, growing revenue and gaining customer market share, all while continuously innovating. Q3 is the right step in the right direction, and we're focused on finishing the year with a healthy exit rate so that we can deliver even better results as we continue scaling our leading platform.

And now I'll turn the call over to Sonia to discuss our third quarter financial results. Sonia?

Thank you, Alex. We delivered a strong third quarter across multiple key financial metrics, producing record revenue, adjusted EBITDA expansion and robust cash generation. Consistent execution of 2025 growth initiatives has been our top priority, and our new revenue trajectory reflects the positive changes we've implemented year-to-date. We're also confident that as these improvements compound in our subscription business, both revenue and margins will accelerate in the coming quarters. Starting with our revenue discussion. Third quarter revenue was $181.6 million, up 1% year-over-year and in line with our expectation for low single-digit growth in the second half of the year.

Dealer revenue was up 2% year-over-year, driven by favorability from repackaging activities and better customer count. Our ongoing repackaging work resulted in successful renegotiation of additional OEM website agreements and the phased launch of new marketplace packages in Q3. As Alex mentioned, our top 2 marketplace peers now bundle more media features for better vehicle merchandising and promotion, helping dealers attract and convert in-market shoppers. Migration of legacy preferred customers into new Premium and Premium Plus packages was 100% complete as of the end of October.

I'll also note that we've seen very few cancellations attributable to this exercise, another encouraging signal of the value dealers see in our marketplace. Marketplace, our most scaled solution, is also the tip of the spear for customer acquisition and cross-selling and key to winning dealer market share over time. It's therefore encouraging to see that marketplace continues to be the biggest quarter-over-quarter contributor to dealer count growth and is the linchpin for our net gain of over 300 dealer customers since the start of the year.

We have multiple levers to inflect ARPD, driving new customer growth as well as upgrading package tiers and cross-selling against our installed base. And this is amplified by our improved pricing. We saw early signs of these levers in action in Q3 with ARPD up 1% quarter-over-quarter, and we are optimistic that trends will improve as these positive changes gain further traction and annualize. Overall, dealer revenue growth more than offset near-term noise in OEM and national revenue, which was down just under $1 million or 5% year-over-year. As previously mentioned, lower spending by 2 customers accounted for almost the entirety of the OEM revenue decline in the quarter, and we're already at work rebuilding the revenue pipeline with those partners.

More broadly speaking, media investments did taper in September as the industry digested large-scale changes like strong pull-forward demand from expiration of EV credits and continuing shifts in production as well as downward revisions in SAAR. Given last September was our best month of OEM revenue for 2024, we also had a challenging comp that accentuated this late quarter trend. We're observing that OEMs continue to prefer more flexibility in the current operating environment. And as such, we expect their ad spending may fluctuate through the end of this year. However, we remain confident in our audience and value delivery and in our ability to power growth in this segment.

Turning to our cost discussion. Third quarter operating expenses were $165 million, down 2% year-over-year. Compared to the prior year period, cost efficiencies in headcount and lease-related expenses as well as lower depreciation and amortization fully offset new dealer club costs and slightly higher marketing and G&A spend. Adjusted operating expenses were $150 million, down 4% year-over-year for substantially similar reasons. For the following line item detail, all comparisons are on a year-over-year basis, unless otherwise noted.

Product and technology expenditures decreased $1.6 million on a reported basis and $1 million on an adjusted basis, fully offsetting dealer club costs through lower compensation and third-party fees. Marketing and sales increased $1 million on both a reported and adjusted basis, reflecting marketing investments. And general and administrative expense was up $2.8 million year-over-year on a reported basis, but was roughly flat on an adjusted basis. The reported increase was primarily due to increased third-party costs that were partially offset by savings from the lease amendment completed in Q4 2024.

Net income for the third quarter was $7.7 million or $0.12 per diluted share compared to net income of $18.7 million or $0.28 per diluted share a year ago. The difference in net income is primarily due to changes in the fair value of contingent consideration for prior acquisitions that were included in the prior year period. Adjusted net income for the third quarter was $30.4 million or $0.48 per diluted share compared to $27.7 million or $0.41 per diluted share a year ago.

Adjusted EBITDA of $55 million in the third quarter grew 7% year-over-year, benefiting from both higher revenue and cost controls. Third quarter adjusted EBITDA margin of 30.1% demonstrated strong revenue flow-through, benefit from the cost management initiatives described earlier and timing of certain costs.

Now on to key metrics. Dealer count was up in the third quarter based on strength across all of our major product brands. Websites grew sequentially by 67 subscribers with most of the growth coming in the U.S. AccuTrade grew by 82 subscribers sequentially, about half of whom came from the enterprise deal announced last quarter. Third quarter ARPD was $2,460, up 1% quarter-over-quarter and down slightly year-over-year. Recent customer and product mix shifts like faster independent dealer growth and lower media attach rates continue to have a near-term leveling effect on this metric. However, as previously discussed, we have multiple ways to inflect ARPD over time.

First, new customer acquisition and continued up-tier migration will both benefit from new marketplace and website rates. A good example is Marketplace Premium Plus adoption, which grew 50% month-over-month from September to October as dealer awareness increased. Second, moving website customers up-tier remains a substantial opportunity. Recall, roughly 70% of marketplace customers are in a premium or better subscription relative to just 50% for websites.

Third, cross-selling additional products like AccuTrade or media add-ons to marketplace customers can be as much as a 60% jump relative to current ARPD. The multiplier effect is especially evident when looking at customers who utilize all 4 of our brands and have an ARPD that is 3x higher than our reported average. With these levers at our disposal, we are confident in future ARPD improvement as we expand our platform's reach.

Now over to cash flow and the balance sheet. Net cash provided by operating activities totaled $115 million for the first 9 months of the year compared to $123 million for the comparable period last year. Recall that the earn-out for the D2C acquisition has a contractual step-up from year 1 to year 2 and accounts for the majority of the variance in operating cash flow. Free cash flow was $94.5 million year-to-date, down slightly year-over-year from the acquisition items mentioned above. Year-to-date, share buybacks totaled 5.2 million shares for $64 million as we utilized more than 2/3 of free cash flow for our repurchase program.

Last quarter, we raised our full year repurchase target to $70 million to $90 million, and we're pleased to be on pace to finish the year towards the high end of that range. We also paid down $5 million of our revolver in Q3, bringing debt outstanding to $455 million as of September 30, 2025, equivalent to a total net leverage ratio of 1.9x. Notably, this is also the first time that we have sat below the low end of our target net leverage range of 2 to 2.5x. Total liquidity was $350 million as of September 30, 2025, which provides us ample capacity for capital allocation priorities and other avenues of value creation.

And now we'll conclude with outlook. We are reaffirming our expectation for low single-digit revenue growth year-over-year in the second half of 2025. We expect to achieve this target through continued execution of our growth initiatives, namely improved dealer count and product adoption and repackaging for marketplace and websites. As in the prior quarter, this outlook assumes today's macroeconomic conditions as a stable baseline for the remainder of the year. Considering third quarter trends and historical fourth quarter performance, we believe that some degree of discretionary media investment is subject to greater variability, both to the upside and the downside from factors like pull-forward consumer demand, inventory levels, new model launches and manufacturer incentives.

We are also reaffirming adjusted EBITDA margin outlook for fiscal 2025 between 29% to 31%, reflecting disciplined cost management, high contribution margin from pricing initiatives and revenue growth. Looking ahead, we remain focused on execution and are confident we will deliver improved operating and financial results.

And with that, I'd like to open the call for Q&A. Operator?

[Operator Instructions]

Your first question is from Tom White from D.A. Davidson.

Two, if I could. I guess, first off, just on the drivers of revenue in the third quarter. It was impressive to see that you delivered a bit of kind of upside versus kind of expectations on revenues despite national kind of declining sequentially when I think we all have our fingers crossed that it might be up a little bit. So just can you help us -- I guess what I'm trying to understand is on dealer revenue, kind of the -- obviously, you guys are doing stuff on repackaging and product.

But maybe first off, just like on the industry backdrop and you added dealers again for the third straight quarter. It sounds like you're going to add dealers again, and it sounds like marketplace is kind of maybe one of the main areas where you're adding dealers. I don't know, how would you kind of characterize how dealers are sort of navigating the current just kind of industry backdrop?

Like are they leaning into you guys on marketplace because they're -- they need to find new sources of demand? Is it because of maybe the word is getting out that some of the new media stuff that you're adding to the higher tiers is really attractive. Sorry, it's a long-winded question, but just maybe just trying to unpack that a little bit. And then I have a quick follow-up.

Tom, thanks for your question. I'll start, maybe then Sonia can give some color on the revenue mix. But I'll start. Obviously, manufacturers have got some near-term headwinds that certainly are impacting their business. We feel good about the business because overall enthusiasm for our audience, particularly the concentration of new car shoppers that we have in our marketplace, remains scaled, healthy and strong. And so the vast majority of our OEM partners are leaning in, not only this year, but also next year. We did have some pullback in the quarter from 2 OEMs that were temporary in sentiment, not performative, meaning that they had their own internal issues that delayed their investments with us in the period.

That's why we feel fundamentally bullish about the business overall and our ability to continue to grow OEM revenue heading into next year and beyond. I think on the dealer side, it is a little bit of a mixed bag right now. I think dealerships are struggling with softening demand. And the vast majority of dealer investments are chasing impressions and clicks across the Internet. And I think the smart dealers are realizing tapping into in-market car shoppers who are actively in market is a much surer path to sales.

And so we're pleased with dealer adoption not only in the quarter. And as you noted, that growth continued into October. And so we're feeling good about dealers realizing the strength of our scaled audience. Certainly, some of the product innovation that we're doing on the AI front has garnered some dealer interest as well. But ultimately, we feel like the market is realizing our strength and our value. Sonia, do you want to comment on the revenue buildup?

Yes. Thanks for the question, Tom. Just to add a little bit more incremental color. I mean, I think we're pretty pleased to see growth across all of our dealer product lines. Repackaging was probably the most immediate benefit to the quarter as you think about revenue. We had repackaging in marketplace with upgrades into premium and then the launch of our new Premium Plus package. And also, we continue to work on optimizing our website packages. I think the new dealer customer adds we've had in kind of really since the beginning of the year with the exception of January, we've grown dealer count month-over-month is really just adding additional fuel to how we think about the opportunity to continue growth on a go-forward basis as we upgrade and cross-sell those incremental new dealers coming into the mix.

Okay. That's really helpful. Maybe just a quick follow-up on that. I think I heard you say that in marketplace, maybe 70% of the dealers were on something other than just sort of the base tier, but it was lower in websites. So I guess as you think about -- how should we think about like what products you might maybe add to higher tiers in website to kind of get -- to get folks to upgrade? Is it more like kind of media add-ons? Or just any color you can share there and maybe a time line for how you expect that to roll out?

Yes. Look, I think one of the strengths of our platform strategy, Tom, is that our innovation can take place on our marketplace, and then we can deploy that technology to our dealer partners on their website. So one of the big benefits that our website customers enjoy over the last year is the fortification of our cloud infrastructure to make sure dealer websites are meeting and beating core web vital standards because we're able to leverage our larger infrastructure to optimize speed and performance. That's sort of an underlying benefit of our platform model.

I think if you look at what we've done on Cars.com with launching Carson and OpenText, generative AI search, we can now deploy that technology on dealer websites. So that's one of the utilities that we're looking ahead towards next year. But then obviously, just even indexing dealer websites into the LLM. We use Cloudfare technology to help index Cars.com listings into the AI models. And now that we have our dealer websites fortified with Cloudfare as well, we can do more for dealer websites and get their content indexed in the LLMs as well. So I think there's multiple benefits for dealers running on our backbone platform, but the product innovation is accelerating in the company, and we're excited to keep that going.

Your next question is from Gary Prestopino from Barrington.

Sonia, really interesting when you're talking about the amount of entities that -- on dealers that have moved to repackaging and website that have moved to repackaging. You also gave some statistics on what the lift is in ARPD for some of these repackaging efforts, and I didn't quite get that.

The lift to ARPD, I mean, I think overall, we're pretty happy to see the sequential momentum that we started to achieve in ARPD. So we saw quarter-over-quarter growth. And I think that puts us on strong footing as we look from Q3 into Q4 to continue to accelerate that. We didn't -- I don't think we gave specific color on the portion of ARPD that was driven by packages. But what may be helpful is to understand like the spread difference between a Premium and Premium Plus package.

One of the key differentiators -- and those are marketplace packages, one of the key differentiators between those 2 packages is we bundled VIN Performance Media into the Premium Plus package. That's something that retails for around $1,500 a month, but obviously, for our Premium Plus customers since it's bundled, they're going to be getting a slightly better rate than that. But it will give you a sense for how we're trying to create differentiation, not just in price, but also in terms of the overall value delivery we're offering to dealers across our packages.

Okay. I thought I heard you say something about a 3x lift. So that's why I asked the question. And maybe I just typed...

Yes. I did talk about that as like an example of platform value and how as we increase product penetration, we're able to really meaningfully lift ARPD. And I think the stat that I shared was that dealers who use our major product pillars will have a 3x higher ARPD than our reported average.

Okay. That's great. That's what I wanted to get to. And then Alex, in terms of both AccuTrade and DealerClub, it's good to see that these things are starting to get more traction. But in terms of appraisals versus actual sell-through to the dealer from the appraisal, can you kind of slap some metrics on that? And then in terms of DealerClub, I know it's real early, but if you could give us some indication of what kind of volume is going through DealerClub, that would be real helpful.

Sure, Gary. Well, first of all, we were really pleased with the growing dealer participation in AccuTrade as well as the improving appraisal volume. It's showing what we believe is a very durable trend of dealers realizing that sourcing cars directly from customers is a far more profitable strategy than traditional or legacy auctions. And so that realization is helping every dealer recreate the advantage of creating more inventory in their own service lane, which increases our supply.

And then also, it creates demand within their own dealership because now their customers need new cars. And so we think this is a very durable strategy that dealers are adopting. You're seeing dealers talk more at 20 groups about how they can source more cars directly. And we've got the tooling to enable them to do that at scale and on a very low-cost basis. When you think about the cost of an AccuTrade subscription, it dwarfs what buying cars at auctions is costing the industry. So again, very healthy trends on dealer adoption and appraisal volume. I think DealerClub obviously complements this strategy, which is enabling dealerships to trade cars amongst themselves as a collective as opposed to paying the mighty toll booth operator, the physical auction.

And so dealer adoption on DealerClub, we're pleased with it. As you know, it's very early stage. We're barely getting started here with DealerClub, but we're pleased with the initial momentum that the platform is generating on a very low cost basis because it's part of our platform strategy, meaning that we're leveraging the infrastructure that we have today in-house. Dealers are pleased that now we're showing them their aged inventory from our marketplace in the club, and they can immediately launch those cars to a wholesale auction with limited to no additional data entry.

And so stay tuned. We're going to continue to invest in the product platform and give dealers more tooling that makes their workflow even easier, but very pleased with the initial momentum, both with AccuTrade and DealerClub.

Your next question is from Rajat Gupta from JPMorgan Chase.

I had one broader question on just the competitive landscape. One of your peers recently announced their intention to go private. We've had some tough results from some of our other public peers on the marketplace side, on the auction side, on the used car side. I'm just curious that if you're observing any changes in the competitive landscape, be it pricing, be it more adjacent players maybe participating in the market. And I'm curious if anything has taken a step change in recent months that you're seeing? And if anything, like how are you planning to navigate that? And I have a quick follow-up.

Yes. Look, Rajat, thanks for the question. I think on the competitive landscape, while there could be changes in terms of public versus private, we look at the competitive landscape a little bit differently in that dealerships are trying to drive traffic to themselves directly, and they're spending inordinate amounts of capital trying to interrupt consumers, while they perform other tasks to drive them into their stores. The benefit of our platform strategy is we're the largest concentration of organic car shoppers that are spending their shopping time researching and deciding what and where to buy on our platform.

And we think savvy dealers are realizing that interruptive advertising is less efficient than native marketplace traffic that we can source and drive consumers directly to their stores, particularly as average dealers are trying to compete with Carvana and larger platforms using Cars.com as a demand engine for their business, we think, is a no-brainer. And so I look at the competitive landscape more about how do we get dealers to spend less on Google or less in traditional media and do more digitally first and foremost.

I've got tons of respect for my digital peer set. I know auto is a very competitive category, but we feel very confident because, again, we source the majority of our traffic organically or directly. And so we're a complement to dealers and their advertising mix. I also will say our platform strategy is differentiated. We're now powering north of 9,000 dealer websites, helping them optimize their retail presence online. We're giving them tools to operate their business more -- with more self-sufficiency, which we think we can help overall bring their profitability to new levels. And so we're excited about our innovation road map on AI and what that can do and help dealers add capabilities to their business. And again, like marketplaces are competitive, but we've got a much more differentiated and ambitious strategy.

Understood. Understood. That's helpful. And then within your dealer demographic, I mean, is it possible to provide a split across if it's a meaningful difference across like luxury, domestic or import on the franchise dealer side? I ask only because we're starting to see some of the European brands feel the brunt of tariffs. It looks like October started off a little weak for those brands. I'm just wondering if that can have any meaningful impact on churn rates, on RPD for your business. And just curious if you're hearing anything as well on that front.

Well, listen, I know it's a very dynamic marketplace right now. As you know about our business that we tend to skew upmarket. The bulk of our dealers are franchise dealerships. The bulk of our audience tends to be late model, even new car shoppers. That's why we have a large OEM business, unlike our peers because manufacturers know that new car shoppers are also considering late model used. And so we tend to skew upmarket and therefore, don't feel some of the same pressures that perhaps some of the credit challenged or lower end of the market may experience.

And so we feel very fortified heading into next year in that the bulk of our audience tends to be more affluent, higher household income. And then our dealer base also remains the stronger side of the market as well with franchise dealers making up the majority of our revenue mix.

Understood. Maybe just final one on capital allocation. You're starting to see like a return back to top line growth. You're seeing some good progress with like dealer additions. I'm curious if we can expect -- I'm just trying to see like how you rank order capital allocation today. Is buyback still the #1 priority? Are there other avenues that you're looking at?

Yes. No, thanks for the question. I think we are still committed to share repurchases as an important portion of our overall capital allocation strategy. Pleased to see how kind of the growth in adjusted EBITDA, in particular, is helping to bring that leverage down. Our net leverage ratio continues to kind of improve. But we're tracking towards the high end of our share repurchase range based on how we've been buying back on a year-to-date basis, and we still see the upside there.

Your next question is from Marvin Fong from BTIG.

Very nice quarter here. I would like to start on AccuTrade a little bit deeper on that. So kind of consistent in the 70 to 80 dealer addition range in the last 3 quarters. Just like to kind of get a little more color on the pipeline there? And should we kind of think of this as a good pace of adds? Or do you think you can accelerate that? And is it going to be sort of lumpy with sort of the larger enterprise or larger dealers in there or you kind of expect [indiscernible].

And then can you just remind us on that large dealer group that added about half the adds this quarter, how many more stores are in their system that you haven't penetrated yet?

Yes. Well, first of all, look, we're pleased to close an enterprise deal last quarter for AccuTrade. And that, I think, was about -- just about half the dealer count growth in the Q because we still have steady dealer adoption and growth. We're also basically continuing to see dealer group interest in standardizing their vehicle sourcing strategy, which we think is a big tailwind for AccuTrade because we can provide dealer groups consistent tooling that puts a process in place that they can manage their vehicle sourcing strategy with tools that give them enterprise leverage and consistency in how they run their operation.

So we're seeing strong interest and continued dealer demonstrations and a healthy pipeline there. We're also hearing dealers asking us for more inventory syndication capabilities with AccuTrade. So that's on our innovation road map, which could be another tailwind. But we're overall pleased with the organic momentum we have in our dealer count. We think enterprise deals with larger dealer groups can continue to be a strong addition to our platform if we are able to secure more of these enterprise deals in Q4 and beyond.

But this is a slow roll strategy that will scale over time, and it certainly adds meaningful ARPD and a high reoccurrence of revenue because the dealers that standardize with AccuTrade, not only does that revenue stay sticky in our platform, but it has a halo effect for our other subscription offerings as well, including DealerClub as well. So we're feeling good about the business.

Got it. And second question is on AI, everyone's favorite topic. And I guess I'd ask it a couple of different ways. So first, are you seeing any meaningful traffic today that's coming from like a ChatGPT type service? And how -- if so, how is the behavior of those customers? Does it convert to leads any better than other traffic?

Yes. Well, first of all, thanks for the question. On the AI front, we're very pleased. As we mentioned during the call, when you look at all the leading AI consumer engines, we are, in many cases, 2x our nearest closest publicly traded peer. And so that is a testament to the strength of the Cars.com brand and our decade-long commitment to independent expertise and editorial depth and breadth and quality. And so our strength there is being played back to us by these LLMs that recognize our authority.

As you know, auto is a multi-touch omnichannel experience, meaning consumers are seeking out multiple destinations prior to purchase. Our brand strength and our authority in these engines, while it may not generate a ton of traffic today, it is amplifying our brand strength, which is why we had record traffic in Q3 and feel very strong about continued momentum of our marketplace. Consumers are going to seek out trusted independent expertise in auto and these new AI models are firming our brand strength. And so we feel very good about the advent of AI and what it can do for our business over time as well.

I would just maybe add in addition to what Alex was talking about in terms of how we're showing up in the various like AI search tools, we're also really pleased with how leveraging AI and natural language search on our own marketplace is helping to drive increased consumer engagement. We see on the order of 3x more vehicles saved for consumers who use Carson. They're looking at 2x more listings. They return more frequently. So we're actually playing this as like it's a multipronged strategy, I really believe, to leverage AI to the benefit of the business, and we're seeing it translate into real engagement numbers.

Right. And that was sort of my second part of the question, I guess, to Carson, are you able to see how many people who are using Carson or your other AI-related search tools, are they purchasing or more attribution can be given the Cars if they are using Carson compared to someone that's not using the AI tools? Or is it too early to say?

Yes. Obviously, this is still a category where the majority of time is spent online and the purchase is offline. And we know that dealer CRMs grossly under recognize our value delivery. I mean there's only 5 million cars retailed every month in this country, and we know we're saturating the majority of car buyers on our platform.

What I like about what we're seeing with Carson is that users are saving more vehicles in their search history. So they're coming back at 2x the rate of other shoppers. They're generating more leads compared to people that are using directed search as opposed to more exploratory. We also know that 70% of our users are undecided on make and model selection. So we're going back to OEMs who previously maybe haven't realized the power of our search engine that they can influence undecided shoppers on our platform.

And we're seeing higher conversion rate of these users in terms of tangible leads to dealers. And so consumer engagement is critical to thrive in any marketplace, and Carson is showing us a lot more potential what we can do on the user experience front to connect brands and dealers to our audience using AI as an advantage. So I expect to see a steady quarterly stream of innovations here that both improve user experience and also drive down our operating costs.

Your next question is from Khan Naved from B. Riley Securities.

Maybe just on the marketplace repackaging initiative, I know you've been using opt-ins for dealers to kind of migrate up to the higher tier. Are there -- is there any plan to kind of accelerate that maybe so that more of the dealers can migrate to the higher tiers? Or do you continue to see it as an opt-in move? That's my first question.

And the second question I have is just around the traffic growth kind of -- can you just maybe talk about organic versus paid mix and AI overviews, if it had any impact at all, at least from the headline numbers, it looks like not, but just talk about how you're thinking about the traffic.

Sure. Well, first of all, our sales -- I'll start, Sonia, and then you can maybe comment on the repackaging. I think our sales go-to-market motion is constantly showing dealers the strength of upgrading to our premium tiers. And we've got demonstrable data that shows the more dealers spend, the more value and market share they can get on our marketplace. And so that will be a rolling benefit for us to educate dealers on the strength of higher tiers.

And as Sonia pointed out earlier, like we've got a lot of headroom to go there on the repackaging front. And I think we can also continue to introduce new tools and features that help dealers gravitate towards higher spending levels on our marketplace and even cross-selling other solutions. I think also on the AI front, this is early innings. We're really pleased with the initial response that we're seeing with consumers using AI in our marketplace. We also are pleased with how we're showing up, organically, in all the leading LLMs and the AEO optimization strategy, I'd say, is in the early stages here, but our brand strength and our unique content certainly give us distinct advantages to our peers. I don't know, Sonia, what else you'd add to that?

No, I think, Alex, you covered it really well. I was just going to add on repackaging. We continue to be focused in on the opt-in model. It buys us better outcomes overall with the dealers when they're bought into the rationale and the expectation of why they're moving up-tier. And we've seen good traction with it, right? Like I think we cited a stat in earlier around Premium Plus and we saw a 50% increase in Premium Plus from September to October. So we'll continue to focus on the benefits of moving up-tier in terms of the value delivery creation.

Your next question is from Joe Spak from UBS.

Sonia, first question just on the guidance. The way you guide obviously give some decently wide ranges based on your disclosures. But if I look at sort of the past few years seasonality, it looks like 4Q EBITDA is about 10% higher quarter-over-quarter, which would mean something around $60 million, which obviously clearly falls within that implied range. I just want to make sure we're all level set. Is that sort of like a good level to calibrate upon? And what do you really think sort of drives the higher end versus the lower end here with basically 2 months left in the year?

Yes. No, this is a great question. Thank you. I think in terms of adjusted EBITDA, what the benefit that we really saw in Q3, some of it came from revenue, some of the high flow-through on revenue. Some of it came from continued cost management. And then a portion of it was a little bit more timing oriented. So we feel pretty comfortable with our overall adjusted EBITDA range. But I would say getting towards the higher end of that range probably requires some -- a little bit more of that episodic revenue to come in. That tends to be a little bit higher margin. So it would require a heavier lift on, let's say, the OEM and national side of the business to get closer to the high end of the range.

Okay. And the update there was there's still some pause, and I know they committed to that spend, but it could bleed into next year. Is that still a metric?

Yes. We're seeing a little bit more like kind of like we talked about in September, some of that pressure has been continuing into October. Now as I mentioned, periodically, we will see as we get towards the end of the year, some of them will lean into those budgets a little bit more. And also, I think some of the overhang production numbers, where SAAR is sitting right now are probably a little bit of a drag on expectations as well.

Okay. And then on Carson, and I apologize, this might be a very ignorant question, but I'm just trying to sort of understand all the AI stuff. Is it just trained on like the data you have access to, like your dealership customers? Or is it broader? And then out of curiosity, is there anything that prevents other AI agents from accessing the data you have on your site. It sounds like you actually want to feed that. But if you do, is there a way to guarantee that those other solutions almost like don't cut you out and go through your site and not around Cars.com. I don't know if that makes sense or I'm misinterpreting the technology, but if you could sort of...

No. Joe, it's a great question. So thank you. So Carson, we're leveraging our data infrastructure to power and train Carson. We've got millions and millions of data signals flowing through our systems every day. And so Carson's intelligence continues to be self-thought and self-fed on all these automotive intentions and searches and behaviors. By the way, we put out a press release on Carson today, so you can read more about how consumers are interacting with Carson.

Certainly, we let -- the large consumer-facing LLMs are able to train off our data as well. And so while there is risk that consumers can render answers on these other environments, what they do, do is attribute their knowledge to Cars.com. And we think that is incredible brand exposure and leverages our deep authority to make consumers aware that Cars.com has knowledge. And automotive is uniquely a multi-touch category, unlike a lot of consumer goods or low price point purchases, consumers may only seek out 1 to 2 destinations, but buying a car is the second largest transaction in people's lives.

They're going to seek out multiple sources of information prior to purchase. And we certainly think the LLMs constantly referencing Cars.com as an authority is going to continue to generate traffic directly to us as consumers go to get additional information, research on which dealerships have the best reputations, what they could expect to pay, any OEM incentives that are available. There's just a lot of information consumption in this category that makes me certain that no one destination can disrupt the 20-year strength of our brand and our content expertise.

[Operator Instructions]

There are no further questions at this time. Please proceed with closing remarks.

Thanks, everyone, for joining the call. We'll see some of you on the road very soon, and I appreciate the support, and have a good day. Thank you.

Ladies and gentleman, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.