Cars.com Inc. Q3 FY2025 earnings call

• Achieved record revenue of $182 million with strong customer and product momentum. - Adjusted EBITDA margin was 30%, up over 160 basis points year-over-year. - Added 270-plus dealers year-over-year, with marketplace having the largest customer base since late 2022. - Phased marketplace repackaging launched in early summer, bundling media products in Premium and Premium Plus packages to help dealers get more leads. - AI-powered search and recommendations in place, with Carson natural language search assistant launched, assisting 15% of searches. - AccuTrade and DealerClub scaling, with AccuTrade surpassing 1 million quarterly appraisals. - Dealer Inspire and D2C media websites subscriptions at nearly 7,900, grown for 5 straight years.

Revenue for the third quarter was $182 million. The dealer count increased for the third consecutive quarter, reaching a new 3-year high, with marketplace particularly outperforming expectations. Marketplace had an average of 25.4 million monthly visitors in Q3, up 4% year-over-year, and traffic year-to-date was 488 million visits, a new record. AccuTrade grew to 1,150 subscribers in Q3, and DealerClub active users increased nearly 40% quarter-over-quarter. AccuTrade also surpassed 1 million quarterly appraisals. Total subscribers for Dealer Inspire and D2C media websites reached nearly 7,900 in Q3. Marketplace contributed significantly to dealer count growth, being the biggest quarter-over-quarter contributor to dealer count growth and a key linchpin for net gain of over 300 dealer customers since the start of the year.

• Reaffirmed expectation for low single-digit revenue growth year-over-year in the second half of 2025. - Adjusted EBITDA margin outlook for fiscal 2025 between 29% to 31%. - Confident in future ARPD improvement with levers like new customer acquisition, up-tier migration, and cross-selling additional products.

• OEM revenue variability due to internal agency changes and market conditions, with 2 OEM partners significantly adjusting media investments in the fall. - Macro factors like pull-forward demand from EV credits expiration, production shifts, and downward revisions in SAAR affecting media investments, leading to fluctuations in OEM ad spending.

Q: Tom White from D.A. Davidson asked about drivers of revenue in Q3, industry backdrop for dealers, and how dealers are navigating it.

A: Alex Vetter said manufacturers have near-term headwinds but OEM partners are generally bullish, with some temporary pullback from 2 OEMs. On dealers, they're struggling with softening demand, and savvy dealers are realizing the strength of Cars.com's audience. Sonia Jain added repackaging was a benefit to revenue.

Q: Gary Prestopino from Barrington asked about repackaging lift and ARPD.

A: Alex Vetter discussed platform strategy where innovation on marketplace can be deployed to dealer websites, and Sonia Jain mentioned repackaging's role in lifting ARPD with examples like Premium Plus adoption.

Q: Rajat Gupta from JPMorgan Chase asked about competitive landscape changes.

A: Alex Vetter said Cars.com's platform strategy of sourcing organic car shoppers is a complement to dealers' advertising mix, and they're differentiated with a strong platform and AI innovation.

Q: Marvin Fong from BTIG asked about AccuTrade pipeline and AI traffic.

A: Alex Vetter talked about AccuTrade's organic momentum and dealer interest, and Sonia Jain and Alex Vetter discussed AI's role in driving consumer engagement with Carson.

Q: Khan Naved from B. Riley Securities asked about marketplace repackaging and traffic mix.

A: Alex Vetter and Sonia Jain discussed the opt-in repackaging model and AI's early impact on traffic, with focus on value delivery and brand strength.

Q: Joe Spak from UBS asked about guidance and Carson.

A: Sonia Jain discussed adjusted EBITDA range and Carson leveraging Cars.com's data infrastructure and brand authority.