Cars.com Inc. (CARS) Earnings Call Transcript & Summary

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.