Cars Investor Presentation for Fall 2017 Conferences...
Transcript of Cars Investor Presentation for Fall 2017 Conferences...
CARS.COMInvestor Presentation
September 2017
Forward‐Looking Statements
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This presentation contains “forward‐looking statements” within the meaning of the federal securities laws. All statements other than statements of historical facts are forward‐looking statements. Forward‐looking statements include information concerning our business strategies, plans and objectives, market potential, future financial performance, planned operational and product improvements, liquidity and other matters. These statements often include words such as “believe,” “expect,” “project,” “anticipate,” “intend,” “plan,” “estimate,” “target,” “seek,” “will,” “may,” “would,” “should,” “could,” “forecasts,” “mission,” “strive,” “more,” “goal” or similar expressions. Forward‐looking statements are based on our current expectations, beliefs, estimates, projections and assumptions, based on our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments and other factors we think are appropriate. These statements are expressed in good faith and we believe these judgments are reasonable. However, you should understand that these statements are not guarantees of performance or results. Our actual results could differ materially from those expressed in the forward‐looking statements. Given these uncertainties, forward‐looking statements should not be relied on in making investment decisions.
Forward‐looking statements are subject to a number of risks, uncertainties and other important factors, many of which are beyond our control, that could cause our actual results to differ materially from those expressed in the forward‐looking statements contained in this presentation. Such risks, uncertainties, and other important factors include, among others, risks related to our business, our separation from our parent company and our common stock. For a detailed discussion of many of these risks and uncertainties, see the section entitled “Risk Factors” in our Registration Statement on Form 10, which was filed with the Securities and Exchange Commission on May 4, 2017 (the “Registration Statement”). All forward‐looking statements contained in this presentation are qualified by these cautionary statements. The forward‐looking statements contained in this presentation speak only as of the date of this presentation. We undertake no obligation, other than as may be required by law, to update or revise any forward‐looking or cautionary statements to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, or changes in future operating results over time or otherwise. Comparisons of results between current and prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data.
The forward‐looking statements in this presentation are intended to be subject to the safe harbor protection provided by the federal securities laws.
Company OverviewBecky Sheehan, Chief Financial Officer
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We are a Two‐Sided Digital Marketplace
We empower consumers by connecting them to the resources they need to make better automotive decisions about product, price, place and person
We enable partners by connecting them to the in‐market audience and intelligence they need to increase turn and gain market share
Cars.com Improves Car Decision Making by Connecting Buyers and Sellers More Intelligently and Efficiently
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ConnectionsNew & used shoppers
Vehicle sellers
Advice seekers/enthusiasts
Consumers PartnersDealers
OEMs
Sell‐it‐yourselfconsumers
Cars.com at a Glance
Market‐leading revenue in large addressable market
Diversified customer base
Leading mobile experience
Rich inventory attracts market‐leading audience
Automotive focused with high margins and cash flow
$633MM2016 Revenue
21,572Dealer Customers1
#1Mobile app3
5MMAverage Vehicle Listings1
1,200+Employees,
including 500 sales
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$30BNMarket opportunity
100%Top OEM clients
+15%YoY mobile app traffic
growth 2016
412MM2016 Traffic (Visits)
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41%Industry leading 2016
Adjusted EBITDA margin
1 As of 12/31/16; 2Borrell 2016 Auto Outlook; 3JD Power 2016 Automotive Mobile Site Study
Cars.com Operates at the Center of an Enormous and Fragmented Ecosystem
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Service and Repair
Used Cars
New Cars 30+OEMs3
>1,600models / trims
per year4
1,000+Automotive Digital
Destinations1
42,000+Dealers2
1 Vertical Scope; 2 Borrell 2016 Auto Outlook; 3 IHS Markit; 4 Cars.com internal data
Participants
Products
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Industry Trends
Used Car Sales in 20163
44.4Million
U.S. Automotive Market1
$1.1Trillion
New Car Sales in 20162
17.6Million
1 U.S. Census Bureau Monthly Retail Trade Survey2 IHS Markit3 Borrell 2016 Auto Outlook
U.S. Auto Advertising Industry
in 20163$30Billion
Auto Advertising Industry is a Large and Attractive Market with Growing Digital Ad Spend
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$16bn / 52% digital
$26bn / 67% digital
U.S. Automotive Advertising Market 5% Growth 2016 – 2021E CAGR
$30BN2016 U.S. auto ad market
$39BN2021 U.S. auto ad market
1 Borrell 2016 Auto Outlook
1 1
1 1
U.S. Digital Automotive Advertising Market 10% Growth 2016 – 2021E CAGR
Automotive Decisions are Being Made Digitally
1 McKinsey; 2 The Role of Digital and Dealers in the Path to Purchase, Google/comScore Study, Jan 2017; 3 comScore; measured as a % of visitors to Cars.com out of total visits to Cars.com plus competitor sites (includes Autotrader, CaruGurus, Edmunds, KBB, and TrueCar)
10 years ago, the average car shopper made 5 visits
to Dealerships…
…Today that number has dropped to
1.6 use Digital Sources when Shopping for a Car2
95%of Consumers
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10
20%of Audience3
is captured by Cars.com3
Cars.com Shoppers are In‐market, Undecided, and Sought After
1 Cars.com Consumer Metrics June ‐ September 20162 Consumers Metrics Q1 2017 report3 Millward Brown Brand Tracker 20164 In an indexed comparison of Female Customers, Customers with Children, Customers between the ages of 18 and 54, and Customers with a Household Income of more than $40k 11
80% of Cars.com shoppers
say they plan to purchase a vehicle in the next 6 months1
80%
95% of Cars.com shoppers are
undecided on what or where to buy2
95%
#1 demographic of young, affluent
families among peers4
#1Cars.com
Autotrader
KBB
Edmunds
TrueCar
CarGurus
#1 in Brand Awareness3
66%
BetterDecisionsBetter
Decisions
Unique Platform Empowers our Audience to Make Better Decisions
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PRODUCT PLACEPRICE PERSON
Expert Advice and Unbiased Coverage Empower Consumers in the Auto‐buying Process
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Pricing Transparency Fosters Trust Between Buyers and Sellers
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Person: Salesperson Connect – Empowering Consumers and Enabling Dealers Better Connections
• DealerRater Certified Salespeople say their employee profile helps them sell more cars
• Dynamically sorts recommended sales people
*Survey of 233 salespeople of DealerRater customers, June 2016
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Industry‐Leading, Mobile‐First Platform
1Based on Apple and Google App Stores; 2App Annie; 3JD Power 2016 Automotive Mobile Site Study; 4App Annie; User Engagement as measured by average in‐app sessions per user
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Above peer average in all mobile dimensions(e.g., speed, navigation)
App Rating
Most Downloaded App
Mobile Experience Rating
#1
#1
#1
Highest User Engagement#1
Best‐in‐class versus top competitors… Award‐winning app…
Average mobile user is within
37Days of purchase
…with tangible results
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Cars.com Generates Innovative, Measurable Results for Partners
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Connections for Partners Dealer Dashboard Overview
Phone Leads
Email Leads
Traffic to Dealer & OEM Websites
Mobile Walk‐ins
Actionable Insights
Differentiated Salesforce Provides Market Expertise and Unmatched Service, at Scale
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Major Accounts
Field & Inside Sales
Affiliate
National Advertising
~500Person
salesforce
Major Accounts
Dealers in Direct
Territories
Dealers in Affiliate
Territories
OEMs
~20,000Total
partners
Deliver unique solutions that enable
our partners
Deliver unique solutions that enable
our partners
Provide deep local market expertiseProvide deep local market expertise
Strong relationships with local dealers and
OEMs
Strong relationships with local dealers and
OEMs
Five Pillars of Long‐Term Growth
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Data & Attribution Leadership
ConnectionsGrowth
Adjacencies &Extensions
Advertiser Expansion
Affiliate Opportunity
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Key Investment Highlights
Well positioned for long‐term growth
Leading, branded digital automotive marketplace for buyers and sellers
Large and attractive market with growing digital ad spend
Trusted, unbiased content
Innovative mobile‐first technology platform
Market leading connections that drive partner results
Experienced leadership and best‐in‐class talent
Attractive cash flow generation at scale
Financial OverviewJandy Tomy, Vice President of Investor Relations
Financial Highlights
Attractive Business Attributes
Compelling Long Term ModelGrowth Investment+ =
Advertiser expansion
Connections growth
Affiliate opportunity
Adjacencies and extensions
Data and attribution leadership
Recurring revenue
Strong cash flow generation
Significant scale
Large, fragmented market
Expected shift to digital marketing to continue
Proven revenue model
Strong balance sheet
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Revenue by Product
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Dealer Subscriptions
80%
National Advertising
20%
Cars.com Revenue Breakdown
• Dealer Subscriptions include all subscriptions sold to dealers, both via our direct salesforce as well as our affiliate sales channel (where we recognize wholesale revenue).
• National Advertising includes selling display advertising to our OEM partners.
Revenue by Sales Channel
Note: Based on 2016 results.
Retail Revenue
73%Monetization The Dealer Network: Closer Look
Wholesale Revenue
27%
Subscription fees (53%)
National advertising (18%)
Other (2%)
Sold by our Direct Salesforce
Subscription fees ($145 million)
Amortization of negative contract liability ($25 million)
Sold by the Affiliate Salesforce
• ~60% Franchise Dealers
• ~35% Affiliate Dealers
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$463 million
$170 million
Subscription Overview
Dealer Subscriptions
Typically, annual contracts, billed monthly
Pricing based on dealer location and size
Tiered subscription options which allow dealers to choose desired features and functionality
Additional upsells available (e.g. DealerRater and RepairPal)
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Second Quarter 2017: Operational Highlights
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May 31, 2017: Spin from TEGNA and listed on Cars.com on NYSE
Closed on a $900 million credit facility with 2.5x net leverage
Eclipsed 5 million reviews
Granted a patent for Lot Insights
YTD Key Operating Metrics
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1 The acquisition of DealerRater in August 2016 added approximately 1,600 incremental dealers to the Dealer Customer metric in 2016.
Traffic (Visits)(in millions)
Dealer Customers Average Vehicle Inventory (in millions)
$116.2 $112.3
37.6%36.2%
1H 2016 1H 2017
$309.1 $309.8
1H 2016 1H 2017
YTD Revenue and Adjusted EBITDA
1 Adjusted EBITDA is a non‐GAAP financial measure. For more information and reconciliation of Adjusted EBITDA to net income, please refer to the Appendix of this presentation
Revenue Adjusted EBITDA1 and Adjusted EBITDA as a % of Revenue
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($ in Millions)
2017 includes $2.8 million of public company costs
YTD Adjusted Net Income and Free Cash Flow
1 Adjusted Net Income and Free Cash Flow are non‐GAAP financial measures. For more information and reconciliation to GAAP financial measures, please refer to the Appendix of this presentation
Adjusted Net Income1 Free Cash Flow1
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($ in Millions)
June 30, 2017 Balance Sheet & Capitalization
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Cash
Enterprise Value1
Net Leverage Ratio
Shares Outstanding
$36.6 million
$675 million
71.6 million
Debt
2.5x
$2.5 billion
1 Using the closing share price of $26.44 on September 22, 2017
Affiliate Agreements – Background & Opportunity
1 Excludes Gannett and TEGNA wholesale agreements which expire in June 2020. We may decide to enter into new agreements but will be on arms‐length terms.
Overview OpportunityInception
Contracts put in place at the time of the TEGNA acquisition in 2014
Wholesale agreements do not reflect fair market value, resulting in unfavorable contract liability
6 affiliate relationships
$170 million of revenue in 2016 (including $25 million of unfavorable contract amortization)
4 contracts terminate Q4 2019 2 contracts terminate mid 2020
Wholesale rates are approximately 60% of retail
Expiration of affiliate agreements expected to provide lift to Revenue and EBITDA as these markets are transitioned into our Retail Channel
Investments in expansion of direct salesforce
$25 million revenue amortization annually through expiration of wholesale agreements in October 20191
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Affiliate Conversion Provides Significant Upside
1 Average Revenue per Dealer
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Market 1Market 3
Market 2
Market 3Market 2Market 1
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100
110
120
130
140
150
160
0 1 2 3 4 5 6 7 8 9 10 11 12Months After Transition
Indexed ARPD1 (base = month end of first month post transition)
Select markets demonstrate potential of conversion to direct model to result in higher ARPD
ARPD growth of up to 35% over 12 months in select markets
Graph does not include the uplift in revenue expected from billing at retail rates
Independent Franchise
Capital Allocation Priorities
• Investments in the business
• M&A
• Debt paydown
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Appendix
Non‐GAAP Reconciliations
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Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017 2016Reconciliation of Net Income to Adjusted EBITDA
Net income $ 24,809 $ 42,020 $ 51,697 $ 75,719 Interest expense (income), net 1,770 (12) 1,729 (12)Provision for income taxes 2,345 ‐ 2,763 ‐Depreciation 2,909 2,050 5,515 4,131 Amortization of intangible assets 19,468 18,164 38,935 36,328 Stock‐based compensation 481 ‐ 481 ‐Transaction related costs and other 4,560 ‐ 4,664 ‐Restructuring costs 1,671 ‐ 1,671 ‐Costs related to the headquarters move 2,731 ‐ 3,428 ‐Write‐off and loss on assets 1,383 ‐ 1,383 ‐Adjusted EBITDA* $ 62,127 $ 62,222 $ 112,266 $ 116,166
Reconciliation of Net Income to Adjusted Net IncomeNet income $ 24,809 $ 42,020 $ 51,697 $ 75,719 Amortization of intangible assets 19,468 18,164 38,935 36,328 Stock‐based compensation 481 ‐ 481 ‐Transaction related costs and other 4,560 ‐ 4,664 ‐Restructuring costs 1,671 ‐ 1,671 ‐Costs related to the headquarters move 2,731 ‐ 3,428 ‐Write‐off and loss on assets 1,383 ‐ 1,383 ‐Tax impact of adjustments (4,563) ‐ (5,079) ‐Adjusted net income* $ 50,540 $ 60,184 $ 97,180 $ 112,047
Reconciliation of Cash Flow Provided by Operating Activities to Free Cash Flow
Net cash flow provided by operating activities $ 53,016 $ 46,450 $ 96,732 $ 72,308 Purchase of property and equipment (13,301) (2,666) (18,910) (4,795)Free cash flow $ 39,715 $ 43,784 $ 77,822 $ 67,513
* Amortization of unfavorable contract liability is not adjusted out of adjusted EBITDA or adjusted net income.
Unaudited and in thousands
DefinitionsTraffic (Visits). Traffic (Visits) and our ability to generate traffic are key to our business. Tracking our traffic performance is a critical measure. Traffic to the Cars.com network of websites and mobile apps provides value to our advertisers in terms of audience, awareness, consideration and conversion. In addition to tracking traffic volume and sources, we monitor activity on our properties, allowing us to innovate and refine our consumer‐facing offerings. Traffic is an internal metric representing the number of visits to Cars.com desktop and mobile properties (web browser and apps). Visits refer to the number of times visitors accessed Cars.comproperties during the period, no matter how many visitors make up those visits. Traffic (Visits) numbers provide an indication of our consumer reach. Although our consumer reach does not directly result in revenue, we believe our ability to reach diverse demographic audiences is attractive to our dealers and national advertisers.
Dealer Customers. Our value to consumers tracks to our ability to showcase the inventory of our dealer and Original EquipmentManufacturer (“OEM”) customers. The larger the advertiser base, the more inventory and options that are available for consumers to review. Dealer Customers represents the car dealerships using our products as of the end of each reporting period. Each dealership location is counted separately, whether it is a single‐location proprietorship or part of a large consolidated dealer group. Multi‐franchise dealerships at a single location are counted as one dealer.
Average Vehicle Listings. Our value to consumers tracks to our ability to showcase the inventory of our dealer and OEM customers. The more vehicle listings that are available for consumers to review, the more traffic we attract and the higher the consumerengagement. Average Vehicle Listings represents the daily average of vehicles listed for sale on Cars.com properties. The daily average is calculated on a monthly basis and averaged for the reporting period.
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Non‐GAAP Financial Measures
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This presentation contains adjusted EBITDA, adjusted EBITDA margin, adjusted net income and free cash flow. These are not financial measures as defined by GAAP. These financial measures are presented as supplemental measures of operating performance because we believe they provide meaningful information regarding our performance and provide a basis to compare operating results between periods. In addition, we use adjusted EBITDA as a compensation measure. In addition, these non‐GAAP financial measures are frequently used by our lenders, securities analysts, investors and other interested parties to evaluate companies in our industry.
Other companies may define or calculate these measures differently, limiting their usefulness as comparative measures. Because of these limitations, these non‐GAAP financial measures should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP. Definitions of these non‐GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures are presented in the tables below.
We define adjusted EBITDA as net income before (1) interest expense, net, (2) provision for income taxes, (3) depreciation, (4) amortization of intangible assets, (5) stock‐based compensation, (6) write‐off and impairments of assets, plus (7) certain other one‐time or non‐cash charges including transaction related costs, restructuring costs and costs related to the headquarters move. Amortization of unfavorable contract liability is not adjusted out of adjusted EBITDA.
We define adjusted net income as net income excluding the after‐tax impact of amortization of intangible assets, stock‐based compensation, write‐off and impairments of assets, and certain other one‐time or non‐cash charges including transaction related costs, restructuring costs and costs related to the headquarters move. Amortization of unfavorable contract liability is not adjusted out of adjusted net income.
We define free cash flow as net cash flow provided by operating activities less capital expenditures, including purchases of property and equipment and capitalization of internal‐use software development costs.