Good morning. And welcome to the Cars.com Fourth Quarter 2020 Earnings Conference Call. Hosting the call this morning is Alex Vetter, Chief Executive Officer; and Sonia Jain, Chief Financial Officer. This call is being recorded and a live webcast can be found at investors.cars.com. A replay of the webcast will be available until March 11th. A copy of the accompanying slides can also be found on the company’s Investors site. Following today’s presentation, there will be a question-and-answer session with Alex and Sonia. I’d now like to turn the call over to Jandy Tomy, Treasurer.

Good morning, everyone. And welcome to our fourth quarter and full year 2020 conference call. Before, I turn the call over to Alex, 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 today including adjusted EBITDA, adjusted EBITDA margin, adjusted net income and free cash flow. Reconciliation’s of these non-GAAP measures to the most directly comparable GAAP measure can be found on the financial tables included in our earnings press release and in the appendix of the presentation. For more information, please refer to the risk factors included in our SEC filings including those at our annual, quarterly and current reports. We assume no obligation to update any forward-looking statements or information as of a respective date. At this time, I would like to turn the call over to Alex. Alex?

Good morning, everyone. And welcome to our conference call for the fourth quarter and full year 2020. On today’s call, I’ll be discussing business highlights from our year and fourth quarter and provide an overview of the expectations and priorities for 2021. I’ll then hand the call over to Sonia, who will discuss our financial results in greater detail. Cars delivered impressive results in 2020. Despite the pandemic we grew ARPD for the second consecutive quarter and grew dealer customers in three out of four quarters this past year, all while reaching record levels of traffic and lead generation. Our performance resulted in a return to year-over-year revenue growth in the fourth quarter. In 2020, our team also maintained swift spending discipline and continue to invest strategically in the business, driving incredibly strong quarterly and annual adjusted EBITDA and cash flow. In a subscription business like ours, it’s important to remember how impactful a strong year end exit rate is and how well it positions us as we enter 2021. The accelerated adoption of digital products and solutions by our dealer customers has been core to our success. Until 2020, many dealers were reluctant to fully embrace a digital first strategy, the pandemic accelerated car dealers’ adoption of digital tools and we have seen a marked increase in dealers subscribing to our digital solutions and we expect the trend that emerged from the state home economy to endure. Despite signs of the stay at home requirements of society, the preference for cars is a mode of transportation and car ownership persist. And consumers are appreciating the convenience of shopping when, where and how they want. Not only are dealers embracing technology to meet the changing expectations of car shoppers, but they are also finding meaningful efficiencies in their businesses. Today…

Thank you, Alex. We delivered solid results this quarter. We grew topline revenue, generated strong cash flow and profitability, and ended the year with $68 million in cash and cash equivalents. First, let me discuss the quarter. Revenue was $153 million, up 1% year-over-year. Higher ARPD driven by solution sales drove this topline growth. Year-over-year, Dealer Inspire revenues grew through 22%. National advertising revenue in the fourth quarter was the highest of the year at $20 million, down just $1 million or 5% year-over-year. Turning to expensive, total operating expenses for the fourth quarter were $137.1 million, compared to $147.5 million for the prior year period. Expenses were down primarily due to the elimination of our affiliate revenue share expense in the second quarter of 2020. This will continue to benefit our year-over-year metrics in the first half of 2021. We also thoughtfully reinvested in the business in both the third and fourth quarters last year. Marketing spend in particular was up year-over-year as we reinvested in our brand. GAAP net income for the fourth quarter of 2020 was $7.2 million or $0.10 per diluted share, up from a GAAP net loss of $4.1 million or $0.06 per diluted share in the prior year. This was driven by tax benefits generated through an increase in the company’s ability to carry back operating losses as a result of the CARES Act. Adjusted net income for the fourth quarter of 2020 was $6 million, compared to $42.2 million in the fourth quarter of 2019. This decline is due to adjustments to our annual effective tax rates, which had a significant impact on the quarters’ effective tax rate. Fourth quarter adjusted EBITDA was $48.5 million or 32% of revenue, compared to $39.3 million or 26% of revenue for the prior year period. Before…

Thank you, Sonia. 2020 was a strong year for Cars and we have an unmatched set of competitive advantages. Our brand is the category leader, and last year, our business once again proved its durability. We are focused on creating a great shopping and selling experience for consumers and customers, not commoditizing them. Our solutions lead the industry and enabling local dealers to compete beyond price and to drive increased profitability by communicating their unique dealership experience. These advantages will continue to drive growth and value for our customers, consumers and shareholders. Before turning the call back to the operator for Q&A, I want to reiterate that we believe and expect that 2021 will be a year of growth at Cars. As consumers embrace car ownership more so now than ever before, dealers clearly have a growth opportunity in front of them. The car has become an extension of our homes and is viewed as safer than public transportation and ride sharing. Favorable credit conditions that made car purchases more attainable for many and the recently proposed new round of stimulus payments should make it even more so. The outlook for our industry and our business is bright and our strategy is working. We will continue to remain a valuable partner to both buyers and sellers. We will continue to expand our digital solutions portfolio and drive dealer adoption of these important tools for efficient sales and profitability. And we will continue to leverage our cash flow and strong balance sheet to invest in the business both organically and inorganically to accelerate our innovation, and to drive top line growth. Cars’ is well-positioned to drive additional shareholder value. Operator, we’re now ready to begin the Q&A session.

[Operator Instructions] Our first question comes from Tom White with D.A. Davidson. Your line is open.

[Technical Difficulty]

Go ahead, Tom.

[Technical Difficulty]

We’re having a hard time hearing you, Tom. You’re breaking in now. Operator, we’re having a hard time hearing, Mr. White.

Okay. And Mr. White, could you re-queue.

Yeah.

Problem with the phone. Go ahead.

And our next question comes from Gary Prestopino with Barrington Research. Your line is open.

Good morning all. How you doing?

Good Gary. Good morning.

Just a series of questions here of these dealers that you’re adding, Alex, how does it breakdown between the franchise and independent segments of the market?

Sure. We’ve actually seen solid uptick on both segments of the market franchised and independent dealers. If you look at our opportunity, obviously, we have plenty of room to grow in both. And I think what we’re seeing on the solution side certainly is most of that growth is coming from franchised dealers, both for FUEL and Dealer Inspire. But our marketplace subscriptions are growing in both segments of the market. Used cars obviously are picking up momentum because of the chip shortage and so that’s part of the growth that we’re seeing in both January and February of this year. So, we’re pleased with growth in both sides for marketplace.

Okay. And could -- in terms of online shopper and conversations, you gave some statistics of the penetration for Q4 I believe and what were the comparison percentages there and what were those versus Q3?

Sure. Both of these platforms are low penetration today, because we’re adding websites at a brisk pace, Gary. So even though…

Right.

… the penetration rates that we used in the stripper are roughly in the low 20s. As website sales grow, that penetration rate can grow with it. We certainly see tremendous upside in our solution strategy, both websites as a core, but also in conversations in online shopper. I mean, if you if you turn back, they’re both in low single-digit percentages of the industry. So these are growth opportunities and platforms for up-sells that our sales force is actively adding every day.

Okay. And that -- those percentages were as a percentage of your websites, right?

Correct. So…

Okay.

… again if you were looking at the total market, the opportunity here is even greater.

Okay. And then just lastly, you gave a talk about website referral traffic that you guys are clicking through with a much higher rate. Is that kind of a new measure of attribution that you’re going out and using with the dealerships?

It’s always been there, Gary. But I think what’s happening is dealerships are really evaluating what’s driving their sales. So many dealers are using digital retail tools today.

Right.

And the fact that we’re able to deep link our users directly into their digital retail systems. The dealers are starting to see the qualitative aspects of our audience, which is converting it 2 times the rate of all their other traffic sources combined. And so when you think about how much a dealer spends in search for example, only to get a small percentage of that traffic to convert versus Cars.com, which the majority of the people were sending into the dealers’ website are converting. I think dealers are now starting to recognize what we’ve been saying all along, which is you can’t replicate the high intentionality of an in-market marketplace like Cars.com. And so we’re certainly accelerating the training and education through Google Analytics and our own proprietary tracking tools Prism, but dealerships are recognizing the quality of our traffic more than ever.

Okay. Thank you very much.

Our next question comes from Tom White with D.A. Davidson. Your line is open.

Great. Thanks. Let’s try this again. Can you guys hear me okay, now?

Perfect Tom.

Okay. Great. Hopefully, someone didn’t ask about kind of the marketing question. But it sounds like you guys are maybe considering or already started sort of maybe re-tilting your marketing mix a little bit more in favor of a brand centric spend. So could you maybe elaborate a bit more on kind of the rationale behind that shift, if indeed it is a shift? And maybe how we should think about kind of the timeline for sort of the payback or the ROI on kind of more brand spend in the mix versus how you guys used to do it before? And then just to follow up on national advertising, I know, it’s notoriously hard to forecast. But if you could give us any sense as to your current thinking and kind of the range of outcomes for that line item this year that will be helpful?

Absolutely. Tom, I’ll start on the marketing mix and then Sonia will add color. First of all, it’s hard to not just comment that we had just an incredible year on the traffic side, following a really robust 2019. And so, our traffic was up 8% year-over-year, our UVs up 5%, and importantly, our leads up 13% in 2020. And so the value delivery that we are generating for our dealers is what’s driving incredible retention rates and obviously part of the formula for dealer growth. And so we made a shift towards investing in the brand in the fourth quarter, because we felt like we had nailed the value delivery equation really well throughout 2020 and that again had been building on a strong pickup in 2019. Our media mix is always going to ebb and flow based on seasonality and what the market requires. And so we’re being very deliberate in terms of investing in the brand to ensure a sustained and strong performance throughout 2020. I guess the other comment I’d make is that, we are going to run up against really tough comps throughout 2020. I think the shelter-at-home restrictions, really elevated traffic levels in 2020, which will make it difficult for us to lap that comp, which is why I’d point to quality. We have a steady stream of buyers that we’re generating for our dealers and I don’t see any challenge in us sustaining our value delivery. Sonia, what else to get in the media mix?

Yeah. No. I think you’ve covered a lot of it, Alex. I think, overall, we expect to see marketing spend increase in Q1 on a year-over-year basis and it’s going to be increasing on both the performance marketing side, as well as the brand side. But on the brand side a little bit more heavily since that’s one of the areas that we pulled back particularly significantly during COVID. And to Alex’s point, I think, one of the real differentiators we see for our business is the strength of our organic traffic. And the investment in brand is really going to support the continued health and growth there in our organic traffic generation.

Good point. And on the national front, Tom. This business is a little bit lumpy. I think it’s always a little bit lower in the first half of the year versus the second half. And so we see that continuing this year, particularly because of the chip shortages. OEMs, I think, are going to be a little bit more cautious in the first half of this year and we’ll see nice pickup in the second half, which will help on the EBITDA margin side. But the business is fundamentally we believe hit an inflection point, particularly with the growing privacy implications that are happening. OEMs are realizing that reaching in-market shoppers directly at the source is going to be a more reliable investment than a lot of the data and Ferb [ph] models that they’ve relied on in the past. And so, I think, the business is well positioned.

Good. Thanks guys. Appreciate it.

Our next question comes from Nick Jones with Citi. Your line is open.

Great. Thanks for the questions. I guess, two, as you win new dealers, using the Dealer Inspire websites. I mean is there -- where are these dealers kind of in the curve of adopting more of the solutions Cars.com offers. I mean, is there kind of still quite a bit of runway to get kind of more spend to the advertising products? And I guess the second question is, as dealers are really scrutinizing how they’re getting leads and particularly digital essence a lot of dealerships have been closed. How does that tie to kind of dealer growth throughout the year? I mean, is it fair to assume maybe dealer count starts to accelerate kind of sequentially throughout the year, as people start to figure out the best way to get leads? Thanks.

Thanks for the question, Nick. Well, first of all, I think, one of the things that COVID did was it accelerated dealers desire to invest in digital solutions and platforms. And we’ve certainly see this in our DI website business. It went from a business where we were doing more outbound sales, so you have a lot more inbound dealer interest. And obviously, part of that was driven by the foreclosures of the showrooms. But I think what you saw in 2020 is dealers started reporting record profits. And they were cutting back on their physical staff in favor of investing in digital tools. And so, dealers are very aware now that the digital format is the most profitable and efficient ways for them to run their business. And I think that will have a lasting implication on the industry well beyond COVID. And so, we’re seeing the growth on DI websites and our technology tools accelerate across the entire market. I don’t think there is a curve here. This is all dealers are now focusing on how do I get to the profitability that we enjoyed during the COVID restrictions. I think number two, on the dealers evaluating performance. I think this is also where we shine. A lot of other marketplaces are merely lead arbitrage markets that generate a lot of leads at a very low closing percent. Every dealer out there will say that they’ve closed the leads from their own website at the highest rate, oftentimes 2 times what they’ll see in other marketplaces. And we’re driving the majority of traffic into dealers’ websites. And so I think this is one, we made an announcement at NADA about our impact on dealer website performance, dealerships are scrutinizing that and what sources are driving the most traffic into the websites and we’re generating three times more than our nearest marketplace competitors.

Great. Thanks, Alex.

Our next question comes from Dan Kurnos with Benchmark. Your line is open.

Great. Thanks. Good morning. And Alex, why don’t you just kind of follow up a little bit, just on sort of the philosophical way that the whole space attacking the market here, obviously, the common refrain now is, channel conflict between the dealers developing their own digital tools on the digital retail side, and then, obviously, you have some competitors that are trying to get kind of penny perfect pricing in kind of replicate that showroom experience. I know, you guys have kind of a wide array. You spent a lot of time talking about the advertising and lead drive angle and increased conversion. So, just maybe your thoughts on, how you kind of walk the tightrope from here? And to the second part of my question, I think, you need some, some pretty clear comments. Again, maybe I don’t want to miss read this, but it seemed like an organic is certainly still part of the equation here. Just curious what tools you think, you’re sort of missing at this point or the areas where you think based on the products suite you have would be the greatest adjacent areas of opportunity?

Thanks, Dan. Well, first of all, I think on the channel conflict side, it is not a new phenomenon that dealers want to convert sales on their own properties. That’s been a consistent since the dawn of our business. And I think that’s why we’ve played an active role in helping show dealers that we’re a demand gen platform for their own platforms. It’s why all the large branded national entities feature their inventory on Cars.com, because they know it’s a high quality, reliable source of sales. That’s really the ethos of our business is, we’re aggregating demand because consumers are largely undecided about what to buy and where to buy it. And retailers need to be featured in those wells where consumers are making those decisions, using our ratings using our reviews, using our content to help inform what they should buy. I think as far as the tools go, there is a lot of innovation happening in the market where dealers are investing heavily in sophistication to convert more traffic to sales. And that’s where our solution strategy is robust and growing at an accelerated rate. We just won awards as being the best website provider in the category as recent as last week. And we continue to take market share there. So we think we’re well-positioned to ride a lot of the growth that dealers are going to invest in their own websites, and the tools that they’re going to use. And we certainly have -- we’re just scratching the surface on our -- on this business, both with FUEL and our website business and our digital tools.

And owning organic inorganic side, Alex, just maybe thoughts on adjacencies or areas that you could kind of shore up that portfolio?

Well, sure, I think, we’re just scratching the surface on our existing investments and innovation, like, FUEL, even though it’s a year old, it’s barely scratching the surface in terms of the opportunity we have there. And so we feel really good about our growth trajectory on an existing business. I think if you’re asking about what other areas we can invest in for growth, I think, certainly, anything that the dealer today uses human capital to manage, we think we can complement their operation with technology. And so anything that the dealer has workflow that tends to require labor, you can be assured that we’re innovating and testing and learning in terms of how we can bring technology to solve problems to help dealers run more efficiently.

All right. Great. Thanks. Appreciate it.

Your next question comes from Marvin Fong with BTIG. Your line is open. Marvin Fong, your line is open.

Hi. Sorry about that. Two questions, just to start with, so great to hear again the retention rates are very strong. If I missed that, I apologize, but could just talk about how your prospecting is going, the inflow of new customers and how their efforts are going in terms of recapturing dealers that churn during the COVID period. And then I have a follow-up.

Well, two things, Marvin, I’m glad you noted. The record retention rates we think is a function of our great traffic growth and our organic concentration of traffic, right? So dealers know that this is traffic that they can’t buy elsewhere and that is part of our strong retention. But as we noted, we had strong dealer growth in January and in February and so that’s been steady, but I would also point to our solutions stability here in growth. During the COVID pandemic, dealers didn’t cut their website. They cut back on a lot of advertising across the Board. It wasn’t specific to any performance issues on any vendor, they just cut back, but they didn’t on the websites. And so you saw the resilient in the business in 2020, because we weathered the COVID pandemic better than any of our peers. I think the adding dealers back we’re going to have to -- will lap the Q2 cancellations from COVID. And you’ll see a great second half because we’re going to be lapping that dealer loss. Sonia, anything what would you add?

No. I think in terms of the momentum we’ve seen in the second half of the year, it’s been a combination of dealers that, it traded in Q2 related to COVID, along with really healthy new sales pipeline that we’ve been seeing. So it’s a combination of both elements. And I think, to kind of complement what Alex said, I think, the attribution game has changed a little bit with COVID, with dealers really recognizing the value of the traffic we bring to them, along with us leveraging our data. For example, the data we shared with you on DI website recall.

Terrific. Thanks. And then my follow-up, I just wanted to drill down a little more on the DI business. So the customer base up 38%. I think you’d said, Sonia, the revenue is up 22%. And obviously, I understand there’s a lag effect as you are on-boarding? Could you updated us, I mean, how or pretty much all the GM dealers on boarded now. And then as we looked at FY ‘21, can we think about the revenue kind of converging closer to where the client -- the customer growth has been, that will be great? Thanks.

Yeah. So we still actually have a number of the original 800 GM. We’re still in the pipeline for launch in 2021. I think overall from a growth perspective at DI, we think there’s still a very substantial opportunity for growth here, just on the basis of kind of where the existing business is. If you think about the launches that we had in 2020, they were back half weighted, and so as we look at 2021, will benefit from the full annualization of those websites that we launched in 2020 in addition to the remaining GM websites along with our existing pipeline of launches that we have slated for this year. I mean, it is -- it does get a little bit more challenging as the revenue base grows to keep pace with the same rate of growth, but we think we have a lot of opportunity just on the base website business, not to mention continuing to grow our conversations in online shopper up-sells. Does that help answer the question?

Yeah. No. No. That was perfect. Thanks so much Sonia. Appreciate it.

Our last question comes from Doug Arthur with Huber Research. Your line is open.

Yeah. Thanks. Two questions, Sonia, just to clarify on the dealer count 18,372. The -- when you talk about 4,400 DI websites, I assume that is not 4,400 dealers, per se. And is that in the 18,372 or is that separate?

Yeah. So website customers don’t necessarily cancel it one-to-one to dealer count. However, the 18,372 does include all of the DI dealer customer.

Okay. Because based on a 38% it looks like it was about 3,200 give or take a year ago up to 4,400. But again it’s not one-to-one, as you say?

Right. There are going to be some customers, right, who use DI product, as well as our marketplace customers. So we effectively deduped the two groups to get to the 18,372.

Okay. Okay. And then, just a clarification, when you were pretty clear on obviously, margins for Q1 did. Can you just reiterate what you said about some of the dealer or the revenue trend in Q1 year-over-year?

Yeah. So, I think, as we talked about, really pleased with the performance we saw in the second half of the year and the momentum that we’re bringing into Q1. But nevertheless, it is a challenging pre-COVID comp for us. And I think from a revenue perspective, maybe I’d highlight to two of the areas that make it a little bit more of a challenging comp, right? Despite the dealer account growth that we saw at the end of the year and into this year. We’re still going to be down on dealer account, which certainly presents some challenges in growing foreign marketplace revenue. And then the second component is just a reminder that national revenue does tend to be a little bit seasonal with a stronger second half than first half. And that’s also very high margin business, right, which is also slowing down through to the margin range we provided.

Okay. Great. Thank you.

There are no further questions in queue at this time. I’ll turn the call back over to Alex Vetter for closing comments.

Thanks for joining us today and have a great rest of week.

This concludes today’s conference call. You may now disconnect.