Cars.com Inc. Common Stock 2026 Q2 Earnings Call

Please go ahead. Good morning, everyone.

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. 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. Now I'll turn the call over to Toby.

Thank you, Katherine. Thanks 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. We continued to generate strong free cash flow, which enabled 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. 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. 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 three 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. 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 standalone 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.

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 AI shopping assistants to more marketplace surfaces. Today, around 20% of active searchers on Cars.com are engaging with Carson.

Carson users are four times 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 de-emphasize lower-quality traffic, opting instead to drive more value to dealers. We are 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 Dealer 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 number one 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. 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 websites 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.

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.