Acquisition of Dealer Inspire and Launch Digital Marketing Investor - - PowerPoint PPT Presentation

Acquisition of Dealer Inspire and Launch Digital Marketing

Investor Presentation

February 14, 2018

Forward‐Looking Statements

This presentation contains “forward‐looking statements” within the meaning of the federal securities laws, including those statements under “Preliminary 2017 Results” and “Preliminary 2018 Outlook.” 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

• ther 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.

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Integrates rapidly growing digital dealer product suite Integrates rapidly growing digital dealer product suite Broadens Cars.com’s capabilities, deepens dealer connections and improves attribution Broadens Cars.com’s capabilities, deepens dealer connections and improves attribution

Compelling Strategic and Financial Rationale

3

1

Combines complementary assets to create a unique, end‐to‐end car shopping experience Combines complementary assets to create a unique, end‐to‐end car shopping experience

2

Accelerates growth, extends dealer solutions, targeting high‐growth channels Accelerates growth, extends dealer solutions, targeting high‐growth channels

3

Significant synergy opportunities and long‐term growth support investment returns Significant synergy opportunities and long‐term growth support investment returns

4 5

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Launch Digital Marketing Customized marketing and customer acquisition solutions Launch Digital Marketing Customized marketing and customer acquisition solutions Dealer Inspire Flexible, custom designed website platforms supporting highly personalized digital campaigns Dealer Inspire Flexible, custom designed website platforms supporting highly personalized digital campaigns Online Shopper End‐to‐end digital retailing solution empowers shoppers to compare a wide range of financial considerations as they complete their purchase online Online Shopper End‐to‐end digital retailing solution empowers shoppers to compare a wide range of financial considerations as they complete their purchase online Conversations Powerful A.I. messaging platform that centralizes customer communication, improves quality and speed

• f response time, and

decreases operating costs Conversations Powerful A.I. messaging platform that centralizes customer communication, improves quality and speed

• f response time, and

decreases operating costs

DISCOVER SHOP CONNECT BUY

FUEL Dynamic inventory advertising program creates customized ads and keyword lists based

• n real time inventory

data and logic FUEL Dynamic inventory advertising program creates customized ads and keyword lists based

• n real time inventory

data and logic

Acquired two integrated businesses – Launch Digital Marketing (“LDM”) and Dealer Inspire (“DI”) – which provide an array of digital solutions to automobile dealers for distribution through Cars.com and DI/LDM sales networks

Digital Value Chain: Product Offerings for Dealers

Complementary Strengths Create a Powerful Combination

• Highest brand recognition
• Third party marketplace leader: 400+ million website

visitors and 5 million vehicle listings

• Over 6 million expert and consumer reviews
• Significant growth opportunity: dedicated sales force

serving more than 20K dealers + affiliate revenue conversion

• Strong balance sheet and modest leverage serviced by

free cash flow of $176 million1

• Innovative technology leader
• Proprietary digital dealer solutions enhance Cars.com’s

product portfolio and proposition

• Core business originated with disruptive websites, paid

search and social media

• Innovation focused on enhancing dealer solutions to

better service end‐to‐end car buying journey

• 1,700 dealer customers
• 50%+ revenue growth in 2017

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Note: Cars.com figures as of 09/30/17

Acquisition Improves Cars.com’s Penetration of Fastest‐Growing Industry Channels

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$34BN

U.S. Auto Ad Market in 2022

$22BN

Digital Auto Ad Market in 2022

3%

Total market Addressable market

CARS current market share

Dealer Websites Social Media Paid Search SEO 15% 12% 11% 3%

Category Annual Growth Category

Driven by dealers’ desire to differentiate and promote their website Driven by consumer use of social platforms Driven by dealers’ desire to reach consumers in search discovery process Driven by dealers’ desire to remain relevant in organic search results

Source: Borrell 2017 Outlook; BCG December 2016 Auto Dealer Advertising Survey, N = 362; Based on dealer responses to "How do you think your digital marketing spend will change over the next 1-2 years?“

Continued Focus on Our Core, Two‐Sided Digital Marketplace Strategy

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 Acquisition Directly Aligns with Cars.com’s Core Strategy Acquisition Directly Aligns with Cars.com’s Core Strategy

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Transaction Overview and Financial Outlook

Consideration

• Under the terms of the acquisition agreement, Cars.com will pay $165 million in cash at the close
• There are additional incentives up to $40 million for over‐performance over three‐year period
• Return on investment enhanced at every level of revenue over‐performance

Financial Impact

• Increases revenue scale and growth with significant long term Adjusted EBITDA and cash flow contribution
• DI and LDM are expected to achieve ~$55 million of standalone revenue with ~15% Adjusted EBITDA margins in full year 2018
• Expect to sell product through Cars.com’s distribution network and achieve $25 ‐ $30 million of incremental revenue and at least $10 million
• f incremental Adjusted EBITDA annually by 2020, representing approximately 15% dealer penetration by year 3
• Implies 2018 purchase multiples of 2.0x1 revenue and 9.0x EBITDA including run rate revenue and EBITDA, respectively, generated via product

sales through Cars.com’s distribution network (3.0x revenue and 20.0x EBITDA excluding sales through Cars.com’s distribution network)

• Transaction expected to be accretive to adjusted net income per share in 2018 and GAAP EPS in 2019, reflecting intangible amortization

Financing

• $165 million cash consideration to be financed through existing revolving credit facility, at close
• 3x pro forma total debt‐to‐EBITDA ratio at transaction close

Process and Timing

• Expected to close by the end of February 2018
• Subject to customary closing conditions

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Acquisition Highlights

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Dealer Inspire and Launch Digital Marketing Financial Summary

Note: This outlook is forward looking and is subject to change

Revenue1 % to prior year

• Adj. EBITDA1

2017 Twelve Month 2018 Outlook2 $41 million ~$55 million 57% ~34% $4 million ~$8 million % margin 11% ~15% Revenue Incremental Annual Benefit from Product Sales Through Cars.com’s Sales Team (to be achieved by 2020) ~$25 - 30 million at least $10 million EBITDA % to prior year 68% ~100% Standalone DI and LDM Performance

• Adj. EBITDA

$239 million 38% Revenue $626 million

Cars.com Preliminary 2017 Results – In‐line with 2017 Guidance

2017 Preliminary

(unaudited)

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Note: Cars.com will report more detailed financial results for full year and Q4 2017 at the beginning of March

(1%) % margin % to prior year Net Income $242 million1

Total revenue growth ~10-11%

Preliminary 2018 Outlook

Base business revenue growth1 ~3-4% Revenue from DI and LDM2 ~$45 million

• Adj. EBITDA margin3

~34%

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Note: This outlook is forward looking and is subject to change

Cars.com Preliminary 2018 Outlook

Integrates rapidly growing digital dealer product suite Integrates rapidly growing digital dealer product suite Broadens Cars.com’s capabilities, deepens dealer connections and improves attribution Broadens Cars.com’s capabilities, deepens dealer connections and improves attribution

13

1

Combines complementary assets to create a unique, end‐to‐end car shopping experience Combines complementary assets to create a unique, end‐to‐end car shopping experience

2

Accelerates growth, extends dealer solutions, targeting high‐growth channels Accelerates growth, extends dealer solutions, targeting high‐growth channels

3

Significant synergy opportunities and long‐term growth support investment returns Significant synergy opportunities and long‐term growth support investment returns

4 5

Compelling Strategic and Financial Rationale

Q&A

Appendix

This presentation discusses adjusted EBITDA, adjusted EBITDA margin, adjusted net income, adjusted net income per share 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. 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 contracts liability is not adjusted out of adjusted EBITDA. We define adjusted net income as net income excluding the after‐tax impact of (1) amortization of intangible assets, (2) stock‐based compensation, (3) write‐

• ff and impairments of assets, and (4) certain other one‐time or non‐cash charges including transaction related costs, restructuring costs and costs related to

the headquarters move. Amortization of unfavorable contracts 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. 16

Non‐GAAP Financial Measures

17

Reconciliation of Net Income to Adjusted EBITDA

Net income $242

2017 Preliminary

(in millions and unaudited) Interest expense (income), net 12 Provision for income taxes (120)

• Adj. EBITDA1

$239 Depreciation and amortization 88 Stock-based compensation 3 Transaction related costs and other 6 Restructuring costs 2 Costs related to the headquarters move 4 Write-off and loss on assets 2

Note: Cars.com will report more detailed financial results for full year and Q4 2017 at the beginning of March