Cars.com, Inc. Aktie

Good morning, ladies and gentlemen, and welcome to the Cars First Quarter 2026 Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, May 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. First Quarter 2026 Conference Call. With me this morning are Tobi Hartmann, CEO; and Sonia Jain, CFO. Tobi will start by discussing business highlights from our first 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 Tobi, 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 Tobi.

Thank you, Katherine, and thank you to everyone joining us to review first quarter 2026 results. On our call in February, we set forth near-term goal to better realize the potential of our business and put Cars.com on a stronger growth and value-creation trajectory. We have made solid progress against those objectives in Q1 and early Q2 as we build a leading automotive marketplace experience.

First, we delivered on our financial commitments. Q1 revenue of $180.2 million was towards the high end of guidance and the third consecutive quarter of year-over-year growth. Adjusted EBITDA margin of 28.3% exceeded guidance by over a full percentage point. And free cash flow remained strong, up 42% year-over-year and reflecting higher conversion from EBITDA. Second, we have taken immediate cost actions. We closely examined operations to identify efficiencies and opportunities to reshape our organization into more nimble marketplace-focused teams. During this process, we identified $25 million to $30 million of recurring annualized operating cost savings to create a healthier foundation to support future growth.

Third, we are leveraging existing assets and data to rapidly launch new features that improve our marketplace value. Cars.com MCP integrations for agentic AI platforms and conversational capabilities for our cars and shopping assistant are examples where we have adopted to match new shopping behavior. Consumers were more than 4x as likely to submit a lead after having a conversation with Carson, demonstrating our efficacy at stimulating purchase intent. These are positive and necessary steps to start the year and reinforce our confidence in our 2026 growth guidance. We also increased our 2026 share repurchase target to $90 million to further enhance shareholder value creation.

Overall, the start of the year has been productive and the teams have moved with speed to secure wins. In terms of our three 2026 initiatives, we have pushed hard on controllables such as cost containment. Other changes like the green shoots and product and marketplace are compelling, they will take some time to mature, but we are clear on the strategy that we need to execute for the rest of the year.

Historically, we have grown our product as distinct and loosely affiliated pillars. But moving forward to truly maximize our value, we must integrate into one interconnected marketplace-centric ecosystem. For car seekers, we will offer relevant and desirable listings across marketplace and dealer websites, trusted data insights and an AI-first user experience. For car sellers, our combined marketplace and appraisal capabilities will evolve into an essential resource for used car insights. And dealers and OEMs will continue to benefit from our scale in market audience but with even better ROI based on our unique first-party retail signals across marketplace, websites and media. Our marketplace model will drive vehicle transactions at scale by focusing on these differentiators.

Investing in product is key to powering our marketplace flywheel and long-term growth. Let me give you some examples of our accelerated product output in the first 4 months. Starting AI. Model context protocol integrations are helping our discoverability on leading agentic AI platforms such as ChatGPT. Consumers can now browse our marketplace inventory directly with a native LLM environment before submitting leads on Cars.com. And this has added value for existing marketplace dealers who are eager to tap into agentic commerce. LLMs are still sub-1% of our traffic, and we are well positioned to benefit as these platforms grow.

Turning to our own platform. Conversational Carson is a positive step towards continued personalization of the marketplace shopping experience. Finally, the Cars.com dealer app just launched in April, putting a mobile command center in the hands of marketplace dealers. Early features include AI-generated summaries of performance metrics, lead follow-up alerts and pricing intelligence. We believe our app has the broadest analytics set among our competitors translating to the best ROI on every sales appointment and wholesale transactions. We expect greater product development velocity will continue to deliver a steady and diverse cadence of future releases. Cross-pollination, such as bringing AccuTrade data into marketplace listings will be an increasing focus in the second half of the year.

Turning to the remaining initiatives. Sonia will offer more cost detail in her remarks. The actions we took in April supports our stated intention to grow adjusted EBITDA at a faster rate than revenue. We've also been clear that we must operate with better processes and organizational structure to successfully execute our marketplace strategy and grow LTV.

From a go-to-market perspective, new product bundles will help clearly articulate platform value. Our products will be packaged according to integrated value delivery, which we expect to drive faster adoption than selling individual point solutions. For example, our data shows that customers with both AccuTrade and the Cars.com marketplace, the inventory turns speed up by an average of 6 days. A combined marketplace and appraisal offering would not only drive dealership gross profits, but also eliminate the paradox of choice for a customer facing too many a la carte options. We have reorganized the sales team accordingly to break down product-based silos, eliminate duplication and make the sales process simpler for dealers. Combined with our ongoing localization efforts, we feel front-footed in our ability to increase overall sales productivity.

For our current customers, we are fully focused on enhanced value delivery. Our leads and connections already influenced more than 30% of our customers' vehicle sales. We will keep pressing this advantage with a balanced approach to top and lower funnel activities that maximizes ROI on our platform. We are committed to operating a scaled platform, though metrics like traffic and UVs may move depending on quarterly marketing mix.

Most recently, Q1 traffic and UVs were pressured by a tough year-over-year comp from pull-forward tariff demand in the broader industry in 2025. Setting aside this onetime impact, our underlying direct traffic remains strong. Organic traffic was close to 60% of total mix in Q1, which is similar to our historical average, even with the advent of LLMs. Direct traffic conversion was also up meaningfully year-over-year and reflected a robust lead volume growth. Longer term, we have confidence that our strong brand improving user experience and listing inventory will fuel continued marketplace strength.

To recap, we delivered against revenue expectations and outperformed on adjusted EBITDA. We are changing the way we operate to drive stronger financial results and operating metrics. We are executing to transform into the leading trusted automotive marketplace, connecting consumers, dealers and OEMs. And in the process, we will create meaningful and sustainable shareholder value. Now Sonia will discuss our financial results and outlook. Sonia?

Thank you, Tobi. The first quarter was another positive step in improving our growth trajectory and profitability. Revenue was in line with expectations, while adjusted EBITDA beat our guidance range by over a full point. As Tobi stated, we are focused on our marketplace-centric strategy and are pleased with the performance of this core piece of our business. And as you read in our April announcement, we are focused on more product integration and innovation while working diligently to enable operational efficiencies. These cost benefits are beginning to manifest in our results, all revenue-driving measures will compound and support accelerated growth as we move through the year.

Now to discuss the quarter. First quarter revenue of $180.2 million was up 1% year-over-year, above the midpoint of our guidance range. Dealer revenue growth was driven by enhanced value delivery across websites and marketplace as well as dealer count growth, which was up 140 customers year-over-year based on core marketplace strength. We're encouraged by steady marketplace improvement given its criticality to our strategy and importance to our revenue, profitability and cash flow profile. ARPD of $2,473 was consistent on both a year-over-year and sequential basis. Over the medium to long term, we expect this metric to continue growing based on underlying value delivery and increased product adoption.

More immediately, we've made good progress in aligning marketplace and website packaging to our value proposition. For example, in marketplace, Premium Plus, our top-tier offering has grown to nearly 7% of subscribers, and we anticipate reaching 15% adoption across marketplace customers before year-end. For new and renewing website customers, subscription demand for our top website packages remain steady. Our work on core web vitals has improved site speed for many of our customers by nearly 30%. We have also released timely features like improved EV data, which is particularly important as dealers are now selling a growing supply of used EVs without the benefit of government incentives.

The dealer media performance continues to temper otherwise favorable ARPD drivers, the planned refresh of our media suite, including AI VIN videos should set us up for a better traction in the second half of the year. In addition to these product-specific refinements, our new marketplace-first approach requires our distinct product pillars to evolve into more integrated subscription offerings. With these integrated offerings, we are entering a new phase of our cross-selling strategy, which we expect will deliver a distinct lever for ARPD growth. We'll share more updates on our work here in the coming months.

Turning to dealer count. While our customer base was up year-over-year from marketplace net add, on a quarter-over-quarter basis, we experienced some pressure in solutions that resulted in overall dealer count decline. Recall, the website business has grown significantly over the last few years as we became a preferred OEM vendor and gained share. We're now in a different phase of growth that is more oriented around innovation and package value versus pure market share gains. And recent investments that we've made to improve technical performance on site speed, security and other metrics are garnering favorable customer feedback. Rounding out the solutions discussion, AccuTrade subscribers were down sequentially. As you heard Tobi mention, we expect AccuTrade sales to improve as it becomes more fully integrated with our marketplace.

The strength of dealer revenue and more specifically Marketplace is encouraging, and we expect this momentum to drive total revenue growth in 2026 and balance softness in OEM advertising. In the first quarter, OEM and national revenue was down $2 million year-over-year. There has been ongoing signals that OEM budgets are in flux. As an example, some manufacturers are opting to invest in vehicle incentives to offset the impact of tariffs rather than advertising in Q1. Based on proactive and positive conversations with our partners, we are cautiously optimistic that Q2 represents a trough for OEM media and that we will begin to grow on a sequential basis in the latter half of the year.

Moving to on cost. First quarter operating expenses were $163.6 million, down 5% year-over-year. The decrease was primarily due to lower depreciation and amortization expense, specifically, the amortization of customer list associated with our 2017 spin-off as well as more efficient marketing spend. Q1 adjusted operating expenses were $145.9 million, down 6% year-over-year from lower depreciation and amortization and strong cost controls across the organization.

For the following line item detail, all comparisons are on a year-over-year basis, unless otherwise noted. Product and technology expense increased $900,000 on a reported basis and decreased $300,000 on an adjusted basis. Higher severance costs and licensing and hardware expenses were the primary drivers of the reported increase. For adjusted expenses, lower compensation more than offset the aforementioned technology spend. Marketing and sales decreased roughly $700,000 on both a reported and adjusted basis, benefiting from a more efficient marketing mix.

General and administrative expense was up nearly $1 million on a reported basis and up $2 million on an adjusted basis. The reported increase was primarily due to severance compensation and third-party costs, which were partially offset by the elimination of the D2C earn-out expense accrual. On an adjusted basis, compensation and third-party costs combined to push total adjusted G&A higher for the quarter. Several of these were discrete items that while individually insignificant, aggregated into slightly elevated total expense. Over the medium to long term, we still expect to realize operating leverage in this line.

First quarter net income was $5 million or $0.08 per diluted share compared to a net loss of $2 million or $0.03 per diluted share a year ago. Net income was primarily driven by lower depreciation and amortization. Adjusted net income for the first quarter was $26.7 million or $0.45 per diluted share compared to $24 million or $0.37 per diluted share a year ago. Adjusted EBITDA of $51 million in the first quarter was up slightly year-over-year, while adjusted EBITDA margin of 28.3% was consistent year-over-year and more than 1 percentage point above our guidance range.

On to the cash flow statement and balance sheet. Net cash provided by operating activities totaled $39.8 million for the quarter compared to $29.5 million last year. Free cash flow was $33.5 million for the quarter, up from $23.7 million a year ago, primarily due to favorable working capital changes from compensation accruals and the 2024 federal tax refund.

In the first quarter, we bought back 2.5 million shares for $20 million, returning approximately 60% of in-period free cash flow to shareholders. Through April 30, 2026, we have bought back 3.8 million shares of common stock for $32.9 million, an efficient use of capital at current valuation levels that reduced shares outstanding by 5% since the beginning of the year. Driving shareholder value remains a priority and is reflected in our recent decision to increase our 2026 share repurchase target by 50% from $60 million to $90 million. Based on year-to-date activity, we are pacing solidly towards this target, and we'll continue to opportunistically leverage strong free cash flow conversion for capital returns and debt paydown.

Lastly, debt outstanding was $455 million as of March 31, 2026, for a total net leverage ratio of 1.8x. Total liquidity was $359.6 million as of March 31, 2026, providing the capacity and flexibility to meet our capital allocation priorities.

And now we'll conclude with outlook. Second quarter revenue growth is expected to be flat to up 2% year-over-year. Dealer revenue should continue to be a growth driver based on better value delivery and product upgrades and adoption. Based on year-to-date performance, we expect second quarter OEM and national revenue to face similar year-over-year pressures as Q1. The episodic nature of advertising and media investments is also driving our slightly wider than usual quarterly guidance range to account for possible timing variances in customer spending.

Second quarter adjusted EBITDA margin is expected to be between 28% and 29%. And our priority is to grow adjusted EBITDA dollars year-over-year at a faster rate than revenue. Embedded within our guidance range is also a partial quarter of savings from the cost reduction program that was initiated in April. We are also reaffirming 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. Thank you.

[Operator Instructions] Our first question comes from the line of Tom White from D. A. Davidson.

One on AI and then I have a follow-up. But Tobi, I was hoping maybe you could share your latest thoughts on how you feel about the prospect of consumers increasingly relying on horizontal LLM and increasingly maybe sort of personal agents to help them shop for cars. And what does that mean for Cars.com's ability to interface directly with consumers? And are there ways that you guys can maybe make your business more resilient or sort of better positioned for that sort of future maybe by making some of your data sort of more proprietary or protected or anything else?

Thanks for your questions. Yes, we do think that we are in a highly relevant space because car purchasing is very complex, and we have data accumulated over the past 20-plus years. As we talked over during this call, we make that data more discoverable, which we're in the midst of past. We've made some great progress there. And then we have a great brand, which is also something that we see increasingly become more important that the people start initially at a high level of searching, but then once they're getting down into deeper funnel metrics, they do rely on the branded context and the branded information that comes from Cars.com.

So big picture, automotive is obviously a complex industry, and it requires deep vertical expertise. A car is the second largest purchase for consumers. And obviously, the vast majority of consumers spend time researching in depth, actually, on average, 8 to 9 hours. And we have a great brand, and we are in the process of making it more discoverable and bring it up front to the size and the site experience. So that will be a major focus for our future product development. But let me just add, it also in the spirit of -- I talked about the interconnectivity. So that's why it's important to interconnect everything as opposed to driving in siloed subsidiaries. So that's actually what we're doing underneath the platform and across different data cycles. Thank you.

Great. Maybe just a quick follow-up on AccuTrade and was hoping maybe just get a bit more color on kind of what's happening there. I think you mentioned subscribers down sequentially. Is there maybe any seasonality happening there? Is the -- is what's happening with subscribers sort of a function of just the automotive backdrop more generally? Or is this sort of more of a product market fit thing that you guys sort of plan to work to maybe via bundling with kind of core marketplace? Just a little bit more color on what's happening at AccuTrade.

Sure thing. Yes, I want to be very transparent. We're in the midst of rearranging and refocusing towards a more interconnected experience and more interconnected product. And that means that we are deemphasizing the stand-alone solution as opposed to really bundling it up and making it as part of an integrated marketplace experience. So we have a pretty exciting product road map. We will hear more over the next couple of months and quarters. There's a lot in the making. And that's why you see temporarily, maybe the number is going down a little bit because we are deemphasizing again on just selling them on all solutions as opposed to making this an integrated part. So I wouldn't call this like a trend in the industry or anything. It's more the result of what we're doing internally. And I would say it's according to plan. Thanks.

Our next question is from Rajat Gupta from JPMorgan. Again, Rajat Gupta from JPMorgan.

Sorry, I was on mute. Could you clarify the MCP integration opportunity? How many agentic AI platforms have connected? What does that usage funnel look like in terms of used quality for dealers? I have a quick follow-up.

Right now, it's just one. And we're working towards other opportunities and channel integration, but not just with the ChatGPT. But again, we also mentioned the traffic is well below 1%.

Got it. And the -- it looks like OEM and national is coming in weaker than expected, both in 1Q, including the 2Q guidance that Sonia had mentioned. But it seems like you feel comfortable reiterating the margin guidance. Is it just the cost out that are offsetting some of the drop-through from the OEM national weakness? I'm curious, any other color you could give? And also an update on the OEM and national for guidance. I think the previous outlook was flat year-over-year.

So I think in terms of the margin guidance, certainly, some of the actions that we took in April were helpful. And in addition to that, we continue to be focused on driving efficiencies in the business. I think you heard Tobi talk a little bit about the shifts that we're making in terms of marketing and focusing on lead generation versus solely kind of these top of funnel metrics. At the end of the day, that's what dealers really value from us. And so those are some of the levers we have at our disposal to deliver on margins in addition to, over time, the interconnected nature of the platform will naturally lend itself to more efficiencies. And marketplace in and of itself is also a fairly high margin business.

Our next question is from Marvin Fong from BTIG.

I guess I'd like to start just to dive a little deeper into the solutions business. I think you did describe entering a new phase of growth there. And just any commentary on should we expect the count of use customers to continue to decline for a fewer quarters here? I think last call, we talked about how some dealers are striking out on their own, developing their own kind of solution. In fact, that dynamic go up for year just some additional coming through would be great.

Yes, I do think we are entering a slightly different phase of growth. You've talked about it a little bit over the last several quarters, which is initially on websites, in particular, as we got onto OEM programs, we have the opportunity for rapid market share gains and the business is really switching to a mode where it's not just a unit count growth. It is, in fact, even more important to think about the packages that we're putting forward to dealers and how we integrate some of what we're doing from an innovation perspective an improvement and enhancement perspective into these packages. So it becomes a little bit more basically of an ARPD game.

I think we certainly would like to see that unit count numbers stay stable over a longer period of time with maybe some modest upward improvement. So we feel pretty good about -- some of what we're -- some of the steps we've taken over the last several quarters, improvements we're making in site speed, enhancements that we think we're somewhat uniquely bringing to market on the security side of things to improve the technical performance of websites, not to mention being able to integrate some of what we've done for marketplace with solutions. So a good example of that are how we can leverage Carson, the marketplace AI assistant to enable experiences on DI websites in a more intuitive way. How we can take AI videos, which we launched as part of our IMV product and bring that also over to the dealer website experience. So I think things don't always move as linearly as you would like them to, but we believe that we're making the right steps or taking the right steps to continue to grow websites.

Got it. And then my follow-up question, just on the repackaging, I just wanted to more fully understand like how that's going to roll out. The last time we repackage major repackaging that was on dealer churn granted, I believe that they also have an embedded price increase. But just how you're thinking about or how we should think about your deal counts as you roll out the new set of packages? Do you expect that there will be a period of some choppiness? Or you think you can just start growing the dealer base right out of the gate as you package?

Yes. I think in terms of what we saw in dealer count this quarter, the decline that we saw was largely related to solutions. And as I sort of alluded to, we do believe we have a pretty robust plan on how to tackle that. The goal is to grow dealer count. It is critical to how we think about continuing to grow our marketplace business, growing dealer count is one of those things that brings more inventory to us. It's one of the things that, that brings more consumers to us. And so it's naturally just important to how we think about marketplace flywheel dynamics.

I think critical to our ability to grow dealer count is how we go to market with more interconnected solutions. There's a lot on the product road map that we're excited about. Tobi alluded to it earlier, which is the integration of Accutrade and marketplace, is something that puts really powerful data tools in the hands of dealers and allows them to manage one of their biggest assets more effectively, which is inventory.

Maybe let me just add what Sonia mentioned. Historically, this has been not the tender of rail for the company. So by just looking at the market and in terms of what the different segments are in the customer penetration we have in dealership penetrations in those segments. We just feel there's a lot of room for us to grow. But we need to treat the product. We need to have the right product fit to really cater towards the needs of the dealers. And it's not just a different product type. It's more like -- there's 6 to 8 different product types going forward. So that's what we're working behind the scenes.

So to sum it all up, we do believe there is significant headroom for us to grow. At the same time, we do not want to create the impression that all of a sudden, overnight, the number of dealers will jump through the roof. This is a concentrated effort that will take a couple of quarters by it's going to be product less than products first and data first and AI first, and that's what we're working on.

Next question is from Gary Prestopino from Barrington Research.

Two questions. One dealing with the cost savings, Sonia. You're saying you annualized the $25 million to $30 million for 2027. Is that an absolute number that we should expect to capture as we model, and where are those costs coming out of? Is it SG&A cost of goods sold? Can you help us out there?

So I think that is -- the $25 million to $30 million is kind of the discrete value on an annualized basis of the changes that we announced in April. It doesn't necessarily mean a $25 million to $30 million year-over-year step down, if that's kind of your question. But what it to enable us to do is be more thoughtful about reallocation in the business as we work to build out more of the interconnected nature, the market -- the interconnections to marketplace.

In terms of where the costs are coming out of they are distributed across the lines of our P&L. We took a hard look across the business, whether it's operations, product and technology, marketing and sales, G&A, those were all important areas for us to look at how can we simplify our go-to-market process. how can we foster from a product impact perspective, more of the connectivity tools have obviously improved also really materially over the last couple of years that allows us to work more efficiently. And then reducing layers in the organization is also really important as a way to see decision-making. So those are some of the changes that we made.

Okay. That's helpful. And then just a question, Tobi, on -- as you're going out to market with an integrated sales product offering, you're going to bundle it, right? I would assume that will drive an increase in average revenue per dealer just from bundling. But at the same time, does that preclude a salesperson from going into a dealership and also selling a single point solution? I guess, are they still going to have the autonomy to sell a single point solution or you have to bundle in order to get the full ball of wax from Cars.com?

It's a great question. It's the trade-off, but by and large, we would say point solutions will be deemphasized and not because they're not important, but just because you need to understand the holistic nature of a dealership infrastructure. And there's many systems that are in process at replacing one by one is a much harder to sell and it's much less convenient for dealers than coming in with the core, which is -- we are a marketplace partner. It's very easy to interact with us. It's very simple to get activities going, i.e., listings. It's very easy then to just activate or deactivate certain features that come as an embedded function with that marketplace integration.

So that's the way how we're thinking about it. We want to make it as easy as possible for the dealers to use different features depending on what their needs are as opposed to on go to use this one solution only, and we are competing with 2 or 3 other legacy systems that are in place. So that's our high-level strategy. So in a nutshell, is it allowed to still sell point solutions? Will we still sell point solutions? Yes. If it makes sense and if there's a very specific need by a dealer, but the broad stroke strategy will be we are leading with marketplace and will provide an interconnected experience.

Our next question is from Naved Khan from B. Riley Securities.

Just a couple of questions from me. One, maybe just on the website business. We saw a decline in dealer customers. And I think last time around Q4, I think you said maybe some -- maybe passing trend or just more noise than anything. But what -- is there a change in the competitive dynamics or there have thing else in on that's causing this sequential decline again in the website customer count. And what are the things you can do to kind of correct it? And then the second question I have is just around the organic traffic, around 60% where it has been historically. But as more and more traffic goes to AI overviews, AI mode and things like that. What are the things that you can do on your end to stay in that organic result mix that the technology -- the top of the final providers are kind of unleashing for everyone?

Thanks, Naved. I'll start with the website question. So I do still think some of this is a little bit of noise. We are entering and we've talked about it for the last couple of quarters, a slightly different phase of growth for website, we initially grew through pretty significant market share gains as we got onto OEM programs and have the ability to bring in a significant number of dealers at a time. That dynamic has shifted a little bit since we're basically on program with everybody.

The dealer acquisition side is coming in smaller it's still there in terms of a very active launch pipeline. But what we're focused on more is not necessarily unit growth. It is how do we think about the packages that we're putting forward to market. How do we think about more interconnectivity between marketplace and websites, specifically leveraging innovation happening in the marketplace side of our business and putting it on to dealer websites to make those tools available. Carson is a good example, Carson conversational search for dealer websites, bringing AI videos to dealer websites, not having it solely be a marketplace product.

Those are some of the things that we're excited about, and there is a real opportunity for us to continue to push website customers into higher tier packages since 50% of them are still in the base package. So we feel good about this business. We have a solid foundation. Sometimes they're going to be click when it comes to the trade-off of volume and ARPD, but there's -- but I think it's largely in the noise at this point.

Yes. Regarding your second question about the traffic. Let's just put things in context. We love the discoverability with LLMs, but the traffic is well below 1%. And we do know what people are searching for and we do know that it's a really great tool and a really great entry point for very high-level searches. But again, we got the advantage. We are in a highly complex industry where it really matters on the purchasing intent and decision journey to go deep into the specificity of a particular vehicle. And that's where our strength comes into play.

So you will see us being focused more on leads and the right leads and investments and reallocation towards generating those leads in the future than pure traffic. So I guess the punchline is whereas in the past, we were chasing traffic and visitors only as a key metric. We will now focus more on the right leads because if we think this through as part of an interconnected marketplace experience, it means that they need to get the lead allocation and lead generation right because smaller dealers have completely different needs per specific led than larger dealerships, which are driven by the value they proposed and the vehicles they can. So that's to summarize our opportunity also in context of AI.

Our next question is from Joe Spak from UBS.

Sonia, I just want to go back to some of the OpEx comments and maybe get a better understanding for the trends? Because I know you mentioned OpEx was down a lot year-over-year, but really, it was D&A, right, which I think was sort of a result of some of the actions in the fourth quarter. So that's sort of the lower trend. And you still had like G&A up year-over-year. So maybe back to the earlier questions, like how should we expect maybe some of the individual line items between product, marketing, G&A sort of really trend here over the balance of the year?

So you're right to point out that a lot of what we saw on a year-over-year basis in operating cost was really tied to D&A. And I think there are 2 pieces there. One is just some customer list that were part of the spin. We fully amortize those. So that's kind of like a permanent step down and then there's some of the reduction is also due to accounting for our office leases. You won't see the benefit of the April actions in our Q1 numbers. So that's going to start trickling through and flowing through our numbers in Q2. The majority of the actions took place in April. Some of them are in May. So even in Q2, you don't see necessarily the full the full benefit of what we're doing, but it is reflected in the guidance numbers that we've put out, both for Q2 and on a full year basis.

With regards to G&A, I do recognize it looks a little bit maybe wonky the G&A trend for Q1. But at the end of the day, we're talking about like pretty small, pretty small delta on a year-over-year basis. Most of this was tied to some like, again, a couple of different discrete items, third-party costs, things like that, that had a blip. We would ultimately on a longer-term basis, expect to get leverage out of the G&A line. And transparently, we would expect to get leverage across our P&L. So that's the goal in terms of driving expanded margins in the business.

Okay. Second question is, I was going through the NADA annual book that they put out every year over the weekend. And it mentioned that dealer advertising in 2025 is up like high single digits and then they sort of break down where that's spent and third-party listings that is 20%, so one of the larger buckets, but it was actually down 1 point versus '24, so overall drove third-party less share down a little bit. And I'm not exactly sure, to be honest, how they're bucketing it and whether how I should sort of compare that to your business, whether it's sort of that display advertising and other line that is sort of most relevant. But like -- if it is, like you grew pretty nicely within that sub revenue line in, I guess, what was implying there's sort of, I guess, decent share.

So I don't know if you could sort of just help me put into context, like how you think you're performing within some of those high-level dealership spending metrics. And which line really should we be looking at?

This is Tobi. Thanks for your question. Maybe just some more generic response to your question. We think we should do better, and we think the market is attractive, we don't see any major headwinds from a dealership perspective for massive changes in behavior. But we do see the opportunity for cars to grow by having a better product fit and tailoring it towards the needs of the dealers, again, going back to selling 5 different point solutions as opposed to, hey, here's what we can do. And by the way, here's how we are combining those assets. Imagine the dealer website and inventory that's listed on that and the subscription that we have on marketplaces. And imagine that there was some sort of a connection, which, by the way, in the past, we didn't have. Those were siloed solutions.

So from a dealer's perspective, you look at it from a budget and you're like, okay, I got a dealer website that cost me I got listings there. I got my own listings. We got listings on third parties, and I look at the entire bucket of expenses. And you're like, "Okay, great. Now I have a partner who can actually drive efficiency and bring synergies to the table." So that's why we think we have headroom. So we actually don't think that there's a major change for in our hands to make this work and grow.

Our next question is from Doug Arthur from Huber Research.

Sonia, you might have covered this. I was sort of we're throwing out a lot of numbers. Did website management grow in the quarter? And I realize in the integrated strategy you've got and might not be as relevant in a number, but did that -- was that up quarter-over-quarter, the number of [ guest ops ]?

I think when you -- if you're asking about website units, we did see some volatility in that number. So they were down a little bit on a year-over-year and quarter-over-quarter basis.

There are no questions at this time. This concludes today's conference call. Thank you for your participation. You may now disconnect.

Good morning, ladies and gentlemen, and welcome to the Cars' Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded on Thursday, February 26, 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. It's my pleasure to welcome you to the Cars.com Inc. Fourth Quarter and Full Year 2025 Conference Call. With me this morning are Tobi Hartmann, CEO; and Sonia Jain, CFO, who will share business highlights and our financial results and outlook. We'll finish the call with Q&A.

Before I turn the call over to Tobi, 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'll be discussing certain non-GAAP financial measures today, including adjusted EBITDA, adjusted EBITDA margin, adjusted operating expenses, adjusted net income, and free cash flow. Reconciliations of these non-GAAP financial 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 Tobi.

Thank you, Katherine. It's a pleasure to welcome everyone to my first earnings call with Cars.com. I would like to start by acknowledging Alex's leadership and dedication to Cars for over 2 decades. He guided the company from its print classifieds origins to a multifaceted technology platform with capabilities, including websites and trade and appraisal features.

Now we are starting the next chapter with a portfolio of B2B products that supports and enhances our marketplace flywheel. As some of you may know, I have dedicated more than 20 years to building, enhancing, and growing online classifieds, marketplaces, and digital businesses in the EU and the U.S. Most recently, I was CEO of Scout24, a leading player in European real estate classifieds. The company increased its market capitalization significantly to approximately $8.5 billion and delivered 195% TSR during my 6-year tenure. Through Scout24's large automotive vertical, I also gained a valuable lens into consumer car shopping behavior, dealership operations, and the OEM landscape. This will complement our strategic planning for Cars.

No matter the vertical, I strongly believe the fundamental drivers of sustainable success as a marketplace company are the same. These principles are as follows: One, attracting and harnessing relevant inventory. Two, leveraging our strong brands to build a trusted environment that drives scale and engagement for all stakeholders. Three, interconnecting products and solutions to deliver the best user experience and ROI. And lastly, infusing all aspects of the business with unique and proprietary data insights. Without these core fundamentals, the flywheel cannot accelerate.

Over many years, Cars has maintained strong marketplace fundamentals and build advantages in the brand and the data aspects of this flywheel. The Cars.com brand remains synonymous with online automotive marketing and retail. We also own data and have developed powerful capabilities that help customers improve efficiency and sales outcomes. These assets contribute to our differentiation and competitive mode, and this is why I was attracted to this company. But there is an imperative to strengthen important and critical marketplace elements. We will achieve this by focusing on product, processes and cost, and organizational improvements.

For product, delivering sustainable future growth requires us to prioritize integration of the marketplace instead of trying to scale distinct product verticals. A well-oiled marketplace flywheel is, therefore, the growth engine for the platform and all products. With focused execution, we can create meaningful value while becoming the most trusted marketplace connecting consumers, dealers, and OEMs. I want to be clear that we will achieve our future growth in a responsible manner through process and cost optimization even as we deliver product advancements. As a tech-driven product company, we believe that favorable economics will naturally follow as we consistently increase the value we provide to all stakeholders.

I'm now 6 weeks into this journey and working at full speed with the team to formulate the future initiatives and plans. Organic growth has been challenging in the past. We have good assets, but scaling them will require better integration, simplified processes, and efficient cost and organizational structure. However, our direction is clear, and the team is already executing on a number of opportunities to position Cars as an even more relevant marketplace player.

Before I discuss those details, let me turn to Sonia to cover fourth quarter performance and 2026 outlook. Sonia?

Thank you, Tobi. It's been great collaborating with you over the past several weeks, and I'm excited about the fresh perspective you're bringing to the business. I will now recap 2025 and provide guidance before turning it back to Tobi to expand on our 2026 priorities.

Let's start with full year performance. In 2025, we managed through early challenges to deliver low single-digit revenue growth in the second half while also maintaining profitability and returning capital to shareholders. Improving dealer revenue trends in the second half produced total annual revenue of $723 million, up 1% year-over-year and in line with our expectations. As you may recall, our path to returning to top line growth relied on volume and pricing levers, which both improved throughout the year.

We expanded our customer base to close Q4 with 19,544 dealer customers, adding 338 dealers year-over-year. And while ARPD was flat year-over-year, favorable pricing and repackaging for both websites and marketplace helped drive sequential improvement in ARPD in Q3 and Q4. Profitability and cash generation remained steady. Full year adjusted EBITDA margin of 29.2% was within our range of expectations. Adjusted EBITDA dollars grew 1% year-over-year, keeping pace with revenue growth. We delivered another year of strong adjusted EBITDA to free cash flow conversion of roughly 60%, which translated to free cash flow of $126 million for the year.

Our capital allocation plan tilted towards share buybacks in 2025, and we repurchased $86 million of shares, up 75% year-over-year and at the high end of our targeted $70 million to $90 million range. In total, we retired roughly 9% of the outstanding share count in 2025. Overall, dealer revenue health has improved throughout the year. So let's unpack Q4 and the green shoots that we're seeing in key parts of the business.

Fourth quarter revenue of $183.9 million was up 2% year-over-year and achieved our guidance. Dealer revenue was up 3% year-over-year, a further improvement over the Q3 growth rate. As I previously mentioned, both dealer count and repackaging were positive revenue contributors in Q4. On a year-over-year basis, dealer count was up 338 customers with marketplace accounting for over 80% of unit growth.

On a quarter-over-quarter basis, strong underlying marketplace performance was partially offset by elevated website cancels, which muted total customer growth to 18 units. Given our focus on accelerating the marketplace flywheel, it is important to note that we reversed historical seasonality in Q4 and added over 100 marketplace dealers on a sequential basis for the third straight quarter. As you heard from Tobi earlier, marketplace traction is critical given its outsized impact to revenue, margin, and free cash flow, and our priority is to build on these positive trends in 2026.

Turning to our other dealer KPIs. Fourth quarter ARPD of $2,472, was up slightly quarter-over-quarter and flat year-over-year. For Marketplace, new premium and Premium Plus tiers were rolled out midyear to align pricing and product value. We more than doubled the number of Premium Plus subscribers from Q3 to Q4, a promising sign of customer appetite for our media offerings. Website repackaging has also been a success with some benefits continuing to quarterize through 2026.

However, as we saw during the year, small customer and product mix shifts can result in short-term ARPD variance. In particular, softer uptake of dealer media products has somewhat offset solid monetization improvements for the rest of our product suite. Overall, these are small variations in dollar terms, and we expect to return ARPD to more robust growth through continued cross-selling, upgrades, and other pricing and packaging levers.

Let's wrap up the dealer revenue discussion with quick updates across our interconnected product suite. Starting with our core marketplace, we attracted total traffic of 627 million visits from nearly 26 million average monthly unique visitors in 2025. Organic traffic remained stable at nearly 60% of total visits. We also continue to be the #1 most cited public automotive marketplace across some of the largest AI services such as Google AI overviews and ChatGPT.

Our newest marketplace feature is designed to surface the most relevant vehicle listings for each shopper and speed the marketplace flywheel have performed well since launch. Carson, our AI-powered search assistant, has further improved consumer engagement, now prompting 4x more safe vehicles and 3x more vehicle listing views from its users.

For dealers, our market area expansion product helps them extend the searchability of their inventory to nonlocal markets and ship cars to interested buyers. Consumers are also benefiting from increased access to inventory, and our survey data shows that 80% of recent car buyers are willing to purchase the right vehicle even if it's outside of their market. As we continue to scale our marketplace, including listings inventory, we will also keep developing additional products and features that reduce complexity and enhance the user experience in each part of the flywheel.

While taking a slight step back in terms of customer growth in Q4, website solutions still added approximately 130 total subscribers in 2025. And lastly, our AccuTrade subscriber base grew to roughly 1,180 customers in Q4. The average number of vehicles appraised per customer was up another 15% quarter-over-quarter, a record sequential increase that speaks to the product's growing efficacy and value.

We also recently launched AccuTrade IMS, the only full life cycle inventory management system that will be fully integrated with the Cars.com marketplace and DI websites. Our IMS sets itself apart by powering profitability on every vehicle, combining optimized VIN-specific pricing with retail or wholesale exit strategy recommendations. Early feedback has been positive, and we are well positioned to tap into the growing demand for AI and data-driven dealership tools.

We're pleased that dealer revenue and products, which represent roughly 90% of our total revenue mix, continued to move on a positive trajectory in Q4. This strength helped us manage through softer-than-expected OEM and national revenue, which was down roughly $1.5 million year-over-year. Our original OEM outlook was for year-over-year growth in Q4, but the weak October performance we pointed to on our last earnings call opened up a wide gap that weighed on the total quarter. In contrast, November and December rebounded to be basically flat compared to those same months in 2024.

Q4 is a prime example of the episodic nature of OEM media investments and why we are more focused on driving growth in stickier reoccurring dealer products. Looking ahead, early signals to start the year, such as the notable absence of most automakers from Super Bowl ads continues to point to evolving marketing and advertising strategies by OEMs. We'll closely monitor those signals to manage potential volatility while remaining anchored to our plans for dealer-driven growth for 2026.

Now to discuss costs. Fourth quarter operating expenses were $162.2 million, up 1% year-over-year. The increase was largely driven by marketing investments and severance and stock-based compensation expense that were partially offset by lower depreciation and amortization expense. Q4 adjusted operating expenses were $145.5 million, down 3% year-over-year from lower depreciation and amortization expense that more than offset the aforementioned marketing investment. On a full year basis, operating expenses were $663 million, nearly $3 million lower year-over-year. The bulk of the decline was due to certain assets being fully depreciated and amortized in the current year as compared to the previous period.

In terms of offsets, new DealerClub expenses were worth roughly a point of margin, in line with our initial assumptions when we acquired the company in January 2025. Full year adjusted operating expenses were $604 million, down 2% year-over-year, with largely the same puts and takes as mentioned above, supplemented by efficiencies from targeted headcount reduction in Q1 of last year. We ended the year with approximately 1,700 employees compared to 1,800 employees a year ago.

For the following line item detail, all comparisons are on a year-over-year basis, unless otherwise noted. Product and technology expense decreased $1.3 million on a reported basis and was roughly flat on an adjusted basis in the fourth quarter. For the full year, product and technology spend was roughly flat on a reported basis and increased $1.6 million on an adjusted basis. Lower overall compensation was driven by less stock-based compensation, which had a slightly unfavorable mix effect on adjusted expenses.

Marketing and sales increased roughly $5 million on both a reported and adjusted basis for the fourth quarter, largely reflecting a modest increase in marketing investments. For the full year, marketing and sales expenditures were up $7.1 million on a reported basis and up $3.7 million on an adjusted basis. Higher compensation and severance-related expense followed by marketing were the drivers of increased reported costs. Similar drivers account for the full year increase on an adjusted basis.

General and administrative expense was up $6.2 million year-over-year on a reported basis, but decreased $600,000 on an adjusted basis in the fourth quarter. The reported increase was primarily due to stock-based compensation and severance costs that were partially offset by savings from the lease amendment completed in Q4 2024. For the full year, general and administrative expenses were up $7.1 million on a reported basis and down $1.1 million on an adjusted basis. We made strong efficiency gains that will have long-term benefits for our cost structure, though these improvements were masked on the P&L by certain onetime expenses.

Fourth quarter net income was $7.4 million or $0.12 per diluted share compared to net income of $17.3 million or $0.26 per diluted share a year ago. Full year net income of $20.1 million or $0.32 per diluted share compared to net income of $48.2 million or $0.72 per diluted share a year ago. The difference in fourth quarter net income was due to the prior year gain on the sale of an equity investment, while the difference in full year net income also included changes in the fair value of contingent consideration for prior acquisitions recorded in 2024.

Adjusted net income for the fourth quarter was $27.4 million or $0.44 per diluted share compared to $32.5 million or $0.49 per diluted share a year ago. For the year, adjusted net income was $108.1 million or $1.71 per diluted share compared to $114.9 million or $1.71 per diluted share a year ago. Adjusted EBITDA of $55 million in the fourth quarter was flat year-over-year and adjusted EBITDA margin of 29.9% was 90 basis points lower year-over-year due to the marketing investments mentioned above. For the full year, we delivered adjusted EBITDA of $211.1 million and adjusted EBITDA margin of 29.2%. Our adjusted EBITDA margin was essentially unchanged year-over-year and in line with revenue growth.

Moving to the cash flow statement and the balance sheet. Net cash provided by operating activities totaled $151.6 million for the year compared to $152.5 million last year. Free cash flow was $125.7 million for the year, down modestly year-over-year from slightly elevated CapEx. In 2025, we bought back 7.1 million shares for $86 million, returning more than 2/3 of free cash flow to shareholders as we delivered at the high end of our targeted repurchase range of $70 million to $90 million. We also utilized free cash flow to pay down net $5 million of our revolver.

Debt outstanding was $455 million as of December 31, 2025, for a total net leverage ratio of 1.9x. Total liquidity was $351.2 million as of December 31, 2025, offering us flexibility and ample capacity to fulfill capital allocation priorities. As we consider our capital allocation framework, our goal continues to be driving shareholder returns and long-term TSR while operating from a position of financial strength. Our strong free cash flow conversion gives us the opportunity to not only continue to return capital to shareholders, but also pay down debt. With value creation as our foremost consideration, we are focused on beginning to pay down our revolver while also remaining committed to return capital to shareholders through robust share buybacks. In aggregate, we expect to buy back at a minimum $60 million of shares for the year with an opportunistic approach to increasing repurchases with excess free cash flow, much as we did last year.

Finally, we'll conclude with full year and Q1 2026 outlook. For the full year, we expect revenue to be flat to up 2% year-over-year. Importantly, we expect dealer revenue to continue growing year-over-year as it has for the last 2 quarters based on marketplace and website repackaging, customer base growth, and further product adoption. OEM and national revenue, which is 9% of our business, experienced some year-end pressure as automakers made fewer investments into our advertising and media solutions. We have seen similar trends persist in Q1 and therefore, believe it's prudent to moderate expectations for this portion of our business until we see improving signals from our partners.

Based on those near-term trends, where a favorable Q4 exit rate for subscription-based marketplace and website products is being balanced by pressure in OEM advertising, first quarter revenue is expected to be flat to up 1% year-over-year. Full year 2026 adjusted EBITDA margin is expected to be between 29% to 30%, and we expect to grow absolute adjusted EBITDA dollars year-over-year. Note that DealerClub is expected to generate EBITDA losses in 2026 with the impact more pronounced in Q1 given the timing of the acquisition. And as a result, first quarter adjusted EBITDA margin is expected to be between 26% and 27% due to a lower mix of margin-accretive OEM and national revenue as well as slightly elevated technology and compensation expenses.

Now let me turn the call back to Tobi to share his preliminary thoughts on 2026.

Thank you, Sonia. Let me put my earlier thoughts in perspective and in context of the details Sonia just provided. I shared with you that the team and the company needs to work on 3 dimensions: Product, processes and costs, and organizational structure. These will take time to implement and are necessary preconditions to scale. Over the medium to long-term, our goal is to increase the Cars.com growth rate beyond a low single-digit rate, but this requires some difficult decisions and focused work. We know investors have higher expectations than our recent performance, and we are committed to delivering against these expectations.

To accelerate growth and reverse this trend, we will begin by strategically addressing the marketplace flywheel and dialing up the team's execution. Making marketplace the priority will drive numerous benefits such as simplifying the go-to-market motion, delivering more inventory to our consumer audience and providing unique data to inform dealer success. So here's the plan. We will accelerate the company in our marketplace by focusing on operating at scale with healthy cost structures whilst pushing for interconnected product and customer experiences for consumers and dealers.

First, we will put the existing assets to work from a rather isolated and disconnected offering to an interconnected marketplace offering. We do have solid assets, but they currently lack sufficient integration to deliver a full end-to-end value proposition. Our new products are being designed with integration expressly in mind. Those of you who saw our NADA demos got a first look at how our new AccuTrade IMS integrates with the marketplace to create efficiency gains and a unique user experience. What this means is subscribers making a price or inventory change in AccuTrade IMS will see those changes instantly populate across the Cars.com product suite. Why is this important? We will have the only solution in the market that enables these types of changes in real time, giving dealers meaningful operational velocity.

Our product development approach will create even more data and feature linkage as a marketplace ecosystem. We believe this will unlock cross-selling and therefore, ARPD expansion. For example, our new AI-powered VIN videos can turn marketplace vehicle listings into eye-catching video assets in minutes. And early results show a 2x lift in website lead conversion for those AI videos versus other media tactics. We are removing barriers for marketplace dealers to run video campaigns at scale, meaning time and resources savings as they adopt multiple Cars products. We already bundled other interconnected media products into the marketplace packaging last year and saw encouraging customer uptake. Expect further evolution over time in tandem with growing value delivery.

Second, we will accelerate developing the right features as a trusted platform for all stakeholders of the marketplace. We have a clear objective to provide the best possible guidance for all stakeholders to empower car transactions in a trusted environment. As one example, we plan to roll out advanced shopper alerts for Premium Plus subscribers in Q2. Directly integrating shopper engagement marketplace data into the dealer CRM helps dealers easily find clear signals to close sales. This helps dealers build confidence in our marketplace as a critical and trusted partner. Nearly 2/3 of marketplace dealers are using the current version of shopper alerts, another step-up from roughly 50% penetration in Q3. We believe that the upcoming CRM integration will drive further customer interest in up-leveling to Premium Plus and lead to ARPD growth over time.

Third, we are very clear about our role, positioning, and priorities as we execute our plans. As a reminder, our guidance calls for adjusted EBITDA margin in the high 20% range, which is consistent with prior year performance. Baked into our guidance is an intentional reallocation of existing resources towards marketplace. We are already utilizing internal AI tools that can also help teams bridge some of this transition. We are also closely scrutinizing our cost structure with a goal to improve efficiencies in 2026. Our cost containment, operating leverage, and highly cash-generative model should yield another year of strong free cash flow.

As Sonia mentioned, we will continue to buy back shares whilst also paying down debt as we pursue a balanced capital structure. We have started the work already, and I'm excited to share more details as we accelerate our pace. Finally, let me make this clear. Our job is to drive long-term shareholder value, and the team is ready to be focused on that.

Let me now open the call to Q&A.

[Operator Instructions] The first question comes from Tom White with D.A. Davidson.

Welcome aboard, Tobi. I guess first one, just on the plan to kind of refocus your priority on marketplace, I think you talked about kind of getting the flywheel going, and I heard some discussions about product. Curious how marketing investments and audience growth might play into that this year and how you're thinking about that? And then I've got a follow-up on AI.

Hello. Thank you for your question. Nice to meet you over the phone. Yes, we're refocusing on marketplace fundamentals, which is literally what we just talked about, which is focused on getting the right inventory and driving engagement. And that means that it's not a lack of marketing that we are currently doing. It's just a lack of focus. We will just refocus on really being centered around the marketplace fundamentals as opposed to driving other isolated solutions. So the current plan foresees that we're not going to dial back on marketing investments, but it's going to be more focused and centered around the marketplace flywheel.

Okay. Great. And then just on AI, a lot of marketplace companies are getting this question from investors. It poses opportunities and risks and the investors seem more focused on kind of the risks as it relates to disintermediation and the companies sort of touting the opportunities if they can kind of incorporate AI into their businesses. Just curious how you envision AI and Agentic AI kind of evolving in this space in kind of automotive? Thanks.

Sure. Thank you. So just starting with the big picture, we probably agree that automotive is a pretty complex industry that requires deep vertical expertise. Also from a shoppers' perspective or consumers' perspective, the car is really the second largest purchase for consumers, and that means that the vast majority of consumers spend a lot of time researching in depth. Now the researching in depth is exactly where we play a competitive role because we have data and we've accumulated the data over the past 25 years. We have it at a local level. We have it at a customer level. We have it at a VIN level. And there's an opportunity to really accompany that research for consumers and then drive through attribution models, a very unique value prop that we believe is very hard to replicate in being disintermediate.

Now will AI play a significant role in our vertical? Absolutely. Now are there a couple of things to think through how it all evolves? As I guess, nobody on the call really knows what will happen next. Absolutely. But we feel confident about our opportunity because we also have something that's key for any LLM and any future AI, which is the brand. And LLMs will always have to revert back to the brand, especially for those consumer verticals that are so deeply engraved in the capital household spend. So more to come on that.

The next question comes from Naved Khan with B. Riley Securities.

Two questions from me. Maybe just on the new product launched recently at NADA. You showcased the AccuTrade IMS and the market area expansion and video ads. I'm wondering what is contemplated in your annual guide in terms of contribution from these new products? And Tobi, when you talked about accelerating the growth for the company up from the low single digits to some higher pace. What kind of time frame do you have in mind? Do you expect that to show up in 2027? Or are we thinking about 2 to 3 years from now? Just give us your thoughts there.

The second question I had is just around the website customer count. I think it saw a decline quarter-on-quarter in Q4. Is there any seasonality there? Or were there any changes that kind of led to this decline? Just any clarification there would be helpful.

Maybe -- thanks for the questions, Naved. Maybe to start out with the NADA product launches. Both IMS market area expansion, our AI-based VIN videos. Those are incorporated into our guidance. They're obviously new products, right? So they're going to take some time to scale. I would also tell you that the sales cycle for each one of these is going to be slightly different. Market area expansion, AI-generated videos, those are relatively familiar into our product -- existing product suite, right, of media solutions and marketplace attached products. I would say the IMS sales cycle is going to be a little bit different because it is so core to kind of dealer operations. So you can expect a different sales cycle, but they're already captured in terms of our -- in terms of our full year guide for 2026.

I think you had a second question related to website customer count. I think I would say one of the things we're observing is that some of the dealer groups, and I think you've seen this periodically, they want to strike it out on their own with some of their technology solutions. We find that in many cases that even though they have this ambition, building kind of the full service suite that includes things like information security, integration with third-parties, it's hard to do on your own. And so I don't think there's like any specific seasonality or any broader sort of long-term concern or trajectory. We would expect many of these dealers to come back to us over a period of time as they kind of test and find the value in the products that we have and can bring to bear.

The next question comes from Rajat Gupta with JPMorgan.

Just wanted to clarify as a follow-up to Naved's question around the website. I mean, is there like a different phenomenon potentially this time where the dealers might be opting to maybe test out some of these Agentic AI tools to build out these websites? I'm curious if that is something that you're seeing? Or if this is just like how you described it, where they're just trying to attempt it through other areas to build out these website and services? I'm curious if that is a risk that you see to the business? And how would you navigate that? I have a quick follow-up.

Hello. Thanks for your question. I'll take this. So if you think about the website business and a dealer taking on their own website, this has gotten a lot more complicated than a year ago or even 2 years ago. The number of changes that the OEMs are posing, the request that you're getting from a fraud and security standpoint, the fraudulent AI bots that are out there opposing a new threat. So we actually view this as an opportunity because, obviously, by consolidating and operating this from a sheer size and volume perspective, there's advantages. So yes, absolutely, we are embedding AI tools. We make those available to those dealers.

And again, the punchline here is this business is getting a lot more complex you want to solve for that on your own as opposed to having someone like ourselves providing an end-to-end solution. So yes, we are already integrating more and more AI features, and we are also getting some great feedback on some of the roadmaps that we have planned for the website business.

Understood. Thanks for that color. And then maybe if you could help us a little bit -- and thanks for all the candid assessment about the business and the areas you want to focus. But curious, with the pickup in product and technology expenses and also the sales and the marketing side, is there a timing or a timeline you can provide us on when you expect growth to start reaccelerating, not like in -- not from 1% to 2%, but maybe more in like the mid-single-digit type range or higher? Curious what kind of visibility do you have early on here? Thanks.

Yes, sure. So as I've mentioned, I'm now 6 weeks into the journey. And as you know, from the history of the company, the company has acquired a few other assets and companies. And I do expect that over the course of this year, which is, by the way, baked into our guidance that we just provided, we will make significant progress. But as you know, organizational improvements, system improvements, platform integration, data integration, process integration takes some time. So when we said we would like to deliver a higher growth rate going forward, we're not talking about 5 years out. We're talking about a short to medium-term outlook. But obviously, this year to date just focuses on 2026, and that's fully baked in what we just talked about and what Sonia shared in terms of guidance. But to be very concrete, it's obviously our ambition, and it's the expectation to drive further growth following 2026, and it's not 5 years out. It's rather 2 years out than 5 years. So that's probably the summary I can share.

The next question comes from Marvin Fong with BTIG.

Welcome, Tobi. First question, probably for you, Tobi, I just wanted to get a little deeper on what you're saying about prioritizing marketplace, more integration and things like that. So should we take that to mean -- how do the kind of ancillary products like AccuTrade, Dealer Club and Website Solutions? I mean, will those continue to sort of be standalone products in this new vision? Or do you envision sort of integrating those into like a unified subscription?

And then second question, just on the full year guidance, I mean, should we sort of think about the algorithm as being dealer revenue up 2 to 3 points and advertising on a consolidated level, detracting about 1 point of growth. Is that the right way to think about it? And just sort of like a little more explanation on what you're envisioning for the trajectory of OEM, will it be kind of flattish in absolute dollars throughout the year? Anything on that would be great.

Hello, Marvin, thank you. I'll start with the first question and I'll hand it then over to Sonia. So when we talk about a deeper marketplace integration, we really mean the fact how we're able on the other hand, like as a dealer to experience the solution. There is a difference. I hope you would agree whether you're selling 4 different solutions and you're basically showing up at a dealer's location and you say, look, I want you to use AccuTrade. I want you to use Dealer Club. I want you to do -- I want you to use marketplace. And by the way, there's also a great media play that we have that we would like you to use.

As opposed to imagine a world where, yes, you are unified as part of our subscription service and you have the opportunity to seamlessly use, let's say, AccuTrade because it becomes part of your listing service. So imagine a world where maybe there is a listings product, which is part of your membership or subscription service, be it the Premier Plus or Premier Plus Plus, where all of a sudden, with just one click, you can actually activate AccuTrade and it allows you to run whatever, 30 to 100 or 100 to 200 appraisals as an integrated part of your subscription service per month. That is a different value prop and it's easier and more convenient to consume as opposed to having 3 to 4 different applications where you need to train everyone and where you need to make sure that you have a separate subscription plan.

So yes, what we mean by that is a deeper integration when it comes to delivering the value prop from a dealer's perspective. What we also mean a deeper integration from a point of view, which is it's tied back to the marketplace experience, which means there's a lot of attribution modeling that we can do. There's a lot of data enhancement that we can do, which we will target towards individual dealerships and membership products, where I think based on the assessment, what I've seen, we can improve and we can do better. So it doesn't mean that we are not selling standalone, but it means that we are prioritizing the bundling and the integration over a standalone solution, if that make sense.

And on the second question, I will hand it over to Sonia.

Thank you. Marvin, regarding the full year guide, I think general -- I would say, directionally kind of correct, maybe a little bit of nuance in that I would probably say OEM is expected to be flat to down on a full year basis. And like very specifically for Q1, we do expect coming out of Q4, and you can kind of see what those Q4 numbers look like. We're expecting a similar sort of trajectory heading into Q1, and we will hope like over the course of time during the year, we can close some of that gap. But ultimately, we're expecting it to be flat to down.

The next question comes from Joe Spak with UBS.

I just wanted to dive in a little bit more to OpEx and costs. I mean you talked about slightly elevated technology. I think that make sense in the context of the plan you laid out. And it sounded like within marketing, maybe it was a little bit more of a reallocation of dollars. But I guess I'm wondering how we should think about the OpEx trend over your turnaround plan period because marketing used to be significantly higher as a percent of sales, I think 33%, 35%. Now it's been sub-32% for a couple of years. So as the reintegration occurs, as some of the products develop, do we eventually need to see a real acceleration there to help drive that growth? And then maybe just a little bit more on where you're looking to find actual cost savings, not just the reallocation of cost dollars?

Yes, sure. A couple of things. As we had shared during the call and as you probably know, there's still some work to do to integrate these assets. What this means that the fact that we're running these assets not being fully integrated produces costs that shows up as part of a duplication of certain functions, duplication of efforts, whether you look at processes, whether you look at personnel costs, whether you look at organizational structure. So there's an opportunity to really streamline the costs from an operational standpoint and an organizational standpoint. So that's where we think as we talked about during the earnings call, where we'll find some headroom to create capacity to then reallocate that, yes, towards technology, product investments and also marketing.

So our plan is not to dial down the marketing. And our plan is not to dial down the product and tech investments. But if you look at our personnel expenses, you will figure out that we're running at a pretty high percentage. So that's where we're focused, and that comes along with process changes and an optimization that we're driving internally. I hope that make sense.

Yes. Yes, sure. I guess the second question is, certainly, you sort of talked about the buyback, right, 70% of this year's free cash flow. You talked about how that's sort of still part of the continued capital allocation plan. But to be perfectly blunt, the money you've spent thus far has been value destructive. So like I guess I'm wondering how you're sort of thinking about that capital allocation process and plan and why continue right now, I guess, until you feel the business has sort of stabilized a little bit as I think you're clearly indicating it's going through a transition period?

Yes. I mean I think Tobi has articulated kind of our plan to reignite the marketplace flywheel and drive greater levels of growth in this business. We have a collection of, I think, really good assets that need to be connected together better in order to really unlock the revenue growth potential. I think we firmly believe this. The markets from time to time may not always operate in a smooth line. But as we think about creating long-term shareholder value, we see a clear path.

And as Tobi was kind of articulating, this isn't a 5-year mission we're on. We are targeting doing this quickly, aggressively and trying to turn the corner here within the next 2 years. And so it does make sense for us to be out in market. We believe the stock is undervalued. We believe there is a lot of growth potential here, and we think setting a floor at $60 million is prudent. You'll get quarterly updates from us on how we're progressing on our plan to turn around the business. And you also get quarterly updates from us on how we think about capital allocation on a broader basis.

The next question comes from Gary Prestopino with Barrington Research.

Hello, Tobi, let me -- I'm trying to understand here when you're talking about the integrated marketplace. And did you have separate sales forces selling point solutions as well as marketplace? And if not, what do you have to do to the sales force to start driving more of these integrated sales wrapped around the marketplace?

Yes, we did have separate sales forces at different levels. And I would also say at different levels of sophistication. And what we are doing and what is in flight already is that our colleague, our Chief Commercial Officer, has redefined the sales strategy and sales organization. So view it as there's more consultative selling that will be necessary going forward as opposed to a standalone solution for one service only. And so that has been in the making, and we are doing that as we speak. And I'm very confident that this is the right approach and that we are well on track.

Okay. And just let me understand again, you did say that you will still be giving the dealers the ability where you can, to sell a single point solution. You're not going to go into your dealerships and say, okay, we've got 5 products wrapped around marketplace. It's going to cost you x. And in order to be a part of the Cars Commerce universe, you have to buy all of these.

That's correct. There's absolutely the opportunity. View it as a -- like a restaurant, you can have an appetizer, you can have a main dish, but there's just also a menu and the menu is going to be a lot more attractive, and that's what we're aiming for. But yes, we are also selling it as a standalone. Absolutely.

At this time, we have reached the end of the question-and-answer session. This concludes today's conference, and you may now disconnect your lines at this time. Thank you for your participation.

Thank you, all.

Thank you.

Thanks for dialing in.

Good morning, ladies and gentlemen, and welcome to the Cars Third Quarter 2025 Earnings Conference Call.

[Operator Instructions]

This call is being recorded on Thursday, November 6, 2025. I would now like to turn the conference over to Katherine Chen. Please go ahead.

Good morning, everyone, and thank you for joining us for the Cars.com Inc. Third Quarter 2025 Conference Call. With me this morning are Alex Vetter, CEO; and Sonia Jain, CFO. Alex will start by discussing the business highlights from our third 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 Alex, I'd like to draw your attention to our forward-looking statements and the description and the definition of non-GAAP financial measures, which can be found in our presentation. We'll be discussing certain non-GAAP financial measures today, 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 Alex.

Thank you, Katherine. We were pleased to achieve record revenue and drive strong customer and product momentum in the third quarter on our path to reaccelerating growth. Revenue of $182 million reflected continued contribution from websites, trade and appraisal solutions and marketplace. Dealer count increased for the third consecutive quarter as we reached a new 3-year high with marketplace, in particular, outperforming expectations. Top line strength, combined with our strong operating model, enabled investments for innovation, while also producing adjusted EBITDA margin of 30%, up over 160 basis points year-over-year.

And resulting cash generation supported another $19 million of share buybacks in Q3 for a total of $64 million year-to-date. It's clear that our consistent execution is delivering compounding benefits, and we feel confident there is more improvement to come. Our strong focus on 2025 growth initiatives continue to deliver measurable progress for the business in the third quarter. First, sales velocity and driving unit volume has lifted marketplace and solutions performance. Under new sales leadership and enhanced go-to-market strategy, we added 270-plus dealers year-over-year with subscriptions up across all our leading products.

In total, we powered 19,526 dealers in Q3, our largest customer base since late 2022 and only a few hundred dealers away from an all-time record. New franchise dealer sign-ups also increased appreciably quarter-over-quarter in Q3, complementing the share gain amongst independent dealers that we achieved in the first half of the year. Dealers consistently cite our unique consumer audience, data insights and differentiated product suite as key factors that are motivating them to join our platform.

Second, our phased marketplace repackaging exercise intended to align pricing with product value and enhance platform benefits for dealers launched in early summer. By bundling media products and features in new Premium and Premium Plus packages, we are helping dealers drive up to 14% more leads per listing versus base packages. And we anticipate adoption of Premium Plus to accelerate with growing dealer awareness of these benefits.

Finally, our product team remains at the forefront of helping consumers, OEMs and dealers navigate the changing auto retail landscape. We are putting AI-powered search and recommendations in the hands of marketplace shoppers and simultaneously enhancing lead conversion for dealers through advanced analytics. Through our appraisal and wholesale capabilities, we are also directly helping dealers address used car scarcity and specifically how to profitably source attractive late model inventory. And we continue to be the only platform with integrated B2B wholesale and B2C retail capabilities, a key value proposition as dealers look for innovation and operating leverage.

Our multifaceted AI-first platform makes us essential for both consumer and dealer customers. We are seeing clear signals of traction in our platform strategy. Starting with marketplace, we fired on all cylinders in Q3 with momentum carrying into October. We drew 25.4 million average monthly visitors, up 4% year-over-year, leveraging better optimization of our visitor acquisition strategy to attract strong consumer demand.

Traffic year-to-date was 488 million visits through the end of Q3, setting a new record. Our leading editorial and brand expertise is evident from third-party data that shows that we were most cited public automotive marketplace across AI tools like Google AI overviews and ChatGPT with double the citations of our closest peer. And we continue to leverage our strong brand and steady stream of in-demand content as an integral part of our product and marketing strategy in this evolving landscape. AI is central to our product innovation road map as we enhance the quality of our marketplace to deliver a best-in-class personalized shopping experience for car buyers.

Carson, our newly launched natural language search assistant gives users an interactive experience more akin to a conversation you have with an AI agent to complement traditional search results. Carson currently assists 15% of searches and search refinement on web and mobile today. Compared to the average shopper, AI users also save 3x more vehicles to revisit later, a sure sign that we're fueling deeper consumer engagement. Just like we were a pioneer with AI integration on the Cars.com website, our next milestone will be integrating Carson into our #1 most downloaded automotive marketplace app.

Mobile apps are our highest converting channels, and we believe AI-powered targeted search results may lift conversion even further as we drive search efficacy and our marketplace flywheel. For dealers who subscribe to our marketplace, we continue to deliver high-performing tools for their sales and marketing teams, embedding into their tech stack to drive engagement, conversion and ultimately, sales.

Shopper alerts, which we launched in the third quarter to fast follow our new lead intelligence reports, proactively flag shopper engagement and buying indicators to dealers. Over 50% of marketplace customers have already used this feature at least once in its first 2 months of launch. And as you can see from customer feedback, shopper alerts are quickly becoming a key part of dealership workflow, helping salespeople identify the best prospects to close more sales. With such an enthusiastic response, we're quickly iterating to provide richer data and AI-driven insights directly into dealer CRMs, both with incumbent players and through new investments in disruptive technologies as we unlock the full potential of our platform with more AI and SaaS-based solutions.

Turning to our trading and sourcing solutions. AccuTrade and DealerClub continue to scale in Q3 as dealers increasingly gravitate to tech-first products that advance the industry's long-term goal of improving profitability. The recent success of digital dealers who rely heavily on acquiring vehicles directly from consumers has put an even finer point on the importance of a diversified vehicle acquisition strategy for driving up GPUs. AccuTrade and DealerClub address this gap by allowing dealers to acquire from either Service Lane or other trusted dealers backed by the most accurate vehicle values in the industry. Accu Trade grew to 1,150 subscribers in Q3 and DealerClub increased its active users by nearly 40% quarter-over-quarter. We're also pleased to share that AccuTrade surpassed 1 million quarterly appraisals, a milestone that points to enthusiastic and growing customer engagement.

Importantly, over 50% of vehicles acquired via AccuTrade are between 1 and 5 years old, highlighting the attractive pool of in-demand late-mile inventory that dealers access when they expand beyond traditional and physical auctions. New this quarter, dealers can now easily analyze their AccuTrade activity via profit funnel and trade capture reports, seeing how much profit is made on AccuTrade versus non-AccuTrade cars and conversion rates on appraisals.

We're excited to see these products and features further scale as we continue to innovate. Lastly, total subscribers for Dealer Inspire and D2C media websites reached nearly 7,900 in Q3. We have grown website subscriptions for 5 straight years, an impressive feat that speaks to our differentiated technical capabilities and support model. Similar to marketplace, website customers are also benefiting from our AI leadership. Our dealer websites also support discovery and data processing by popular AI search tools, and we are now proactively enabling customers to improve their own site visibility.

By building more consultative relationships and innovating on behalf of customers, we're confident we can further expand our market share. Across marketplace, websites and appraisal and wholesale, we delivered triple-digit dealer count growth for the second straight quarter. We also achieved ARPD growth on a sequential basis, consistent with our expectations that repackaging and cross-selling would lift performance beginning in Q3. We're on pace to surpass all-time records for both direct dealer customers and ARPD before the end of 2026 on our way towards greater targets as we expand and enhance our product offering.

While dealer revenue was at its healthiest level in several quarters, we did see some variability in OEM and national revenue, which was down 5% year-over-year in Q3. Specifically, 2 OEM partners significantly adjusted their media investments during the fall due to factors like internal agency changes that are unrelated to our performance or value. I'll also note that both of these customers remain advertisers on our platform, and we're in active talks to win a greater share of their forward spending.

As we discussed in prior calls, our OEM revenue pipeline is strong. Planning discussions for 2026 have been positive and our unique ability to drive better Tier 1 to Tier 3 outcomes via our marketplace is a winning asset for automakers as they compete for consumer demand. We're confident that this segment can resume its growth trajectory in the coming quarters and continue to be a strong contributor to revenue and margin expansion. Looking at this quarter as a whole, I'm pleased that our steady execution is showing up in the P&L and in positive trends that point to more gains ahead. We're driving our business forward, growing revenue and gaining customer market share, all while continuously innovating. Q3 is the right step in the right direction, and we're focused on finishing the year with a healthy exit rate so that we can deliver even better results as we continue scaling our leading platform.

And now I'll turn the call over to Sonia to discuss our third quarter financial results. Sonia?

Thank you, Alex. We delivered a strong third quarter across multiple key financial metrics, producing record revenue, adjusted EBITDA expansion and robust cash generation. Consistent execution of 2025 growth initiatives has been our top priority, and our new revenue trajectory reflects the positive changes we've implemented year-to-date. We're also confident that as these improvements compound in our subscription business, both revenue and margins will accelerate in the coming quarters. Starting with our revenue discussion. Third quarter revenue was $181.6 million, up 1% year-over-year and in line with our expectation for low single-digit growth in the second half of the year.

Dealer revenue was up 2% year-over-year, driven by favorability from repackaging activities and better customer count. Our ongoing repackaging work resulted in successful renegotiation of additional OEM website agreements and the phased launch of new marketplace packages in Q3. As Alex mentioned, our top 2 marketplace peers now bundle more media features for better vehicle merchandising and promotion, helping dealers attract and convert in-market shoppers. Migration of legacy preferred customers into new Premium and Premium Plus packages was 100% complete as of the end of October.

I'll also note that we've seen very few cancellations attributable to this exercise, another encouraging signal of the value dealers see in our marketplace. Marketplace, our most scaled solution, is also the tip of the spear for customer acquisition and cross-selling and key to winning dealer market share over time. It's therefore encouraging to see that marketplace continues to be the biggest quarter-over-quarter contributor to dealer count growth and is the linchpin for our net gain of over 300 dealer customers since the start of the year.

We have multiple levers to inflect ARPD, driving new customer growth as well as upgrading package tiers and cross-selling against our installed base. And this is amplified by our improved pricing. We saw early signs of these levers in action in Q3 with ARPD up 1% quarter-over-quarter, and we are optimistic that trends will improve as these positive changes gain further traction and annualize. Overall, dealer revenue growth more than offset near-term noise in OEM and national revenue, which was down just under $1 million or 5% year-over-year. As previously mentioned, lower spending by 2 customers accounted for almost the entirety of the OEM revenue decline in the quarter, and we're already at work rebuilding the revenue pipeline with those partners.

More broadly speaking, media investments did taper in September as the industry digested large-scale changes like strong pull-forward demand from expiration of EV credits and continuing shifts in production as well as downward revisions in SAAR. Given last September was our best month of OEM revenue for 2024, we also had a challenging comp that accentuated this late quarter trend. We're observing that OEMs continue to prefer more flexibility in the current operating environment. And as such, we expect their ad spending may fluctuate through the end of this year. However, we remain confident in our audience and value delivery and in our ability to power growth in this segment.

Turning to our cost discussion. Third quarter operating expenses were $165 million, down 2% year-over-year. Compared to the prior year period, cost efficiencies in headcount and lease-related expenses as well as lower depreciation and amortization fully offset new dealer club costs and slightly higher marketing and G&A spend. Adjusted operating expenses were $150 million, down 4% year-over-year for substantially similar reasons. For the following line item detail, all comparisons are on a year-over-year basis, unless otherwise noted.

Product and technology expenditures decreased $1.6 million on a reported basis and $1 million on an adjusted basis, fully offsetting dealer club costs through lower compensation and third-party fees. Marketing and sales increased $1 million on both a reported and adjusted basis, reflecting marketing investments. And general and administrative expense was up $2.8 million year-over-year on a reported basis, but was roughly flat on an adjusted basis. The reported increase was primarily due to increased third-party costs that were partially offset by savings from the lease amendment completed in Q4 2024.

Net income for the third quarter was $7.7 million or $0.12 per diluted share compared to net income of $18.7 million or $0.28 per diluted share a year ago. The difference in net income is primarily due to changes in the fair value of contingent consideration for prior acquisitions that were included in the prior year period. Adjusted net income for the third quarter was $30.4 million or $0.48 per diluted share compared to $27.7 million or $0.41 per diluted share a year ago.

Adjusted EBITDA of $55 million in the third quarter grew 7% year-over-year, benefiting from both higher revenue and cost controls. Third quarter adjusted EBITDA margin of 30.1% demonstrated strong revenue flow-through, benefit from the cost management initiatives described earlier and timing of certain costs.

Now on to key metrics. Dealer count was up in the third quarter based on strength across all of our major product brands. Websites grew sequentially by 67 subscribers with most of the growth coming in the U.S. AccuTrade grew by 82 subscribers sequentially, about half of whom came from the enterprise deal announced last quarter. Third quarter ARPD was $2,460, up 1% quarter-over-quarter and down slightly year-over-year. Recent customer and product mix shifts like faster independent dealer growth and lower media attach rates continue to have a near-term leveling effect on this metric. However, as previously discussed, we have multiple ways to inflect ARPD over time.

First, new customer acquisition and continued up-tier migration will both benefit from new marketplace and website rates. A good example is Marketplace Premium Plus adoption, which grew 50% month-over-month from September to October as dealer awareness increased. Second, moving website customers up-tier remains a substantial opportunity. Recall, roughly 70% of marketplace customers are in a premium or better subscription relative to just 50% for websites.

Third, cross-selling additional products like AccuTrade or media add-ons to marketplace customers can be as much as a 60% jump relative to current ARPD. The multiplier effect is especially evident when looking at customers who utilize all 4 of our brands and have an ARPD that is 3x higher than our reported average. With these levers at our disposal, we are confident in future ARPD improvement as we expand our platform's reach.

Now over to cash flow and the balance sheet. Net cash provided by operating activities totaled $115 million for the first 9 months of the year compared to $123 million for the comparable period last year. Recall that the earn-out for the D2C acquisition has a contractual step-up from year 1 to year 2 and accounts for the majority of the variance in operating cash flow. Free cash flow was $94.5 million year-to-date, down slightly year-over-year from the acquisition items mentioned above. Year-to-date, share buybacks totaled 5.2 million shares for $64 million as we utilized more than 2/3 of free cash flow for our repurchase program.

Last quarter, we raised our full year repurchase target to $70 million to $90 million, and we're pleased to be on pace to finish the year towards the high end of that range. We also paid down $5 million of our revolver in Q3, bringing debt outstanding to $455 million as of September 30, 2025, equivalent to a total net leverage ratio of 1.9x. Notably, this is also the first time that we have sat below the low end of our target net leverage range of 2 to 2.5x. Total liquidity was $350 million as of September 30, 2025, which provides us ample capacity for capital allocation priorities and other avenues of value creation.

And now we'll conclude with outlook. We are reaffirming our expectation for low single-digit revenue growth year-over-year in the second half of 2025. We expect to achieve this target through continued execution of our growth initiatives, namely improved dealer count and product adoption and repackaging for marketplace and websites. As in the prior quarter, this outlook assumes today's macroeconomic conditions as a stable baseline for the remainder of the year. Considering third quarter trends and historical fourth quarter performance, we believe that some degree of discretionary media investment is subject to greater variability, both to the upside and the downside from factors like pull-forward consumer demand, inventory levels, new model launches and manufacturer incentives.

We are also reaffirming adjusted EBITDA margin outlook for fiscal 2025 between 29% to 31%, reflecting disciplined cost management, high contribution margin from pricing initiatives and revenue growth. Looking ahead, we remain focused on execution and are confident we will deliver improved operating and financial results.

And with that, I'd like to open the call for Q&A. Operator?

[Operator Instructions]

Your first question is from Tom White from D.A. Davidson.

Two, if I could. I guess, first off, just on the drivers of revenue in the third quarter. It was impressive to see that you delivered a bit of kind of upside versus kind of expectations on revenues despite national kind of declining sequentially when I think we all have our fingers crossed that it might be up a little bit. So just can you help us -- I guess what I'm trying to understand is on dealer revenue, kind of the -- obviously, you guys are doing stuff on repackaging and product.

But maybe first off, just like on the industry backdrop and you added dealers again for the third straight quarter. It sounds like you're going to add dealers again, and it sounds like marketplace is kind of maybe one of the main areas where you're adding dealers. I don't know, how would you kind of characterize how dealers are sort of navigating the current just kind of industry backdrop?

Like are they leaning into you guys on marketplace because they're -- they need to find new sources of demand? Is it because of maybe the word is getting out that some of the new media stuff that you're adding to the higher tiers is really attractive. Sorry, it's a long-winded question, but just maybe just trying to unpack that a little bit. And then I have a quick follow-up.

Tom, thanks for your question. I'll start, maybe then Sonia can give some color on the revenue mix. But I'll start. Obviously, manufacturers have got some near-term headwinds that certainly are impacting their business. We feel good about the business because overall enthusiasm for our audience, particularly the concentration of new car shoppers that we have in our marketplace, remains scaled, healthy and strong. And so the vast majority of our OEM partners are leaning in, not only this year, but also next year. We did have some pullback in the quarter from 2 OEMs that were temporary in sentiment, not performative, meaning that they had their own internal issues that delayed their investments with us in the period.

That's why we feel fundamentally bullish about the business overall and our ability to continue to grow OEM revenue heading into next year and beyond. I think on the dealer side, it is a little bit of a mixed bag right now. I think dealerships are struggling with softening demand. And the vast majority of dealer investments are chasing impressions and clicks across the Internet. And I think the smart dealers are realizing tapping into in-market car shoppers who are actively in market is a much surer path to sales.

And so we're pleased with dealer adoption not only in the quarter. And as you noted, that growth continued into October. And so we're feeling good about dealers realizing the strength of our scaled audience. Certainly, some of the product innovation that we're doing on the AI front has garnered some dealer interest as well. But ultimately, we feel like the market is realizing our strength and our value. Sonia, do you want to comment on the revenue buildup?

Yes. Thanks for the question, Tom. Just to add a little bit more incremental color. I mean, I think we're pretty pleased to see growth across all of our dealer product lines. Repackaging was probably the most immediate benefit to the quarter as you think about revenue. We had repackaging in marketplace with upgrades into premium and then the launch of our new Premium Plus package. And also, we continue to work on optimizing our website packages. I think the new dealer customer adds we've had in kind of really since the beginning of the year with the exception of January, we've grown dealer count month-over-month is really just adding additional fuel to how we think about the opportunity to continue growth on a go-forward basis as we upgrade and cross-sell those incremental new dealers coming into the mix.

Okay. That's really helpful. Maybe just a quick follow-up on that. I think I heard you say that in marketplace, maybe 70% of the dealers were on something other than just sort of the base tier, but it was lower in websites. So I guess as you think about -- how should we think about like what products you might maybe add to higher tiers in website to kind of get -- to get folks to upgrade? Is it more like kind of media add-ons? Or just any color you can share there and maybe a time line for how you expect that to roll out?

Yes. Look, I think one of the strengths of our platform strategy, Tom, is that our innovation can take place on our marketplace, and then we can deploy that technology to our dealer partners on their website. So one of the big benefits that our website customers enjoy over the last year is the fortification of our cloud infrastructure to make sure dealer websites are meeting and beating core web vital standards because we're able to leverage our larger infrastructure to optimize speed and performance. That's sort of an underlying benefit of our platform model.

I think if you look at what we've done on Cars.com with launching Carson and OpenText, generative AI search, we can now deploy that technology on dealer websites. So that's one of the utilities that we're looking ahead towards next year. But then obviously, just even indexing dealer websites into the LLM. We use Cloudfare technology to help index Cars.com listings into the AI models. And now that we have our dealer websites fortified with Cloudfare as well, we can do more for dealer websites and get their content indexed in the LLMs as well. So I think there's multiple benefits for dealers running on our backbone platform, but the product innovation is accelerating in the company, and we're excited to keep that going.

Your next question is from Gary Prestopino from Barrington.

Sonia, really interesting when you're talking about the amount of entities that -- on dealers that have moved to repackaging and website that have moved to repackaging. You also gave some statistics on what the lift is in ARPD for some of these repackaging efforts, and I didn't quite get that.

The lift to ARPD, I mean, I think overall, we're pretty happy to see the sequential momentum that we started to achieve in ARPD. So we saw quarter-over-quarter growth. And I think that puts us on strong footing as we look from Q3 into Q4 to continue to accelerate that. We didn't -- I don't think we gave specific color on the portion of ARPD that was driven by packages. But what may be helpful is to understand like the spread difference between a Premium and Premium Plus package.

One of the key differentiators -- and those are marketplace packages, one of the key differentiators between those 2 packages is we bundled VIN Performance Media into the Premium Plus package. That's something that retails for around $1,500 a month, but obviously, for our Premium Plus customers since it's bundled, they're going to be getting a slightly better rate than that. But it will give you a sense for how we're trying to create differentiation, not just in price, but also in terms of the overall value delivery we're offering to dealers across our packages.

Okay. I thought I heard you say something about a 3x lift. So that's why I asked the question. And maybe I just typed...

Yes. I did talk about that as like an example of platform value and how as we increase product penetration, we're able to really meaningfully lift ARPD. And I think the stat that I shared was that dealers who use our major product pillars will have a 3x higher ARPD than our reported average.

Okay. That's great. That's what I wanted to get to. And then Alex, in terms of both AccuTrade and DealerClub, it's good to see that these things are starting to get more traction. But in terms of appraisals versus actual sell-through to the dealer from the appraisal, can you kind of slap some metrics on that? And then in terms of DealerClub, I know it's real early, but if you could give us some indication of what kind of volume is going through DealerClub, that would be real helpful.

Sure, Gary. Well, first of all, we were really pleased with the growing dealer participation in AccuTrade as well as the improving appraisal volume. It's showing what we believe is a very durable trend of dealers realizing that sourcing cars directly from customers is a far more profitable strategy than traditional or legacy auctions. And so that realization is helping every dealer recreate the advantage of creating more inventory in their own service lane, which increases our supply.

And then also, it creates demand within their own dealership because now their customers need new cars. And so we think this is a very durable strategy that dealers are adopting. You're seeing dealers talk more at 20 groups about how they can source more cars directly. And we've got the tooling to enable them to do that at scale and on a very low-cost basis. When you think about the cost of an AccuTrade subscription, it dwarfs what buying cars at auctions is costing the industry. So again, very healthy trends on dealer adoption and appraisal volume. I think DealerClub obviously complements this strategy, which is enabling dealerships to trade cars amongst themselves as a collective as opposed to paying the mighty toll booth operator, the physical auction.

And so dealer adoption on DealerClub, we're pleased with it. As you know, it's very early stage. We're barely getting started here with DealerClub, but we're pleased with the initial momentum that the platform is generating on a very low cost basis because it's part of our platform strategy, meaning that we're leveraging the infrastructure that we have today in-house. Dealers are pleased that now we're showing them their aged inventory from our marketplace in the club, and they can immediately launch those cars to a wholesale auction with limited to no additional data entry.

And so stay tuned. We're going to continue to invest in the product platform and give dealers more tooling that makes their workflow even easier, but very pleased with the initial momentum, both with AccuTrade and DealerClub.

Your next question is from Rajat Gupta from JPMorgan Chase.

I had one broader question on just the competitive landscape. One of your peers recently announced their intention to go private. We've had some tough results from some of our other public peers on the marketplace side, on the auction side, on the used car side. I'm just curious that if you're observing any changes in the competitive landscape, be it pricing, be it more adjacent players maybe participating in the market. And I'm curious if anything has taken a step change in recent months that you're seeing? And if anything, like how are you planning to navigate that? And I have a quick follow-up.

Yes. Look, Rajat, thanks for the question. I think on the competitive landscape, while there could be changes in terms of public versus private, we look at the competitive landscape a little bit differently in that dealerships are trying to drive traffic to themselves directly, and they're spending inordinate amounts of capital trying to interrupt consumers, while they perform other tasks to drive them into their stores. The benefit of our platform strategy is we're the largest concentration of organic car shoppers that are spending their shopping time researching and deciding what and where to buy on our platform.

And we think savvy dealers are realizing that interruptive advertising is less efficient than native marketplace traffic that we can source and drive consumers directly to their stores, particularly as average dealers are trying to compete with Carvana and larger platforms using Cars.com as a demand engine for their business, we think, is a no-brainer. And so I look at the competitive landscape more about how do we get dealers to spend less on Google or less in traditional media and do more digitally first and foremost.

I've got tons of respect for my digital peer set. I know auto is a very competitive category, but we feel very confident because, again, we source the majority of our traffic organically or directly. And so we're a complement to dealers and their advertising mix. I also will say our platform strategy is differentiated. We're now powering north of 9,000 dealer websites, helping them optimize their retail presence online. We're giving them tools to operate their business more -- with more self-sufficiency, which we think we can help overall bring their profitability to new levels. And so we're excited about our innovation road map on AI and what that can do and help dealers add capabilities to their business. And again, like marketplaces are competitive, but we've got a much more differentiated and ambitious strategy.

Understood. Understood. That's helpful. And then within your dealer demographic, I mean, is it possible to provide a split across if it's a meaningful difference across like luxury, domestic or import on the franchise dealer side? I ask only because we're starting to see some of the European brands feel the brunt of tariffs. It looks like October started off a little weak for those brands. I'm just wondering if that can have any meaningful impact on churn rates, on RPD for your business. And just curious if you're hearing anything as well on that front.

Well, listen, I know it's a very dynamic marketplace right now. As you know about our business that we tend to skew upmarket. The bulk of our dealers are franchise dealerships. The bulk of our audience tends to be late model, even new car shoppers. That's why we have a large OEM business, unlike our peers because manufacturers know that new car shoppers are also considering late model used. And so we tend to skew upmarket and therefore, don't feel some of the same pressures that perhaps some of the credit challenged or lower end of the market may experience.

And so we feel very fortified heading into next year in that the bulk of our audience tends to be more affluent, higher household income. And then our dealer base also remains the stronger side of the market as well with franchise dealers making up the majority of our revenue mix.

Understood. Maybe just final one on capital allocation. You're starting to see like a return back to top line growth. You're seeing some good progress with like dealer additions. I'm curious if we can expect -- I'm just trying to see like how you rank order capital allocation today. Is buyback still the #1 priority? Are there other avenues that you're looking at?

Yes. No, thanks for the question. I think we are still committed to share repurchases as an important portion of our overall capital allocation strategy. Pleased to see how kind of the growth in adjusted EBITDA, in particular, is helping to bring that leverage down. Our net leverage ratio continues to kind of improve. But we're tracking towards the high end of our share repurchase range based on how we've been buying back on a year-to-date basis, and we still see the upside there.

Your next question is from Marvin Fong from BTIG.

Very nice quarter here. I would like to start on AccuTrade a little bit deeper on that. So kind of consistent in the 70 to 80 dealer addition range in the last 3 quarters. Just like to kind of get a little more color on the pipeline there? And should we kind of think of this as a good pace of adds? Or do you think you can accelerate that? And is it going to be sort of lumpy with sort of the larger enterprise or larger dealers in there or you kind of expect [indiscernible].

And then can you just remind us on that large dealer group that added about half the adds this quarter, how many more stores are in their system that you haven't penetrated yet?

Yes. Well, first of all, look, we're pleased to close an enterprise deal last quarter for AccuTrade. And that, I think, was about -- just about half the dealer count growth in the Q because we still have steady dealer adoption and growth. We're also basically continuing to see dealer group interest in standardizing their vehicle sourcing strategy, which we think is a big tailwind for AccuTrade because we can provide dealer groups consistent tooling that puts a process in place that they can manage their vehicle sourcing strategy with tools that give them enterprise leverage and consistency in how they run their operation.

So we're seeing strong interest and continued dealer demonstrations and a healthy pipeline there. We're also hearing dealers asking us for more inventory syndication capabilities with AccuTrade. So that's on our innovation road map, which could be another tailwind. But we're overall pleased with the organic momentum we have in our dealer count. We think enterprise deals with larger dealer groups can continue to be a strong addition to our platform if we are able to secure more of these enterprise deals in Q4 and beyond.

But this is a slow roll strategy that will scale over time, and it certainly adds meaningful ARPD and a high reoccurrence of revenue because the dealers that standardize with AccuTrade, not only does that revenue stay sticky in our platform, but it has a halo effect for our other subscription offerings as well, including DealerClub as well. So we're feeling good about the business.

Got it. And second question is on AI, everyone's favorite topic. And I guess I'd ask it a couple of different ways. So first, are you seeing any meaningful traffic today that's coming from like a ChatGPT type service? And how -- if so, how is the behavior of those customers? Does it convert to leads any better than other traffic?

Yes. Well, first of all, thanks for the question. On the AI front, we're very pleased. As we mentioned during the call, when you look at all the leading AI consumer engines, we are, in many cases, 2x our nearest closest publicly traded peer. And so that is a testament to the strength of the Cars.com brand and our decade-long commitment to independent expertise and editorial depth and breadth and quality. And so our strength there is being played back to us by these LLMs that recognize our authority.

As you know, auto is a multi-touch omnichannel experience, meaning consumers are seeking out multiple destinations prior to purchase. Our brand strength and our authority in these engines, while it may not generate a ton of traffic today, it is amplifying our brand strength, which is why we had record traffic in Q3 and feel very strong about continued momentum of our marketplace. Consumers are going to seek out trusted independent expertise in auto and these new AI models are firming our brand strength. And so we feel very good about the advent of AI and what it can do for our business over time as well.

I would just maybe add in addition to what Alex was talking about in terms of how we're showing up in the various like AI search tools, we're also really pleased with how leveraging AI and natural language search on our own marketplace is helping to drive increased consumer engagement. We see on the order of 3x more vehicles saved for consumers who use Carson. They're looking at 2x more listings. They return more frequently. So we're actually playing this as like it's a multipronged strategy, I really believe, to leverage AI to the benefit of the business, and we're seeing it translate into real engagement numbers.

Right. And that was sort of my second part of the question, I guess, to Carson, are you able to see how many people who are using Carson or your other AI-related search tools, are they purchasing or more attribution can be given the Cars if they are using Carson compared to someone that's not using the AI tools? Or is it too early to say?

Yes. Obviously, this is still a category where the majority of time is spent online and the purchase is offline. And we know that dealer CRMs grossly under recognize our value delivery. I mean there's only 5 million cars retailed every month in this country, and we know we're saturating the majority of car buyers on our platform.

What I like about what we're seeing with Carson is that users are saving more vehicles in their search history. So they're coming back at 2x the rate of other shoppers. They're generating more leads compared to people that are using directed search as opposed to more exploratory. We also know that 70% of our users are undecided on make and model selection. So we're going back to OEMs who previously maybe haven't realized the power of our search engine that they can influence undecided shoppers on our platform.

And we're seeing higher conversion rate of these users in terms of tangible leads to dealers. And so consumer engagement is critical to thrive in any marketplace, and Carson is showing us a lot more potential what we can do on the user experience front to connect brands and dealers to our audience using AI as an advantage. So I expect to see a steady quarterly stream of innovations here that both improve user experience and also drive down our operating costs.

Your next question is from Khan Naved from B. Riley Securities.

Maybe just on the marketplace repackaging initiative, I know you've been using opt-ins for dealers to kind of migrate up to the higher tier. Are there -- is there any plan to kind of accelerate that maybe so that more of the dealers can migrate to the higher tiers? Or do you continue to see it as an opt-in move? That's my first question.

And the second question I have is just around the traffic growth kind of -- can you just maybe talk about organic versus paid mix and AI overviews, if it had any impact at all, at least from the headline numbers, it looks like not, but just talk about how you're thinking about the traffic.

Sure. Well, first of all, our sales -- I'll start, Sonia, and then you can maybe comment on the repackaging. I think our sales go-to-market motion is constantly showing dealers the strength of upgrading to our premium tiers. And we've got demonstrable data that shows the more dealers spend, the more value and market share they can get on our marketplace. And so that will be a rolling benefit for us to educate dealers on the strength of higher tiers.

And as Sonia pointed out earlier, like we've got a lot of headroom to go there on the repackaging front. And I think we can also continue to introduce new tools and features that help dealers gravitate towards higher spending levels on our marketplace and even cross-selling other solutions. I think also on the AI front, this is early innings. We're really pleased with the initial response that we're seeing with consumers using AI in our marketplace. We also are pleased with how we're showing up, organically, in all the leading LLMs and the AEO optimization strategy, I'd say, is in the early stages here, but our brand strength and our unique content certainly give us distinct advantages to our peers. I don't know, Sonia, what else you'd add to that?

No, I think, Alex, you covered it really well. I was just going to add on repackaging. We continue to be focused in on the opt-in model. It buys us better outcomes overall with the dealers when they're bought into the rationale and the expectation of why they're moving up-tier. And we've seen good traction with it, right? Like I think we cited a stat in earlier around Premium Plus and we saw a 50% increase in Premium Plus from September to October. So we'll continue to focus on the benefits of moving up-tier in terms of the value delivery creation.

Your next question is from Joe Spak from UBS.

Sonia, first question just on the guidance. The way you guide obviously give some decently wide ranges based on your disclosures. But if I look at sort of the past few years seasonality, it looks like 4Q EBITDA is about 10% higher quarter-over-quarter, which would mean something around $60 million, which obviously clearly falls within that implied range. I just want to make sure we're all level set. Is that sort of like a good level to calibrate upon? And what do you really think sort of drives the higher end versus the lower end here with basically 2 months left in the year?

Yes. No, this is a great question. Thank you. I think in terms of adjusted EBITDA, what the benefit that we really saw in Q3, some of it came from revenue, some of the high flow-through on revenue. Some of it came from continued cost management. And then a portion of it was a little bit more timing oriented. So we feel pretty comfortable with our overall adjusted EBITDA range. But I would say getting towards the higher end of that range probably requires some -- a little bit more of that episodic revenue to come in. That tends to be a little bit higher margin. So it would require a heavier lift on, let's say, the OEM and national side of the business to get closer to the high end of the range.

Okay. And the update there was there's still some pause, and I know they committed to that spend, but it could bleed into next year. Is that still a metric?

Yes. We're seeing a little bit more like kind of like we talked about in September, some of that pressure has been continuing into October. Now as I mentioned, periodically, we will see as we get towards the end of the year, some of them will lean into those budgets a little bit more. And also, I think some of the overhang production numbers, where SAAR is sitting right now are probably a little bit of a drag on expectations as well.

Okay. And then on Carson, and I apologize, this might be a very ignorant question, but I'm just trying to sort of understand all the AI stuff. Is it just trained on like the data you have access to, like your dealership customers? Or is it broader? And then out of curiosity, is there anything that prevents other AI agents from accessing the data you have on your site. It sounds like you actually want to feed that. But if you do, is there a way to guarantee that those other solutions almost like don't cut you out and go through your site and not around Cars.com. I don't know if that makes sense or I'm misinterpreting the technology, but if you could sort of...

No. Joe, it's a great question. So thank you. So Carson, we're leveraging our data infrastructure to power and train Carson. We've got millions and millions of data signals flowing through our systems every day. And so Carson's intelligence continues to be self-thought and self-fed on all these automotive intentions and searches and behaviors. By the way, we put out a press release on Carson today, so you can read more about how consumers are interacting with Carson.

Certainly, we let -- the large consumer-facing LLMs are able to train off our data as well. And so while there is risk that consumers can render answers on these other environments, what they do, do is attribute their knowledge to Cars.com. And we think that is incredible brand exposure and leverages our deep authority to make consumers aware that Cars.com has knowledge. And automotive is uniquely a multi-touch category, unlike a lot of consumer goods or low price point purchases, consumers may only seek out 1 to 2 destinations, but buying a car is the second largest transaction in people's lives.

They're going to seek out multiple sources of information prior to purchase. And we certainly think the LLMs constantly referencing Cars.com as an authority is going to continue to generate traffic directly to us as consumers go to get additional information, research on which dealerships have the best reputations, what they could expect to pay, any OEM incentives that are available. There's just a lot of information consumption in this category that makes me certain that no one destination can disrupt the 20-year strength of our brand and our content expertise.

[Operator Instructions]

There are no further questions at this time. Please proceed with closing remarks.

Thanks, everyone, for joining the call. We'll see some of you on the road very soon, and I appreciate the support, and have a good day. Thank you.

Ladies and gentleman, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.

Good morning, ladies and gentlemen, and welcome to the Cars.com Second Quarter 2025 Earnings Call. [Operator Instructions] This call is being recorded on Thursday, August 7, 2025. 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 2025 Conference Call. With me this morning are Alex Vetter, CEO; and Sonia Jain, CFO. Alex will start by discussing the 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 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 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 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 Alex.

Thank you, Katherine. Our second quarter performance reflected broad-based improvements across the business and strong execution on 2025 growth initiatives. Revenue of $179 million was steady year-over-year, reflecting 5% year-over-year growth in OEM and national revenue that partially offset temporary softness in dealer revenue. That said, I'm pleased to report that we grew dealer count both year-over-year and quarter-over-quarter, signaling a strong recovery and that our new go-to-market changes are working.

We delivered these positive outcomes while realizing cost efficiencies that drove adjusted EBITDA margin of 28.5% at the high end of our outlook, keeping us on track to grow profitably for the year. We also continue to pace ahead of our 2025 share buyback commitment, repurchasing $23 million of shares in Q2.

Building on our healthy progress in the second quarter, our platform is poised for a reacceleration in revenue growth and incremental profitability in the second half of the year. First, our new commercial leadership rapidly increased sales velocity to drive volume growth. Dealer count of 19,412 customers was up over 160 dealers, the best sequential organic growth we've delivered in over 3 years, lifting product adoption across the board.

Second, we launched enhanced marketplace repackaging in June, bundling in more media features to maximize Cars Commerce platform advantages. Website repackaging is also advancing with multiple OEM agreements successfully completed year-to-date and more to come.

Third, our product innovation cycle has been gaining speed. We unveiled new consumer AI features in the spring and early summer that are ramping quickly, contributing to differentiation and driving our marketplace flywheel. And we're excited about continuous AI innovation and new enhancements we'll be launching for our customers later this year. It's also important to note that OEM growth should remain a tailwind in the coming quarters. OEM and national revenue grew 5% year-over-year in Q2, a positive result despite the uncertainty around tariffs that persisted in the quarter. Nearly half of our OEM partners increased their spending on our platform, but investment levels were variable throughout the quarter. Since OEMs can either immediately invest more or pull back in response to dynamic industry trends, we expect short lead times to continue this year. However, we're capturing upside and scattered dollars as the trade situation appears to be stabilizing, and we anticipate an upward trajectory in OEM media for the remainder of the year.

With all of our growth drivers firmly in motion, we anticipate low single-digit year-over-year growth in the second half of 2025 and acceleration heading into 2026. Now let's turn to a discussion of our Q2 execution and the tailwinds that are contributing to our growth outlook.

Strong Cars.com marketplace performance persisted from Q1 into Q2, and we're excited for future growth in the second half of this year. Traffic hit a new second quarter record of 162 million, up 2% year-over-year. Average monthly unique visitors totaled 26.6 million and was up year-over-year in each month of the quarter. Like other automotive players, we experienced a tariff-motivated surge of consumer demand, which we capitalized on to improve overall lead delivery. Our recently upgraded lead intelligence, which provides dealers with individualized consumer insights such as shopper history, listing views and estimated budgets, has enhanced lead quality. Over 50% of our marketplace subscribers used this feature at least once in the first 6 weeks of launch. We're now working on additional analytics and CRM integrations to make this feature even more powerful and directly linked to retail outcomes.

Turning to the consumer experience. 73% of Cars.com shoppers are undecided on make, model or dealer selection when they begin their journey, and we see AI as a critical tool to drive lead volume and quality. Consumers browsing Cars.com are benefiting from a major update in the form of our new AI-powered search capabilities. In May, we began augmenting standard keyword searches with natural language recognition, converting conversational queries like new SUVs under 35,000 into tailored shopping results.

It's still early days, but lead submission rates from visitors using AI search are already 2x higher than regular search and account for nearly 20% of Internet leads submitted. The feature is prominent at the top of our home page, and we encourage everyone to try it out for a more enhanced car buying experience.

We have immediate plans to integrate editorial content into the search experience, further personalized results and comparisons, and enable completion of lead submissions and trade-in value requests using AI. We're committed to developing and implementing ways to leverage AI to drive performance and open up new growth vectors.

Our editorial dominance supported our marketplace performance with timely content ahead of the busy summer car buying season. The annual Cars.com American-Made Index, or AMI, attracted 71% more visitors compared to a year ago to market's most successful campaign in over 5 years. You may have seen our editor in chief on Good Morning America last week, discussing our proprietary car seat safety research and reaching millions of viewers on a national scale.

Unique and relevant research and shopping resources found only on Cars.com clearly remain integral to the car buying journey. Our extensive content library complements the rising use of AI agents who rely on our expertise and heavily reference our content and brand. Not to mention, we have a multi-decade advantage in building our automotive authority and consumer trust with AMI being a great example as it celebrates its 20th anniversary this year. We remain confident in maintaining our position as the #1 most recognized consumer automotive marketplace.

We're pleased that this consumer momentum is being matched with dealer success. Total dealer count rose to 19,412 dealers in Q2, up 162 customers quarter-over-quarter and our best organic performance since the start of 2022. Notably, marketplace accounted for more than half of that sequential growth in addition to the strong gains posted by website and appraisal solutions.

Our continued organizational and go-to-market changes are helping us move more nimbly and close more sales opportunities. The sales pipeline is strengthening, and we're excited to see continued improvements in the next few quarters. And based on our growing network of dealer partners, cross-selling and repackaging, which Sonia will discuss shortly, we also expect ARPD expansion in the second half of the year.

Turning to our solutions suite. Our focus on cross-selling the Cars Commerce platform yielded strong product adoption in the second quarter. AccuTrade and DealerClub continue to garner strong customer interest and usage as dealer competition intensifies for sourcing used vehicle inventory. AccuTrade grew its subscriber base to 1,070 dealers in Q2. And today, I'm excited to share that we signed an enterprise-level deal with one of the largest independent dealer groups in the country. During a rigorous pilot program, AccuTrade's valuation software outperformed this partner's legacy provider in speed and accuracy, leading to a significant win and further expanding AccuTrade's existing penetration at the dealer group's 150 stores.

More broadly, AccuTrade appraisal activity reached 925,000 appraisals in Q2, up 14% quarter-over-quarter and the second consecutive quarter of double-digit growth. Dealers also continue to acquire roughly 20 cars on average per month via AccuTrade. We're confident in this solution's transformative value for the industry, particularly as the largest dealer groups increasingly focus on acquiring vehicles from consumers in recognition of the superior profitability being unlocked by technology-driven dealerships.

Our ability to disrupt legacy auctions and enable retailers to operate more independently remains central to our strategy, but we aim to disrupt traditional online auctions, too. DealerClub, after completing its first full quarter as a Cars Commerce solution, grew transaction volume 50% sequentially. As a reminder, DealerClub offers a new channel for dealer-to-dealer trading with its transparent reputation-based format. DealerClub also enhances the advantages of our platform as we develop data-driven intelligent inventory management solutions that help dealers maximize the profit potential of each vehicle through either retail or wholesale channels.

DealerClub product development has moved extremely fast. In April, we turned on the ability for dealers to push AccuTrade appraisals into DealerClub auctions. In May, we launched the Cars.com-to-DealerClub direct integration, fully closing the loop between retail, wholesale and appraisal technologies to complete a comprehensive used car solution.

In practice, aging retail units are now automatically surfaced to dealers and can be seamlessly transitioned to wholesale. We're the first marketplace to offer this level of analytics to empower wholesale optionality for customers, and we expect a strong positive response from dealers as they learn more about these capabilities. It's very early, but we're encouraged with our initial momentum.

Finally, switching gears to Dealer Inspire and D2C Media. We grew to nearly 7,800 websites in Q2. Over the past 2 years, we have continuously invested in upgrading and modernizing the infrastructure that powers these sites. Recent developments now allow us to complete site deployment and complex updates in a matter of minutes, keeping pace with the dynamic nature of real-time dealership operations.

Our innovation reinforces our ability to negotiate and repackage website agreements for which we have a strong pipeline for the remainder of 2025. With a strong exit rate in June, momentum in key performance indicators and industry tailwinds that favor our platform strategy and used car products, we feel well positioned for revenue growth in the second half of the year and beyond.

And now I'll turn the call over to Sonia to discuss our second quarter financial results. Sonia?

Thank you, Alex. Second quarter revenue was steady year-over-year with underlying operational discipline producing adjusted EBITDA and adjusted EBITDA margin at the high end of expectations. Importantly, momentum in marketplace and solutions products underpins our confidence in returning to top line growth.

We are also raising our full year share repurchase target to $70 million to $90 million, consistent with our commitment to return value to shareholders. With multiple levers improving across the business, we have line of sight to deliver stronger financial and operating results heading into the rest of 2025.

As we communicated at the start of the year, 2025 was always expected to be a tale of 2 halves, with the first half focused on laying the groundwork for growth initiatives and the second half focused on realizing the resulting benefits in the form of revenue growth. Here at the halfway point and despite macro and tariff distractions, we have successfully achieved our first half operating objectives and expect further gains to accrete as these initiatives mature.

Second quarter revenue was $178.7 million, flat year-over-year and quarter-over-quarter and generally in line with our expectations. We executed on our growth initiative to drive positive sales velocity and volume growth, albeit balanced against a slightly lower ARPD due to mix, which resulted in dealer revenue being down 1% year-over-year.

Solutions was again a strong contributor with websites and AccuTrade each adding around 50 new customers sequentially in Q2. AccuTrade's penetration is now at nearly 1,100 customers. This includes 80 new and existing stores from the recently signed enterprise deal that Alex spoke to earlier. Another roughly 70 stores will be onboarded throughout the rest of 2025.

Offsetting solutions growth, marketplace and media continued to rebound from a slower start to the year and customer hesitancy to commit discretionary advertising dollars. Nevertheless, total marketplace customers have grown sequentially in every month since January, now including July. And notably, marketplace was our biggest net contributor to sequential dealer count improvement in the quarter.

Overall, we're pleased with the broad-based positive unit growth that we've delivered in Q2, particularly for our key focus area of marketplace. Our repackaging efforts are already underway and will deliver higher value to our customers, improving retention while supporting ARPD expansion on top of this larger installed base.

Rounding off the revenue discussion, OEM and national revenue was up 5% year-over-year, inclusive of early quarter shifts in advertising investments. While Q2 OEM revenue typically trends up month-over-month, we saw fluctuations beyond normal seasonality this year. For example, sell-through rates declined nearly 1/3 year-over-year on certain display products at the start of the quarter, whereas we would have expected a stronger run rate in the normal course of business.

OEMs continue to prioritize marketing and advertising flexibility, and we are staying close to our partners to capitalize opportunistically on scattered dollars where possible. Incrementals were robust in Q2, even on shorter lead times, which is a healthy sign that should be amplified as more trade resolutions are reached. We are confident that our OEM book of business will remain a revenue tailwind based on our strong marketplace traffic and scaled consumer audience.

Now on to operating expenses. Second quarter expenses were $163 million compared to $169 million a year ago, down 3% year-over-year as DealerClub costs that were absent in the prior year period were fully offset by cost controls around head count and lease-related expenses as well as shifts in marketing investments. Adjusted operating expenses were $153 million, down 2% from $156 million a year ago, primarily due to the aforementioned items.

Product and technology expenditures increased $1.1 million on a reported basis and $1.6 million on an adjusted basis due to the DealerClub-related investments that were absent in the prior year period. Marketing and sales costs decreased around $2.5 million year-over-year on both a reported and adjusted basis, largely due to shifts in marketing investments as our teams leveraged tariff-driven consumer demand to produce record traffic and audience metrics.

General and administrative expense was down $1.3 million year-over-year on a reported basis and roughly flat on an adjusted basis. The majority of the reported decrease was attributable to the lease amendment completed in Q4 2024.

Net income for the second quarter was $7 million or $0.11 per diluted share compared to net income of $11 million or $0.17 per diluted share a year ago. The difference in net income is primarily due to changes in the fair value of contingent consideration for prior acquisitions that were included in the prior year period. Adjusted net income for the second quarter was $26 million or $0.41 per diluted share compared to $0.38 per diluted share a year ago, reflecting our focus on reducing share count. Adjusted EBITDA of $51 million in the second quarter was up slightly year-over-year and adjusted EBITDA margin of 28.5% in the second quarter was at the high end of our outlook range due to prudent cost management across the organization.

Turning to key metrics. We're pleased with dealer customer growth, and we believe the commercial and other changes we made earlier this year will support further sustainable growth across all of our major product lines. ARPD in the second quarter was $2,435, down around $40 both year-over-year and sequentially, largely due to mix. And as previously mentioned, ARPD can be nonlinear, particularly in periods of relatively strong dealer customer growth.

That said, we have proven our ability to steadily grow customer wallet share over time through efforts like repackaging, which is a key growth initiative that we are committed to delivering in 2025. In late Q2, new marketplace Premium and Premium Plus packages were launched on a rolling basis, putting us on track to begin recognizing these pricing benefits beginning in Q3. These packages are designed to help dealers take advantage of the Cars Commerce platform through additional vehicle merchandising and media features.

Website repackaging is also progressing better than planned. We completed another negotiation in June and are optimistic that additional deals can be closed by the Q4 time frame. While cross-selling is expected to provide less of a stair-step improvement to ARPD this year, it remains an important long-term growth driver for our platform. An ancillary benefit of our marketplace repackaging is that by bundling additional media features, we are efficiently surfacing our full suite of products to more customers with less friction. We are also focused on deepening integration across the platform to drive more cross-selling opportunities.

Now switching to cash flow and the balance sheet. Net cash provided by operating activities totaled $56 million for the first half of the year compared to $69 million a year ago. The year-over-year variance is largely attributable to the anticipated increase in earn-out payments associated with the D2C acquisition. Free cash flow was $42 million year-to-date, down year-over-year, primarily reflecting the aforementioned items.

Share buybacks totaled 3.7 million shares for $45 million year-to-date, representing close to 107% free cash flow over this period. In light of the repurchases to date, our expectations for growth and to reaffirm our strong commitment to return capital to shareholders, we are raising our full year repurchase target to $70 million to $90 million compared to the previous range of $60 million to $70 million.

Debt outstanding was $460 million as of June 30, 2025, equivalent to a total net leverage ratio of 2.1x and comfortably at the low end of our target range of 2 to 2.5x. Total liquidity was $318 million as of June 30, 2025, giving us substantial capacity to thoughtfully allocate capital and pursue long-term value creation.

Finally, let's conclude with our outlook for the remainder of 2025. For the second half of 2025, we anticipate low single-digit revenue growth year-over-year. This is consistent with our original view that growth would be back half weighted as midyear growth initiatives are launched and then compounded in later quarters. These initiatives include our new marketplace Premium Plus package, additional website repackaging and improved sales velocity as well as continued product integration of DealerClub.

This outlook is based on the assumption that macroeconomic conditions stay relatively stable from today's baseline. Candidly, there still remains uncertainty on second half new vehicle production and pricing forecasts, which affect discretionary media spending by our customers. This means advertising revenue can shift intra-quarter to account for changes in inventory, model launches, new incentives and other activities that typically warrant promotion to consumers.

However, should there be more consistency in the operating environment, that could also lead to more favorability and upside for our media offerings. We are also reaffirming adjusted EBITDA margin outlook for fiscal 2025 between 29% to 31%, reflecting ongoing cost discipline, high contribution margin from growth initiatives and overall revenue growth. We feel well positioned to deliver continued improvement in operating metrics, which will drive both top and bottom line growth and create long-term value for shareholders.

And with that, I'd like to open the call for Q&A. Operator?

Your first question comes from Rajat Gupta of JPMorgan.

A lot of commentary on the call. It looks like a lot of momentum in the business. I wanted to clarify a few comments on just the outlook. I think, Sonia, you mentioned that you saw an acceleration through the quarter. I think you specifically mentioned that June saw an acceleration in the business, and then you expect further acceleration in the second half. Curious if you could quantify a bit what that means. How was June versus April? And then even the second half, should we -- does it mean that fourth quarter is an acceleration from the third quarter? And I think then Alex mentioned that you expect further acceleration in 2026. So any more quantification across those comments would be helpful. And I have a couple of quick follow-ups.

Yes. I mean I think in a subscription business like ours, you take some time to bring in dealers and then see the full revenue benefit accumulate over the course of the quarter and then to the full year. So I would expect to see acceleration from Q2 to Q3 to Q4 as part of a steady sort of addition to our subscriber base that drives revenue.

And I think acceleration is driven by 2 things for us. One is obviously the unit growth. We were excited to see broad-based growth and adoption of products across the business in Q2. And that will then, in Q3 and Q4, have our repackaging efforts layered on top of that larger dealer customer base.

Got it. And in terms of the average revenue per dealer, so safe to assume that third quarter will be better than the second quarter? And is that a sequential comment? Or is that a year-over-year comment? I think you addressed it on the call.

Generally, I was making the comment as a sequential comment as repackaging kicks in, we would expect to see growth from Q2 to Q3 into Q4.

Got it. And just a broader question, zooming out a bit as it relates to agentic AI. Obviously, that continues to evolve with tools that can autonomously search, compare, like even transact on behalf of users. How are you viewing the impact to your marketplace model, just the broader marketplace industry? I mean how are you thinking about the opportunity to integrate or enable these agents within your platform versus maybe the risk of disintermediation as these agents potentially bypass some of these interfaces? Like curious which phase of the journey are you in. How are you navigating this? Like how are you using this as an opportunity? Any more color would be helpful.

Sure, Rajat. Well, we're really pleased with the product innovation that we had on the agentic side in the quarter. Our home page search queries are generating twice the engagement, twice the leads and producing a much stickier user experience, and we're going to continue to build on that capability and then even be able to deploy some of that tech to our dealer website customers as well. So we're getting a lot of leverage out of the advancements in our product set.

I also would point that while the majority of our traffic comes to us directly because of the strength of our brand, both app and people typing directly our brand into their browsers, we have a much lower dependency on what I'll call technical SEO. Our competitors rely on technical SEO at a far greater level than we do because we source the majority of our traffic directly due to the strength of the brand.

So it's both an opportunity, and from a threat standpoint, it's relatively minimal. I think the other opportunity, as we noted on the call, the strength of our editorial content, we're layering that into as many of the AI engines that we can, which is rendering our brand recognition and serving as a real halo for our authority. As you know, auto is a multi-touch omni-channel experience. So it doesn't have the same disruptive threat of, say, variable or arbitrage models because consumers are seeking out multiple destinations. And so we generally think our content advantage serves as a strength and a halo to get incremental brand exposure through these engines, which consumers will come to us directly to seek out more information.

Your next question comes from Tom White of D.A. Davidson.

Two, if I could. First one is just kind of on the drivers of dealer revenue growth. So you added the dealers in the quarter, which was nice to see, obviously. But I guess I'm trying to understand what's happening with ARPD. It was down a bit sequentially and then also down 2% year-over-year. I think, Sonia, you mentioned it was mix. But can you elaborate on mix of what exactly? Is it just sort of size of some of the recent dealer adds? Is it product mix? I just -- given that you guys are selling in some additional products into those dealers, just trying to understand why ARPD hasn't been a little bit more buoyant. And then I have a follow-up on AccuTrade.

Thanks for the question, Tom. I think you actually hit on the answer in your question. I mean, look, I think we're seeing some small fluctuations in ARPD. It's about a $40 delta, primarily due to 2 things, I would say, customer mix and product mix and then a little bit is -- and then on the customer mix side, franchise dealers continue to comprise about 2/3 of our customer base. But I would say we're adding indies at probably a faster clip, and so they do tend to have a slightly lower ARPD, which will bring the blended average down. That's not a bad thing. I mean we think a healthy marketplace requires a good mix of both types of dealers, but mechanically, it impacts ARPD.

The second thing I would say is we have a growing base of what I'll call like solutions-first customers, which means they're coming to us as website customers only, at least initially, and then we cross-sell them into other products. And that, again, mechanically speaking, can be -- can create a little bit of initial drag on ARPD.

And then within media, we have seen -- while we've seen some growth in terms of unit adoption of the products, we definitely did see a little bit of tempering in spend but not a complete pullback. But people were a little bit more cautious in the quarter, which also impacted our ARPD. Ultimately, I see revenue as moving with both dealer count and ARPD, but they won't always move linearly together. In some of the periods where we have more net dealer additions, those dealers typically come to us by buying like one product initially, and then we build up their ARPD over time. So I think that's also manifesting a little bit in the numbers as well. But bottom line is it's a little bit customer mix, a little bit product mix as you kind of suggested.

Okay. And then just to clarify, I think you mentioned the impact of media. Isn't there some media that's excluded from ARPD? Can you just remind me what sort of media services or advertising is included and not included in that number?

Yes. I think I would say probably the biggest piece of media products that are not included in ARPD would be the digital advertising suite that was part of the Dealer Inspire website. D2C has a similar business up in Canada as well, and so that is not included in our ARPD.

Okay. That's helpful. And then just lastly on AccuTrade, I think appraisal is up 14%. Alex, I think you mentioned that dealers are acquiring 20 vehicles on average per month. I guess like what -- if this thing works well and it really gets integrated into kind of the day-to-day operations of the dealerships and the service lane, like what percentage of their total -- the average dealer's kind of total used vehicle intake, do you think, this product might realistically account for? I'm just curious like how to think about that. On one hand, 20 vehicles on average per month sounds good. But what could it get to sort of for the average dealer?

Tom, I read the earnings transcript of 3 of the big publicly traded companies that recently reported, and interestingly, all 3 of them had wildly different percentages of their total volume. I think 1 was 20%. One was like 2/3. And so this is evolutionary for the industry. I think what's driving it, obviously, are -- obviously, one of the larger publicly traded digital dealerships is sourcing the majority of their inventory directly from consumers and finding that inventory turns at a faster clip. And so it's adding to their profitability per unit.

And so we just held a conference in Chicago with about 70 dealer operators, and this was the #1 theme on their mind, was how do they source more used cars directly. So hard to predict in terms of where that percentage will normalize out. But without a doubt, it's a very durable proof point because dealers are looking to bypass auction fees and source more cars directly.

Your next question comes from Naved Khan of B. Riley Securities.

Maybe just on AccuTrade. Maybe, Alex, give us some color on the retention of the customers you've had. Has that been improving -- is it at a level that you would like it to be? Or is there a scope of improving it further?

And then secondarily, in terms of just the marketplace repackaging effort, is it going to roll out all in Q3 or through the course of over the, say, next 6 months to a year? How should we think about the timing? And is there a risk that as you go through the exercise, some dealers might churn out? Or is that not necessarily the case? How should we be thinking about it?

Sure. I'll start on the AccuTrade theme and then turn it to Sonia for the marketplace repackaging. First of all, look, we're pleased with the growth in AccuTrade, and certainly, as Tom just asked, like from a macro picture, we know we're on the winning side of history here in terms of how dealers are going to start to source cars differently and improve their overall customer experience and sourcing strategies.

Where we do have churn on AccuTrade is when the product is tied to the individual as opposed to a store-wide mandate. And so as dealership personnel moves from store to store, we'll see churn from one dealership, but then that personnel will want to re-sign up for AccuTrade at another store. So it's frustrating that so much of our success is tied to individuals as opposed to top-down mandates.

I was really pleased, and as I shared on the call, to get an enterprise deal with one of the larger dealer groups in the country who, from a top-down standpoint, is standardizing AccuTrade across all their stores because they've tested it in 30 dealerships and found that their profit per unit was higher and their overall customer experience was showing much stronger satisfaction for the stores using AccuTrade. And so increasingly, I hope that more top-down decision-making will happen across the industry where they will institutionalize AccuTrade and will move beyond it being more of a personal passion. But overall, we're very pleased with the trends that we're seeing.

I'll also note that DealerClub is an important part of this ingredient, where dealers will be able to buy all the cars they can from customers, and now we're giving them wholesale optionality where they can unload a car into a wholesale market so that they are inclined to buy more cars and trade them out either retail or wholesale.

So Sonia, do you want to comment on the marketplace question?

Yes, sure. So on repackaging, I would say we're rolling it out over the course of the next 2 quarters. This is truly, I would say, a repackaging effort. The last time we did this, which you recall back in 2023, it was as much or more of a pricing action as it was a repackaging effort. This is really about creating a new top-tier Premium Plus package and giving dealers more added value, more access to our platform, simplifying kind of the cross-selling go-to-market motion. So we certainly model out a variety of scenarios, which are then factored into our numbers, but this is much more of an opt-in to more value. And yes, it will also help us grow our ARPD.

Your next question comes from Joe Spak of UBS.

I guess maybe just to start on the guidance. I was wondering if you could help us a little bit because I think there's some unique factors we need to think about. If I look historically, in the back half of the year, you've got a pretty even split of revenue 50-50 between third quarter and fourth quarter, but it sounds like you're saying ARPD goes quarter-over-quarter, third quarter to fourth quarter, which would imply maybe a little bit stronger fourth quarter. But then I think on a year-over-year basis, you also have a few points of an easy comp issue from the [ SDK ] in the third quarter. So when we sort of meld that all together, is there any color you could provide to sort of how you're thinking about the cadence for the rest of the year?

Yes. So I think as we kind of mentioned earlier, I think with -- particularly with repackaging and net unit adds and given that the bulk of the business is a subscription-based business, as the repackaging efforts start seasoning, we won't see the full quarter benefit of that in Q3. You really start seeing the revenue like fully accumulate in Q4 and potentially into the exit rate and into next year as well. Same with the net additions, is the net additions really accumulate in the quarter after they occur, which is why we're talking about kind of the sequential acceleration. And because of, as you point out, the way the second half last year was shaped, it will also result in higher year-over-year growth in Q4 versus Q3.

Okay. And when you talk about OEM growth as a tailwind, I just wondered if we could sort of maybe double click on that. Like are you talking again sequentially from sort of first half levels or on a year-over-year basis? Or is that really more into '26?

We're pleased with how we were able to grow OEM and national revenue in Q2 despite a little bit more of the challenging backdrop. I think, obviously, visibility isn't as high, I think, as we would like it to be, but we see OEMs still making moves. We had a strong incremental sales in Q2, and that gives us like a fairly positive view on how OEM and national can help us deliver towards our revenue goals in both Q3 and Q4. So I wouldn't say it's just a 2026 thing. Certainly, as visibility increases, we think that makes it a little bit more straightforward to go out and win those dollars, but that's also why we're staying close to all of our OEM partners because we know the scattered dollars will be there.

Okay. And then just finally, Alex, I guess I'd be remiss if I didn't sort of ask you your sort of opinions on some of the recent Amazon news with them getting more into used and CPO. And I know they've already tried or have some efforts on the new side. It seems like they're getting more into the used side. Just want to get your view on sort of how you see that competitive threat, if it is one, and if you're able to sort of share maybe any feedback you've had from your dealer customers about their initiatives.

Sure, Joe. Thanks for the question. I think, as you know, from your coverage, this is a very specialized category that has a lot of nuance within the market. And I'll certainly say there's room for many players in this category. I look at all the horizontal players as potential threats, but this is a very specialized vertical industry with multiple layers between OEMs, dealers and obviously, consumers all playing an important part.

What I love about our business is that we've built a very durable, strong business that's vertically integrated deeply into the market, so we're built to withstand threats from any one trend or player. And I have talked to a lot of the dealers on the dealer council, and the feedback, thus far, has been there's a lot of effort but not a lot of traction.

And so personally, I'd love to be a reseller of Amazon's solutions to the industry and shift dollars away from Google, right? Like we've got the distribution already built. And if Amazon is serious about wanting to sell advertising into the automotive industry, I think we're an established platform that could provide a lot of scale and help on that, just like we've helped dealers with Google my Business or buying traffic on Facebook using our first-party data. So it's early. We're watching it closely, but I know the business is very fortified for the long term.

Your next question comes from Gary Prestopino of Barrington Research.

Alex, I just wanted to talk about something you have in the DealerClub narrative on the deck of the direct Cars.com-to-DealerClub integration for surfacing aged marketplace inventory. I mean are -- does that automatically notify a dealer in terms of when their inventory ages to a certain amount of days that, hey, maybe you should put this thing out in the wholesale channel rather than holding on to it?

Yes. I mean the integration on the product side, I'm certainly very pleased about how quickly our teams have not only embraced DealerClub but that how fast the DealerClub team has moved to build deep product integrations. And certainly, we started with AccuTrade. But now leveraging the insights from our Cars.com marketplace, every dealer's inventory is now pre-populated in DealerClub. So when they enroll with DealerClub, they can immediately see their inventory sorted by age, with aging units being obviously the most attractive with one-click launch to wholesale capability.

So this saves dealerships a ton of time. It provides them an immediate point of egress. It's obviously a free addition to their marketplace subscription and that we only charge fees on the buy side. So it's an absolutely tremendous addition to our platform.

The user data is up double digits quarter-over-quarter and transactions have been growing at 50% quarter-over-quarter. So it's relatively small. It's early stage, but the market receptivity that we're getting here is tremendous. And as you know, Gary, the play here is disruptive in that we want to build this D2D trading platform without the heavy inspector costs, right? We don't want to staff a team of inspectors. And because of the reputational nature of this platform, we also are seeing that we're able to bypass the arbitration risk that a lot of the traditional online auctions are incurring.

And so it's a very asset-light strategy. It enables technology to power dealers to do trading amongst themselves and disrupt the $10 billion auction industry that's largely built on a fee structure where we think we can enable dealers to operate more independently and trade more as a collective and pass that savings back to the dealer community. So again, very early stage. I hope DealerClub will contribute much more meaningful to revenue in 2026, but we're very pleased with the initial entry into the market.

Okay. Can you share anything on AccuTrade as far as the appraisals? What percentage of those appraisals are being converted at the dealer level?

Well, we know dealers, from data we can see, are acquiring about 20 cars per dealership that are using the software reliably, and that's -- obviously, you think about the auction fees on that alone, just buying one car would pay for the AccuTrade subscription. So we have no doubt to the profitability.

We also know the #1 feedback we're getting from dealerships is saving them from hidden repair costs that aren't captured with more physical inspections. And so dealers are citing that the savings that they're generating from not overpaying for inventory is the other big ROI. So those are the 2 primary drivers that we're seeing dealers appreciate about our approach here.

As to the specific number that you're asking for, I'll have to get back to you to give you a more accurate number. But generally, we know the feedback on the product has been tremendous. We are piloting more solutions around AccuTrade to add capabilities such as an IMS, and we hope to have more news on that shortly.

Okay. And then just real quickly, coming out of the quarter, I would assume the dealer market is still rather cautious. You had some prebuying in the quarter to try and beat tariffs. But anything that you could address there in terms of what your collective outlook may be going forward? That would be helpful.

No, I think sentiment is improving, Gary. This isn't the first cycle where the system gets shocked by larger macro news. We see dealers pull back, and then they see the durability of the consumer and return to being competitive in spending. We're certainly thrilled with the dealer growth in Q2 at over 160 dealers. We know that will translate to dealer growth in Q3. And I'll just note that we also saw strong dealer growth in July. So that dealer sentiment clearly is showing a willingness to get back in the game and compete. And I definitely -- on our market travels and time with dealers, we're seeing a much more aggressive focus on, "Okay, the world isn't falling apart. How do I compete more for volume?" And that serves us extremely well because we obviously are reaching consumers at the last mile and dealers need to be there.

Your next question comes from Marvin Fong of BTIG.

Would just like to understand a little bit better the increased sales velocity comment. I know you have a new head of -- a new person heading that effort up. I just wanted to understand a little bit better what exactly did you mean by that? And how are you changing the go to market there?

And then kind of a related question, but I think I just want to confirm, you said you expect dealer count to be up sequentially kind of both quarters for the remainder of the year. Just want to confirm that. And I know that historically, Q4 has a bit of seasonal weakness. So I just want to confirm, you expect to be able to add dealers in the fourth quarter even with that seasonality. Did I understand that right?

Sure. Well, I'll point out that our go-to-market changes are more than just one person or team, although we certainly obviously have made changes at the leadership level, but we've also fortified her team with several staff that have come and brought new insights and energy that we're thrilled with the way that they've enhanced our go to market.

We're also doing a lot, much more on the data and targeting front, which is helping facilitate cross-selling. I'm really pleased with how quickly this team has adopted DealerClub as part of their go-to-market motion and not weighted on that. And so the team is driving much more integration of our collective solutions into the dealer community and getting the cross-sell started at a faster rate.

So there are several things that we're excited about in the improved go-to-market motion. And then, yes, certainly, Q4 always has sort of seasonal softness. I think this is a little bit different because dealers, we know we pulled back earlier in the year due to the tariff challenges. And certainly, the dealerships that are reporting record profits are the ones that are relying far more aggressively on technology forward solutions. And I think that awareness is driving behavior across the industry that gives me confidence that this won't be a seasonal issue that dealers are having to figure out how do I sustain my profitability per unit and overall and it isn't by adding head count. It's about using technology-driven solutions and being more efficient in the way they operate. And so that's beyond any one seasonal trend. So yes, we think we can continue to grow dealer count throughout the second half.

Great. If I could sneak one more in. Just wondering if you're seeing any difference in behavior by nameplate. So for instance, the one, maybe BMW and Toyota are seeing a little bit more pressure, saying they're going to have to raise prices maybe more than some other nameplates, are you seeing any differentiation among the dealerships based on sort of their tariff exposure and how they're behaving?

Not at the dealership level as much. Most of the dealerships are shifting more aggressively to used cars more broadly just to insulate their business from the macro tariff noise and issues, but we are seeing differences in OEM behavior. I think, obviously, just by looking at our website, you can see that Hyundai has been stepping up a lot more aggressively with us over the past quarter, and you're seeing that translate to greater sales. Nissan as well currently, I believe, is highly prominent throughout the experience. And importantly, we're seeing a shift in OEMs wanting to get better at measuring Tier 3 outcomes.

As you know, Marvin, this has been one of the disconnects that we've seen as Cars Commerce, is that OEM marketing initiatives are trying to drive traffic to Tier 1 and dealers are trying to get consumers to convert to Tier 3. With our platform, we're working with OEMs to show them that Tier 1 investments are most successful when they drive Tier 3 sales outcomes. And the fact that we're getting great conversations started with OEMs and some tests going where we can measure not only what activities does their investment generate on our marketplace, but we can measure their dealer network websites as well to validate that these strategies are driving dealer sales.

And so I told you that would be a multiyear journey to get OEMs to value us on Tier 3 outcomes. I still think we're early innings there, but the fact that the data is showing such strong response from certain OEMs that are leaning into it, I think, is a great example of what's to come.

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for attending. You may now disconnect your lines.