Cars.com Inc. (CARS) Q2 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call presents a mixed but generally positive outlook. The company shows strong product development and business growth, with significant increases in appraisals and transaction volume. The Q&A section provides optimistic guidance on ARPD and dealer count growth, despite some uncertainties. Share buybacks and a low debt ratio further support financial health. However, net income decline and free cash flow reduction are concerns. Given the market cap, the stock is likely to see a positive movement of 2% to 8% over the next two weeks.
Key Financial Performance
Revenue $179 million, steady year-over-year, with a 5% year-over-year growth in OEM and national revenue offsetting temporary softness in dealer revenue. The growth in OEM and national revenue was attributed to increased spending by nearly half of the OEM partners, despite variability in investment levels due to industry trends and tariff uncertainties.
Adjusted EBITDA Margin 28.5%, at the high end of the outlook range, driven by cost efficiencies and operational discipline.
Dealer Count 19,412 customers, up over 160 dealers year-over-year and quarter-over-quarter, marking the best sequential organic growth in over 3 years. This growth was attributed to new go-to-market changes and increased sales velocity.
Traffic 162 million, up 2% year-over-year, setting a new second-quarter record. This increase was driven by a tariff-motivated surge in consumer demand and enhanced lead intelligence features.
Net Income $7 million or $0.11 per diluted share, compared to $11 million or $0.17 per diluted share a year ago. The decrease was primarily due to changes in the fair value of contingent consideration for prior acquisitions.
Adjusted Net Income $26 million or $0.41 per diluted share, compared to $0.38 per diluted share a year ago, reflecting a focus on reducing share count.
ARPD (Average Revenue Per Dealer) $2,435, down around $40 year-over-year and sequentially, largely due to mix. However, repackaging efforts are expected to support ARPD expansion in the second half of the year.
AccuTrade Appraisals 925,000 appraisals in Q2, up 14% quarter-over-quarter, marking the second consecutive quarter of double-digit growth. This growth was driven by increased dealer competition for sourcing used vehicle inventory.
DealerClub Transaction Volume Grew 50% sequentially, supported by new integrations and product development.
Free Cash Flow $42 million year-to-date, down year-over-year, primarily due to an anticipated increase in earn-out payments associated with the D2C acquisition.
Share Buybacks $23 million in Q2 and $45 million year-to-date, representing 107% of free cash flow over this period. The full-year repurchase target was raised to $70 million to $90 million.
Debt Outstanding $460 million as of June 30, 2025, with a total net leverage ratio of 2.1x, at the low end of the target range of 2 to 2.5x.
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Operating Highlights
AI-powered search capabilities: Launched in May, this feature augments standard keyword searches with natural language recognition, converting conversational queries into tailored shopping results. Lead submission rates from visitors using AI search are 2x higher than regular search and account for nearly 20% of Internet leads submitted.
AccuTrade: Expanded its subscriber base to 1,070 dealers in Q2, including a significant enterprise-level deal with a large independent dealer group. Appraisal activity reached 925,000 in Q2, up 14% quarter-over-quarter.
DealerClub: Grew transaction volume by 50% sequentially. Integrated with AccuTrade appraisals and Cars.com to DealerClub direct integration, creating a comprehensive used car solution.
Dealer count growth: Dealer count increased to 19,412, up 162 customers quarter-over-quarter, marking the best organic performance since 2022.
OEM and national revenue: Grew 5% year-over-year in Q2, with nearly half of OEM partners increasing spending on the platform.
Cost efficiencies: Achieved adjusted EBITDA margin of 28.5%, at the high end of the outlook range, through cost controls and operational discipline.
Traffic and audience metrics: Traffic hit a record of 162 million in Q2, up 2% year-over-year. Average monthly unique visitors totaled 26.6 million, up year-over-year in each month of the quarter.
Marketplace repackaging: Launched enhanced marketplace repackaging in June, bundling more media features to maximize platform advantages.
AI innovation: Committed to continuous AI innovation, with plans to integrate editorial content into search and enable lead submissions and trade-in value requests using AI.
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Risk or Challenges
Dealer Revenue Softness: Temporary softness in dealer revenue was noted, despite growth in dealer count. This could impact overall revenue stability.
Tariff Uncertainty: Uncertainty around tariffs persisted during the quarter, affecting OEM revenue and leading to variable investment levels by OEM partners.
Short Lead Times for OEM Investments: OEMs are making short-term investment decisions in response to dynamic industry trends, which could lead to revenue unpredictability.
Advertising Revenue Volatility: Discretionary advertising spending by customers remains hesitant, influenced by macroeconomic conditions and inventory levels.
ARPD Decline: Average Revenue Per Dealer (ARPD) declined slightly due to mix, which could impact revenue growth despite dealer count increases.
Macroeconomic Uncertainty: Uncertainty in macroeconomic conditions, including new vehicle production and pricing forecasts, could affect discretionary media spending and overall revenue.
OEM Sell-Through Rate Decline: Sell-through rates for certain display products declined nearly 1/3 year-over-year, impacting OEM revenue.
Customer Hesitancy in Advertising Commitments: Hesitancy among customers to commit to advertising budgets has slowed marketplace and media revenue growth.
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Guidance & Outlook
Revenue Growth: Anticipates low single-digit year-over-year revenue growth in the second half of 2025, with acceleration heading into 2026.
OEM Revenue: OEM growth expected to remain a tailwind in the coming quarters, with an upward trajectory in OEM media for the remainder of the year.
Marketplace Packages: New marketplace Premium and Premium Plus packages launched in late Q2, expected to begin recognizing pricing benefits in Q3.
Website Repackaging: Progressing better than planned, with additional deals expected to close by Q4 2025.
Adjusted EBITDA Margin: Reaffirmed outlook for fiscal 2025 between 29% to 31%.
Share Repurchase Target: Raised full-year share repurchase target to $70 million to $90 million.
Dealer Growth: Dealer count increased to 19,412 in Q2, with expectations for continued growth in the next few quarters.
Product Innovation: Plans to launch continuous AI enhancements later in 2025, including integrating editorial content into AI-powered search and enabling lead submissions using AI.
DealerClub Integration: DealerClub product development progressing rapidly, with expectations for strong dealer response to new capabilities.
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Shareholder Return Plan
Share Buyback Program: We also continue to pace ahead of our 2025 share buyback commitment, repurchasing $23 million of shares in Q2.
Increased Share Repurchase Target: 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.
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Key Q&A
Q:Can you quantify the acceleration in business mentioned for June and the second half of the year?
A:Sonia Jain explained that the acceleration is driven by unit growth and repackaging efforts layered on a larger dealer customer base. She expects steady growth from Q2 to Q3 to Q4.
Q:Will the average revenue per dealer (ARPD) in Q3 be better than Q2?
A:Sonia Jain confirmed that ARPD growth is expected sequentially from Q2 to Q3 into Q4 as repackaging kicks in.
Q:How is the company viewing the impact of agentic AI on its marketplace model?
A:Alex Vetter stated that product innovation in agentic AI has doubled engagement and leads. The company has a strong brand with low dependency on technical SEO, and its editorial content is being integrated into AI engines to enhance brand recognition.
Q:What are the drivers of dealer revenue growth, and why is ARPD down sequentially and year-over-year?
A:Sonia Jain attributed ARPD fluctuations to customer mix (faster addition of independent dealers with lower ARPD) and product mix (solutions-first customers starting with one product). Media spending was cautious, impacting ARPD.
Q:What media services or advertising are excluded from ARPD?
A:Sonia Jain clarified that digital advertising suites from Dealer Inspire websites and similar services in Canada are excluded from ARPD.
Q:What percentage of a dealer's total used vehicle intake could AccuTrade realistically account for?
A:Alex Vetter noted that percentages vary widely across dealerships, but AccuTrade is helping dealers bypass auction fees and source cars directly. He emphasized the industry's evolution in sourcing strategies.
Q:What is the retention rate for AccuTrade customers, and is there room for improvement?
A:Alex Vetter mentioned that retention is tied to individual users rather than store-wide mandates. Enterprise deals are improving retention, and the company is optimistic about institutionalizing AccuTrade.
Q:What is the timeline for the marketplace repackaging effort, and is there a risk of dealer churn?
A:Sonia Jain stated that repackaging will roll out over the next two quarters, focusing on creating a new top-tier package with added value. The effort is designed to grow ARPD and minimize churn.
Q:How does the company view Amazon's entry into the used and CPO market?
A:Alex Vetter acknowledged Amazon as a potential threat but emphasized the specialized nature of the automotive market. He expressed interest in collaborating with Amazon to shift advertising dollars from Google.
Q:Does the company expect dealer count to grow sequentially in Q3 and Q4 despite seasonal trends?
A:Alex Vetter confirmed expectations for sequential dealer count growth in Q3 and Q4, citing improved dealer sentiment and focus on technology-driven solutions.
Q:Are there differences in behavior among dealerships or OEMs due to tariff exposure?
A:Alex Vetter noted that dealerships are shifting to used cars to mitigate tariff impacts. OEMs like Hyundai and Nissan are increasing their presence on the platform, and the company is working with OEMs to measure Tier 3 outcomes.
Q:Review of Unclear Management Responses
A:Management avoided providing specific quantifications for the acceleration in business and the exact percentage of used vehicle intake AccuTrade could account for. Additionally, they did not provide a precise retention rate for AccuTrade customers or specific ARPD growth figures.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
AI search
AccuTrade appraisal
Cars Commerce
Carscom
Co Research
Commerce platform
Dealer
DealerClub
Inc
OEM
President Investor
Research Division
adoption
analytics
auction
car buying
channel
consumer
content
count dealer
dealer count
dealer group
dealership
experience
feature
industry
lead
marketplace
measure
outlook
solution
vehicle
visitor
volume
website
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Cars.com Inc. (CARS) Q2 2025 Earnings Call Transcript
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The earnings call presents a mixed but generally positive outlook. The company shows strong product development and business growth, with significant increases in appraisals and transaction volume. The Q&A section provides optimistic guidance on ARPD and dealer count growth, despite some uncertainties. Share buybacks and a low debt ratio further support financial health. However, net income decline and free cash flow reduction are concerns. Given the market cap, the stock is likely to see a positive movement of 2% to 8% over the next two weeks.
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