Good morning, good afternoon, and good evening, everyone. Thanks a lot for joining the webcast. My name is Rajat Gupta, Member of the U.S. Automotive Equity Research team at JP Morgan. Very pleased to have with us Alex Vetter, CEO of Cars.com. On the format of today's discussion, Alex will be starting off with a couple minutes of prepared remarks about the company, after which we will dive into Q and A. If anyone in the audience does have a question, please feel free to post it on the conference portal, and I can ask it anonymously on your behalf. You could also email the question to me or anyone from my team, and we'll make sure to ask the question. With that, thanks, Alex, and I would like to hand it over to you. Rajat, thanks for having me. Thanks for everybody tuning in today. Certainly, I think of all the industries that we could be talking about, automotive has got a lot of exciting things happening in it. This is the best retail environment that we've seen in over a decade. COVID has accelerated rapidly the industry's adoption towards digital platforms. I hope everybody here knows the name Cars.com. We're the leading brand in the online automotive space. It's been tried and tested over 20 years. I think what's important about this opportunity is our stock hasn't fully appreciated the enormous transformation that's happened in the business over the last few years. We were a legacy company trapped inside media companies. We were able to break the company out of its legacy ownership and spin it out into a new form. The transformation has largely been successful across all the various pieces that we've changed. We've made strategic acquisitions that are now growing at fast double-digit rates. Our core marketplace is now the fastest-growing in the category. We're really excited, primarily also because our strategy's differentiated. We've made a deliberate shift towards being an enabler for the auto industry. Our digital solution strategy is rapidly growing, both with OEMs and with dealerships. We've made some major migrations in our technology towards the cloud that's accelerating the pace of innovation. You probably see this in our growth in both customer count and in pricing, despite some pretty surreal trends in the broader industry. Happy to be here, Rajat, and just we'll turn it over to you to guide this conversation. Great. Thanks for that intro. I just wanted to start off with more consumer-centric question. Given your platform is consumer-centric, you seem to have great visibility on underlying demand trends. Could you give us an update on just the general health of consumer demand, dealer inventory levels? Maybe in context of levels you've seen in the second quarter and first quarter. Also in context of the record pricing we have seen recently, and if that is starting to have any impact. General Motors made a comment on one of their earnings calls recently that they want to be careful with pricing and there's an upper limit ultimately in how high it could go. Just any thoughts on that to start off would be super helpful. Well, a couple opening comments, and we can dig deeper on any one of them. Inventory shortages are real, but they do vary by market and by manufacturer. I think this is one of the reasons why our platform has stood up so well during this supply crunch in that platforms like Cars break down geographic and physical barriers. If you're looking for a specific car, you can search nationwide and find who has the car you're looking for. I know both manufacturers and dealers are realizing that even if they have lower inventories, they still need to have their inventory that they've got to be found. We are seeing differences between domestic and imports. Ford, it's been well documented, has been extremely impacted by the production challenges. The F-Series trucks have been the number one selling vehicle every month since before 2011, but now is number three in May and June and has felt some of the largest declines, largely due to inventory shortages. The consumer demand is persistent and is outpacing supply. If you look at our platform, which is a pretty good summation of what's happening out there, new car inventory levels are down about 35% on our platform in Q1, and now it's down close to 65% as we're entering in the tail end of the year. Used car inventories are also down almost 20% in Q1. We're seeing that slow down in only down about 12% in the recent period. The consumer story is real, right? Our demand and our consumer traffic is up almost 10%. I think underlying that to the health of the market, prices for inventory are actually rising. New car prices are up 17% since start of the year. Used car prices reached a high water mark of up almost 30%. What this is leading to is record profitability. You're seeing this in all the publics. They're reporting it across the industry. Gross profit per vehicle up substantially. I know Carvana reported their first quarterly profit. The industry is in a really healthy spot right now. Got it. It doesn't seem like pricing has not gotten to a level where it's starting to really sway customers away, in terms of just demand and it just seems to be pretty healthy despite that. Is that fair? I do think you're going to see some used car pricing softening. One of the big trends, obviously, over the last year is the rental car companies. If any of you have traveled recently, you know what I'm talking about. Yeah. They haven't had any supply. They've been buying used cars, trying to replenish fleets that they liquidated this time last year. I think with schools opening back up and families going back to school, you're going to see less travel. The rental car companies are going to pull back in their buying patterns, which is naturally going to soften the used car market. That's just my own personal prediction, but I think we'll see some softening of that. I think the consumer demand due to COVID is real in terms of consumers wanna have the latest and greatest technology in their garage. They wanna have safe, reliable transportation. Got it. That's a really helpful anecdote. I wanted to switch gears quickly to online digital retailing. As you've seen, as you've heard, dealers are increasingly expanding their solutions, their own platforms, just as consumers' appetite for online purchases have grown through the pandemic. Any metrics you could provide on the penetration or adoption of your digital solutions? Just kind of what do you have in terms of offering pipeline or product pipeline that can further enhance this and make it easier for both the consumer and the dealer to transact through your channel? Yeah. Well, look, I think a couple answers here. Number one, this industry shift towards digital channel experiences, we've led it with our acquisition of Dealer Inspire. Dealer Inspire had less than 1,000 dealers when we bought the business. We're reaching close to 5,000 dealerships where we're powering their primary website, including the e-commerce experiences for some of the largest publicly traded groups. We're helping make the industry shift towards this digital-first platform. I like to say our strategies, we're really about arming the rebels, right? We're giving them the tools and technologies so that they can compete locally. I think what's really exciting about our other business, our marketplace business, is that we're really about pre-tail versus retail, meaning that every consumer does heavy amounts of online research prior to purchase. If you think about our platform, we've got 25 million people actively searching for the car and the dealership they want to do business with prior to launching into a retail transaction experience. Our marketplace aggregates demand. Our solution strategy helps dealers convert that. What we see in the data, to me, is very exciting with terms of our future prospect. We've got decent SaaS-like revenue with our subscription model, charging dealers around $2,000 and change per month. Now that we can see vividly the transition of users from our marketplace into our digital solutions, what we're seeing in the data is that Cars.com shoppers are converting at twice the rate of all other traffic sources combined. Most of our marketplace is valued on lead gen, which is 1st-generation advertising. I think 2nd- generation and 3rd- generation, where we're going, is really helping get that consumer journey from a market-wide view into a digital experience and helping dealers convert that traffic to sales. I think this is why all the big publicly traded groups list their cars on Cars.com. They see this being digital only. They know how well our traffic converts, and now we've got to convert the long tail of the industry to see what the big guys do. Got it. Just to follow up on that, TrueCar talked about this. They're piloting this end-to-end solution where consumers can do an end-to-end transaction through them. Clearly, it seems like that's what consumers are looking at in terms of experience. Carvana provides an end-to-end experience, and there have been a lot of talk about Carvana listing third-party inventory and providing an end-to-end transaction for that car, which is located at another dealer. What are your initiatives on that front? Do we see you going towards that kind of an end-to-end solution for the consumer? Just to provide that kind of experience, integrating the financing, the delivery, the trade-in, just managing that for the dealer. Is that a path you think or is that how the industry might ultimately look like in terms of your participation in the supply chain? Okay. There is a lot to unpack there. Let me try to break it down to some pieces. First of all, I think the word e-commerce in automotive is overblown. At the end of the day, this is one of the largest physical goods that has to be delivered or picked up. It's not like it's going to arrive in a brown Amazon box at your door. I think what I'm excited about is how many dealers are now offering home delivery. We were the first to launch this nationally. We've got over 10,000 dealers now that are willing to drive a car to bring it to your home for both a test drive or as part of a purchase. Dealerships are ramping up their BDCs, which are their Business Development Centers, to handle online transactions, just like Carvana. The entire industry is starting to claim high ground in terms of this new online experience. We're excited because we're helping the industry adopt it. I think, again, what's exciting about this is all these players trying to fight for transactions, the best way they can do that is to source shoppers who are in the research funnel and phase of the game. That's where we aggregate demand. Average user on our platform is spending a significant amount of time, north of 40 minutes, prior to launching into a retail environment. As we aggregate demand, that's how we've got 19,000 dealers and growing plugging into our system. I think our business is well-positioned to help the industry shift, and we haven't even seen the OEMs who are now ramping up their omni-channel experiences as well, and we're excited about what that could mean for our business as well. Got it. Just one last point on the online solution. We've seen these acquisitions from just all of a sudden, like last three or four months. We've seen Roadster get acquired by CDK, Gubagoo by Reynolds and Reynolds. I don't know if I mixed that up, but the Darwin and I've been hearing about AutoFi. Just curious as to why is this happening now? What's the power of these acquisitions? How does that help the industry accelerate towards e-commerce? Where do you fit within this landscape then? Well, look, I think, as I said in the opening, I think what COVID has done is it's made the entire industry radically shift their strategy towards technologies and digital solutions, which has been our strategy all along, and that's why you're seeing acceleration in both dealer count and average revenue per dealer. We see that those trends continuing to scale. I think this is a big TAM opportunity, so there's no shortage of new technologies and tools to compete. I think we're excited about the opportunity to plug in new technologies into our existing distribution. It's a highly fragmented industry. There aren't many platforms that aggregate both consumer demand or dealer participation. We're one of the leaders in both. As we look at our capital allocation, it's easy for us to identify technologies that the industry wants and plug it into our existing distribution. I think you're seeing this with FUEL, which is our digital video platform. We know that you don't need a television station anymore to broadcast. Digital channels have taken over the airwaves, yet dealers in the auto industry are spending $10 billion in linear TV broadcasting to the mass market. With FUEL, we actually allow the industry to narrowcast just to the percentage of the population that's in market. It's the fastest-growing product in our set because we've already got distribution built with dealers. We've already got strong consumer demand. We've built FUEL and distributed it, and I think you're going to see more opportunities like that from us in the future as we put our capital to work. Got it. That's helpful color. Just to follow up on 1 of your previous comments where you ended by talking about the OEMs moving to omni-channel. Ford talked about their order bank model on their earnings call recently. As dealers carry significantly lower inventory, there's talk about this agency model that might come into play in the U.S. Similar to what we have heard in Europe. What do you think is going to be the new normal for the industry structure going forward as these OEMs start to deploy this reservation system? How is the dealer relationship going to look like, and what kind of role do you see yourselves playing there? Look, I think the non-negotiable durable trend in the auto industry is research prior to purchase. Next to buying a home, this is the second biggest ticket item in everybody's lives to buy. To think that you're going to build one e-commerce experience, and everybody's just going to go there and buy without doing any research, that's a fool's errand. We've been around for 20 years and yet have no problem aggregating 25 million car shoppers every month. 75% of our traffic is coming to us organically or directly. We don't have to spend ungodly amounts of SEM to build our traffic. It's coming to us naturally and organically. If you look at what happened in COVID, even when we cut our marketing budget in half, our traffic numbers surged because this is the better consumer experience. You don't want to buy a car going through one channel. You want to see a market-wide view, and that's what we've always been. I think as the funnel gets smarter digitally, OEMs and dealers are seeing what I've known all along, is that research traffic converts at the fastest and best rate. They're hand raisers that are actively in the market. I'm thrilled that the OEMs are now studying Google Analytics better. I'm thrilled that dealers are hiring people to help them analyze these traffic trends. What we see vividly through our Dealer Inspire backend of 5,000 websites is that Cars.com traffic converts higher and generates more volume than all our peers. I think that we've got a very durable marketplace business. Marketplaces tend to be the dominant use case for mass market users. I think that's why you're seeing dealer participation. I think our solution strategy helps the vast majority of our industry advance towards digital retail. We've got all the tools to do that. I think our business is well-positioned to both ride the growth in digital spending and ride the growth in solution spending that everybody's going to be adopting over these next few years. Got it. Great. One thing we've seen over the last quarter, particularly in the second quarter relative to the first quarter and maybe pre-pandemic, that dealers are becoming increasingly focused on retail sourcing, like sourcing cars directly from consumers. It makes sense. Higher margins, less wholesale fees, and wholesale pricing itself has been so volatile. On this front, one of your peers recently launched an online appraisal tool helping dealers ramp up customer sourcing via instant transactions. Could you share your views on this pivot towards consumer sourcing? How are you participating in that? How are you helping dealers? Could we see you launch a major offering in that direction? Maybe you're already doing so and it's probably not well appreciated yet. Any thoughts on that would be helpful. Well, look, you've seen this in all the categories. I know you cover a lot of different industries, I think there's a consistent trend, which is technology can destroy structure. I think our industry structure is ripe for disruption in that, the legacy model of using these giant third-party intermediaries to source inventory has been the legacy norm. If you think about it, the dealer network is a structure unto itself. Dealers have shown that both a desire and a propensity to work together as a flexible network using technology to accelerate inventory turn. If you think about our platform, we already have 19,000 dealers working with us. It isn't hard to imagine us being able to add a technology layer that facilitates dealer-to-dealer trading that's tied to consumer demand. So, our digital solution strategy is an enabler. This is our DNA. We are arming the rebels here to do things more cost effectively using tech. I think what's also exciting is that without any effort, we've got 20,000 private sellers coming to Cars.com each and every month, looking to sell their car. It's not hard to imagine how valuable that is. Every dealer will tell you they would prefer to buy cars direct from the public as opposed to competing in the auction lanes. We have organic assets that we've yet to monetize, and I think you can imagine simple technology solutions that would facilitate dealer-to-dealer trading, leveraging our strong organic, private seller consumer model to enable the dealer network. It can be a massive growth opportunity for the business. Got it. That's helpful. You know, some of the dealership groups have launched their own nationwide brands. Some early results show that they're seeing pretty good penetration and good conversion. There's also growing brand awareness and penetration of the digital used retailers like Carvana, RideShift, et cetera. In such a landscape, when all these dealers are just doing it themselves, and spending advertising on their own platform, what are the competitive advantages of Cars.com that could help potentially retain a lot of these dealers, despite them moving to their own platforms and their own brands? Well, look, I think the objectivity is number one. Most consumers, prior to purchase, want to have a trusted, independent view of the market. Just look at inventory levels. On average, last year, I think Cars.com had four million listings on our platform. You compare that to any individual dealership, even the largest publicly traded, they've got 40,000, 50,000 listings. There's no comparison when you talk about getting a market-wide view. This is why marketplaces are dominant platforms all over the globe. I think the other thing is that independent curation. You're never going to have consumers trusting first-party sellers as much as they'll trust independent, objective platforms. We let users curate the market. The users are free to write reviews, help us with pricing transparency. We're able to use technology to help educate the demand and supply side here. I just think the use case of a marketplace is typically 10x that of any individual seller. Got it. That's helpful context there. Could you give investors a bit of a recap on the dynamics of the FordDirect partnership? Just what the related market opportunity is, the cadence of the rollout, as well as initial dealer traction that you might be seeing with that. Yeah. I think what you're specifically referring to there is, first of all, it's great to see the car companies start to allocate capital towards digital platforms. Historically, OEMs earmark a lot of capital for new coffee machines, marble floors, fancier buildings. I think what we're going to see over these next few years is OEM capital allocation towards digital technologies to help their dealer networks become more digital first. We've been a leader in that for a while now. We're shifting dealers towards digital platforms rapidly. I think you're seeing that when we won the GM business, which has been a rapid acceleration of GM dealers. Then you're also seeing that with our recent announcement with Ford. Ford, again, has close to 4,000 dealers. We're helping move them towards our Dealer Inspire platform, and we're going to continue to take share there. I think what's exciting about that is dealers can now use our technologies to help them accelerate the shift towards digital channels. It's going to be a strong growth model for us for years to come. Got it. Got it. On DealerRater, I know we chatted about this a month or so ago, total reviews tracking ahead of 10 million. What other kind of similar product enhancements or different adjacencies that you have in the pipeline that you could touch upon, which is being more built organically by the business, or maybe there's some inorganic opportunities there that you could talk about. Well, look, I'm really proud of the innovation track at Cars. Not only did we just make a migration to a cloud-based infrastructure that has accelerated our pace of innovation, look at what we built with FUEL. We were the first to market with FUEL. We're disrupting the $10 billion linear TV market. We see rapid adoption. When dealers plug into FUEL, their market share grows. We're very early innings here at FUEL. FUEL, by the way, retail prices for that are almost 5x what our marketplace subscription is. The dealers taking FUEL aren't giving it up. We see fantastic adoption there, and that's all been innovated in-house. I think as I look out further in the horizon, two areas of interest obviously are online financing. You're seeing aggressive moves in lenders, both traditional ones and even new disruptive ones wanting to get closer to auto transactions. We think we can deliver a model to our consumer and dealer networks that's complementary and doesn't compete, but adds significant SaaS-like revenue and online finance revenue to our platform. We talked about vehicle acquisition. We've got 20,000 private sellers organically coming to Cars. We know that the auto industry would like to buy those cars directly from us. Those are probably the two biggest near field opportunities to expand our TAM and to create new lines of growth. Got it. You may have already touched upon this a little bit on the previous sourcing question, but I'm getting a question from an investor on just exploring the wholesale marketplace more directly. Just do the efforts of a company like ACV Auctions suggest there might be a role for you in the dealer-to-dealer wholesale volumes, as dealer-to-dealer wholesale volumes might be increasing? Yeah, sure. I think, again, dealers are wanting to do things more with tech versus less. If you look at what's happening in the wholesale industry, the wholesale and retail channels are blurring aggressively because pricing deltas between wholesale and retail is being replaced by velocity. If you look at what you need to compete in dealer-to-dealer trading, you need predictive visibility on retail demand. I can see things well before the auto industry can. I'm seeing the softening on used car prices in real time on our platform. We can help the industry be smarter about when to buy and at what price point. Again, dealers are already using our tools each and every day. We've got over 19,000 that are actively engaging in our tech each and every day. It's not hard for us to direct our consumer sellers directly into our platform so that dealers can bid on those cars and buy them directly. I think there's a lot of disruption and opportunities here for us. Got it. Great. Thanks for clarifying that. We have a couple of minutes left. I definitely wanted to touch on the balance sheet. Your net leverage position continues to get better. Now, just curious as to what's next in terms of capital allocation, what your priorities are. Are you considering some strategic M&A, pay down debt? Just what are the top, maybe you can in rank order, what the priorities are for capital allocation? Yeah. Well, number one, first of all, the business has proven to be highly resilient. Not only resilient, but somewhat insulated regardless of macro terms. I remember in 2009 when the auto industry went backwards 30%, we grew our revenues 4% that year. Fast-forward to COVID, if you look back at our financials, we outperformed all our competitive set and weathered that storm perfectly well. Now what you're seeing the business continue to grow despite pretty sensational supply chain disruptions. First and foremost, we feel really good about the overall health and stability and strength of our business. You've seen us been paying down our debt. We did do some strategic acquisitions like Dealer Inspire that are accelerating growth, and we've been paying down that debt from over 4x leverage, now we're down getting closer to two. We're going to continue to do that. I also think there's an opportunity for the industry shift towards technology. There are bolt-on acquisitions that we think are strategic, just like DI, that can give us great technology that needs distribution. If we're successful like we have been with Dealer Inspire, that can generate some significant growth and opportunity for our platform. As you'll see, Rajat, we're generating significant cash flow today. Right. Our cash flow yield, we're trading at about 15 times free cash flow. The business is super strong. It generates a ton of cash, and it's got the hardest things in the auto industry are distribution, both consumer and dealer, and we've got pretty strong pipes into both those markets, and I think that we're in a good position as the industry shifts towards digital. Got it. I think that's a great way to end. Thanks Alex for joining us today for these 30 minutes and thanks everyone for listening in. Talk to you later. Thank you, Rajat. Have a great day. You too.