CARS Third Quarter 2026 Earnings Conference Call - CARSCOM INC

Explicit Guidance:

• Reaffirmed Full Year 2026 Revenue Growth: Flat to +2% year-over-year; expects performance toward the lower end of this range.
• Reaffirmed Full Year 2026 Adjusted EBITDA Margin: 29% to 30%; expects performance toward the higher end of this range.
• Full Year 2026 Share Buyback Target: $90 million; $74 million achieved YTD through Q3, putting the company on pace to meet the target.

Business-Segment Outlook:

• Marketplace: Projected to benefit from persistent tailwinds; growth trajectory improved in 2026 and expected to continue. "Starter Package" (self-service for independent dealers) now has ~400 sign-ups with ~80% of inventory under $20,000; ~60% of sign-ups fully self-serviced.
• Dealer Solutions (Dealer Inspire): Expectation to stabilize development and improve growth outlook in 2027. AI-driven enhancements, including "AI VIN videos" and search/recommendation tools (previously tested on Marketplace), scheduled for rollout in Q4 2026.
• OEM & Media: Assuming near-term macro challenges will temper media investments in the immediate future; observing positive initial signals for 2027 spending commitments and increased spend by majority of OEM partners in Q3 2026.
• Point Solutions: Anticipating near-term headwinds for specific solutions like Websites, Trade, and Appraisal while roadmaps are reshaped.

Market and Competitive Outlook:

• Consumer Demand: Identified a market gap for affordable vehicles (<$20k) as 50% of recent respondents delay purchases due to affordability; targeting this segment with self-service starter packages.
• Traffic vs. Leads: Strategy shifted to de-emphasize raw traffic volume in favor of high-intent lead conversion; lead performance grew nearly double-digits in Q3 2026.
• AI & Search: Carson AI assistant user base surpassed 1 million monthly users in Q3 2026 (nearly double YoY); 91% positive rating. CARS.com leads automotive marketplace peers in LLM citations; integrating MCP with "Muse" to surface listings to more users.
• Market Share: Targeting increased penetration among independent dealers (current penetration estimated at 20–25% of ~20,000 potential indie dealers; current mix is ~2/3 franchise, 1/3 independent).

Macro / Industry Outlook:

• OEM Spending: Observed "encouraging initial signals" for 2027 commitments; noted that Q3 spend recovery suggests OEMs are becoming more "front-footed" on investment planning.
• Regulation (FTC): Fully supports FTC pricing transparency enforcement; views it as aligning with neutral platform strategy to guide consumers, though acknowledges some dealers may need time to adapt.
• Search Environment: Google search changes acknowledged; strategy adjusted to focus on value delivery rather than pure traffic generation.

Strategic Initiatives:

• Product Launches:
  • Q4 2026: Rollout of AI VIN videos and AI shopper tools (search, recommendations, VDP summaries) to Dealer Inspire.
  • Ongoing: Phased rollout of dealer-verified listings to integrate marketplace and appraisal layers.
• AI Integration: Enhancing "Carson" assistant and integrating with "Muse" to leverage large language models for inventory discovery.
• Organizational/Process: Completed $30–$35 million in discrete annualized operating cost savings via organizational restructuring and silo elimination; filling key roles (New CFO Trent Ziegler, New CPO Mohsen Bhatt) to support product-led growth model in 2027.
• Cost Efficiency: Mobile site speeds improved >40% since spring; "zero sales or onboarding assistance" required for new starter package dealers.

Risks and Headwinds to Outlook:

• Near-term Performance: Website and point solution segments expected to face headwinds while roadmaps are restructured.
• Macro Headwinds: Near-term macro challenges anticipated to continue tempering media investments and OEM spending.
• Adoption Uncertainty: "Starter Package" expected to be dilutive to ARPD in the long term due to lower-ticket independent dealer mix (though not included in Q3 metrics).
• Implementation Risk: Transitioning from manual sales processes to fully self-service models for smaller dealers requires continued product iteration.

Management Tone on the Future:

• Confidence: Management expresses "confident" outlook for stabilizing website growth in 2027, mirroring the success achieved with Marketplace in 2026.
• Pivot Validation: Stated the strategic pivot to prioritize "value delivery" and "product innovation" is "working," citing the first double-digit lead growth and highest Q3 adjusted EBITDA in six years.
• Timeline: Describes current position as "early innings" with several platforms not yet at full potential, but "energized" by the 2027 growth roadmap.

Miscellaneous:

• AI Monetization: Future monetization of the "Starter Package" expected to occur via indirect monetization (increased inventory liquidity, data signals) and direct monetization (lead caps, throttling, bundled services) rather than upfront subscription fees.
• Transaction Strategy: Explicitly stated the company does not intend to enter the transaction itself (buying/selling cars) to maintain neutrality; focus remains on lead generation and empowering dealer P&Ls.