Cars.com (CARS) Q4 2018 earnings summary

Executive summary

• FY18 revenue rose 6% to $662.1M; adjusted EBITDA fell 5% to $228M amid dealer cancellations and lower OEM ad spend.

• Traffic grew 11% to more than 445M visits, with 12 consecutive months of YoY growth; strategic investment and Dealer Inspire expanded digital-solutions capabilities.

• Affiliate-market conversions shifted dealer relationships to direct sales, while technology and sales transformations targeted a digital-solutions strategy and lower costs.

Financial highlights

• Revenue was $662.1M, up 6%; operating income fell 37% to $83.9M and net income fell 83% to $38.8M.

• Net income comparison was affected by a $102.3M income tax benefit in 2017; FY18 included $18.1M tax expense.

• Operating cash flow was $163.5M versus $185.9M in 2017; cash and equivalents were $25.5M at year-end.

• FY18 costs included $9.8M tied to the activist settlement, $13.2M in transaction costs, $4.4M for sales transformation, and $6.8M incremental stock compensation.

Outlook and guidance

• Technology transformation costs estimated at $8M–$10M pre-tax, with most expected in 2019; completion is expected to generate efficiencies.

• Remaining affiliate relationships were scheduled to expire between October 2019 and June 2020; conversions would allow direct sales and full retail-rate revenue.

• Strategic plan anticipated profit growth in 2020 and 2021, supported by product, infrastructure and marketing investments; no specific financial targets were given.

• 2019 marketing and product programs were launched to stabilize dealer count and return the dealer network to growth.