Q1 2026 Earnings Call — May 7, 2026
Analyst Tom White (D.A. Davidson): One on AI, and then I have a follow-up. But, Toby, I was hoping maybe you could share your latest thoughts on how you feel about the prospect of consumers increasingly relying on the horizontal LLMs and increasingly maybe sort of personal agents to help them shop for cars and what does that mean for cars.com's ability to kind of 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, you know, maybe by making some of your data sort of more proprietary or protected or anything else? Thanks.
Executive Toby (Title): 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 that. 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 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. 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 eight to nine hours. And we have a great brand, and we are in the process of making it more discoverable and bringing it up front to the site and the site experience. So that will be a major focus for our future product development. Let me just add, it's also in the spirit of I talked about the interconnectivity, so that's why it's so important to interconnect everything as opposed to routing in siloed subsidiaries. So that's actually what we're doing underneath the platform and across different data silos. Thank you.
Analyst Tom White (D.A. Davidson): Maybe just a quick follow-up on AccuTrade and probably maybe just get a bit more color on kind of what's happening there. I think you mentioned subscribers down sequentially. Is there, you know, is there maybe any seasonality happening there? 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, you know, sort of plan to work through maybe via bundling it with kind of core marketplace, just a little bit more color on what's happening at Accutrade? And then I'll get back into you. Thanks.
Executive Toby (Title): Yeah, I want to be very transparent. We're in the midst of rearranging and refocusing to work in more interconnected experience and more interconnected product. And that means that we are de-emphasizing the standalone solution as opposed to really bundling it up and making this part of an integrated marketplace experience. So we have a pretty exciting product roadmap. You'll hear more over the next couple of months and quarters. There's a lot in the making. And that's why you see, you know, temporarily maybe the numbers going down a little bit because we're de-emphasizing again on just selling standalone 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.
Analyst Rahat Gupta (JP Morgan): Could you clarify the MCP integration opportunity? How many agentic AI platforms is connected? What does that usage funnel look like in terms of unit quality for dealers? I have a quick follow-up. Thanks.
Executive Toby (Title): Right now, it's just one, and we're working towards other opportunities and channel integrations, but that's just with the chat GPT. But again, we also mentioned the traffic is well below 1%.
Analyst Rahat Gupta (JP Morgan): And, you know, it looks like OEM and national is coming in weaker than expected, you know, both in 1Q, you know, including the 2Q guidance that Sonia had mentioned. But it seems like you feel comfortable reiterating, you know, the margin guidance. Is it just the cost outs that are offsetting some of the drop through from the OEM national weakness? I'm curious if any other call you could give and also an update on the OEM and national FOIA guidance. I think the previous outlook was for flat year over year.
Executive Sonia (Title): 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 Toby 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.
Analyst Marvin Fong (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. Just any commentary on that? Should we expect the counts of solutions customers to continue to decline for a few more quarters here? I think last call, we talked about how some dealers are striking out on their own, developing their own kind of solution. Is that dynamic still up right here? Just some additional commentary would be great.
Executive Toby (Title): Yes, I do think we are entering a slightly different phase of growth. We'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 about 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 and improvements and enhancements 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 number stay stable over a longer period of time with maybe some modest upward improvement, but we feel pretty good about 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, you know, 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, you know, 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.
Analyst Marvin Fong (BTIG): And then my follow-up question, just from the repackaging, I just wanted to more fully understand how that's going to roll out. The last time there was a major repackaging, there was some dealership. Granted, I believe that was also an embedded license. But just how you're thinking about or how we should think about you know, dealer counts as you roll out the new set of packages, do you expect there to be a period of some choppiness, or do you think you can just start growing the dealer base right out of the gate as you roll out these new packages? Thanks.
Executive Sonia (Title): Yeah, 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 then 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 accounts is how we go to market with more interconnected solutions. There's a lot on the product roadmap that we're excited about. Toby alluded to it earlier, which is, you know, 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.
Executive Toby (Title): Maybe let me just add what Sonia mentioned. Historically, this has been not the center of gravity 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 and 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 two or three different product types. It's more like, you know, there's six to eight 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's significant headroom for us to grow. At the same time, we do not want to, you know, create the impression that all of a sudden overnight a number of dealers will jump through the roof. This is a concentrated effort that will take a couple quarters, but it's going to be product-led and product-first and data-first and AI-first, and that's what we're working on.
Analyst Gary Pastapina (Barrington Research): One dealing with the cost savings, Sonia. You're saying you annualized the $25 to $30 million for 2027. Is that an absolute number that we should expect to capture as we model this? And where are those costs coming out of? Is it SG&A, Cost of Goods Sold? Can you help us out there?
Executive Sonia (Title): So I think that is the 25 to 30 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 to $30 million year-over-year step down, if that's kind of your question. But what it does 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 interconnections to marketplace. In terms of where the costs are coming out of, you know, they're distributed across the lines of our P&L. We took a hard look across the business. You know, 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, you know, from a product and tech perspective, more of the interconnectivity? Tools have obviously improved also really materially over the last couple years that allows us to work more efficiently. And then reducing layers in the organization is also really important as a way to speed decision-making. So those are some of the changes that we made.
Analyst Gary Pastapina (Barrington Research): Okay, that's helpful. And then just a question, Toby, 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, you know, the full ball of wax from cars.com?
Executive Toby (Title): It's a great question. You know, it's the tradeoff, but by and large, we would say point solutions will be de-emphasized 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 and replacing one by one is a much harder 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 and dependent on what their needs are, as opposed to you've got to use this one solution only and we are competing with two or three 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 we'll provide an interconnected experience.
Analyst Navitan (BWiley Securities): Just a couple of questions from me. One, maybe just on the website business, I saw a decline in dealer customers, and I think last time around, or Q4, I think you said it may be a passing trend, or just more noise than anything, but is there a change in the competitive dynamics or is there something else going 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 had 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, you know, that the top of the funnel providers are kind of unleashing for everyone? Thank you.
Executive Toby (Title): You know, 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 quarters, a slightly different phase of growth for websites. We initially grew through pretty significant market share gains as we got onto OEM programs and had 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 in smaller pieces. 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 and how do we think about more interconnectivity between marketplace and website, specifically leveraging innovation happening in the marketplace side of our business and putting it onto dealer websites to make those tools available? Carson is a good example, person 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 there are going to be flicks when it comes to, you know, the tradeoff of volume and ARP. But I think it's largely noise at this point.
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 a purchasing intent and decision journey to go deep into the specificities of a particular vehicle. And that's where our strengths come 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'll now focus more on the right leads because if you think this through as part of an interconnected marketplace experience, it means that we need to get the lead allocation, lead generation right because smaller dealers have completely different need for specific leads than larger dealerships which are driven by the value they propose and the vehicles they carry. So that's to summarize our opportunity also in context of AI.
Analyst Joe Spack (UBS): 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 know, you mentioned OPEX was down a lot year over year, but really it was DNA, right? Which I think was sort of a result of some of the actions in the fourth quarter. So that's just sort of the lower trend. And you still had, you know, like, you know, GNA 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 to sort of really trend here over the balance of the year?
Executive Sonia (Title): You're right to point out that a lot of what we saw on a year-over-year basis in operating costs was really tied to G&A. I think there are two pieces there. One is just some customer lists 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 the 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 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 GNA, I do recognize it looks a little bit maybe wonky, the GNA trend for Q1. But at the end of the day, we're talking about pretty small delta on a year-over-year basis. Most of this was tied to some, again, a couple 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 GNA line. And transparently, we would expect to get leverage across our P&L. So that's the goal in terms of driving expanded margin in the business.
Analyst Joe Spack (UBS): And you know, it mentioned that dealer advertising in 2025 was up, like, high single digits, and then they sort of break down where that's spent, and, you know, third-party listings, you know, is 20%, so one of the larger buckets, but it was actually down a point versus 24, so overall growth, third-party listings share down a little bit, and I'm not exactly sure, to be honest, how they're bucketing it and 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 if it is, 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, you know, should we be looking at?
Executive Toby (Title): Thanks for your question. Maybe just a more generic response to your question. We think we should do better, and we think that the market is attractive. We don't see any major headwinds from a dealership perspective or 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 five, six and 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, you know, the dealer website and the inventory that's listed on that and a subscription that we have on marketplaces. And imagine just 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 this 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. I got listings on third parties. But I look at this entire bucket of expenses and you're like, oh, 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 in our hands to make this work and grow.
Analyst Doug Arthur (Uber Research): Did website management grow in the quarter? And I realize in the integrated strategy you've got, it might not be as relevant a number. But was that up quarter over quarter, number of desktops?
Executive Sonia (Title): I think 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.
Management: There are no questions
at this time.
This concludes today's conference call. Thank you for your participation.