管理層發言
Good morning, ladies and gentlemen, and welcome to the Cars.com Fourth Quarter and Fiscal Year 2025 Earnings Conference Call. This call is being recorded on Thursday, February 26, 2026. I would now like to turn the conference over to Katherine Chen, Vice President of Investor Relations. Please go ahead.
Good morning, everyone, and thank you for joining us. It's my pleasure to welcome you to the Cars.com Inc. Fourth Quarter and Full Year 2025 Conference Call. With me this morning are Tobi Hartmann, CEO; and Sonia Jain, CFO, who will share business highlights and our financial results and outlook. We'll finish the call with Q&A. Before I turn the call over to Tobi, I'd like to draw your attention to our forward-looking statements and the description and definition of non-GAAP financial measures, which can be found in our presentation. We'll be discussing certain non-GAAP financial measures today, including adjusted EBITDA, adjusted EBITDA margin, adjusted operating expenses, adjusted net income, and free cash flow. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP measures can be found in the financial tables included with our earnings press release and in the appendix of our presentation. Any forward-looking statements are subject to risks and uncertainties. For more information, please refer to the risk factors included in our SEC filings, including those in our most recently filed 10-K, which is available on the IR section of our website. We assume no obligation to update any forward-looking statements. And now I'll turn the call over to Tobi.
Thank you, Katherine. It's a pleasure to welcome everyone to my first earnings call with Cars.com. I would like to start by acknowledging Alex's leadership and dedication to Cars for over two decades. He guided the company from its print classifieds origins to a multifaceted technology platform with capabilities, including websites and trade and appraisal features. Now we are starting the next chapter with a portfolio of B2B products that supports and enhances our marketplace flywheel. As some of you may know, I have dedicated more than 20 years to building, enhancing, and growing online classifieds, marketplaces, and digital businesses in the EU and the U.S. Most recently, I was CEO of Scout24, a leading player in European real estate classifieds. The company increased its market capitalization significantly to approximately $8.5 billion and delivered 195% TSR during my six-year tenure. Through Scout24's large automotive vertical, I also gained a valuable lens into consumer car shopping behavior, dealership operations, and the OEM landscape. This will complement our strategic planning for Cars. No matter the vertical, I strongly believe the fundamental drivers of sustainable success as a marketplace company are the same. These principles are as follows: One, attracting and harnessing relevant inventory. Two, leveraging our strong brands to build a trusted environment that drives scale and engagement for all stakeholders. Three, interconnecting products and solutions to deliver the best user experience and ROI. And lastly, infusing all aspects of the business with unique and proprietary data insights. Without these core fundamentals, the flywheel cannot accelerate. Over many years, Cars has maintained strong marketplace fundamentals and built advantages in the brand and the data aspects of this flywheel. The Cars.com brand remains synonymous with online automotive marketing and retail. We also own data and have developed powerful capabilities that help customers improve efficiency and sales outcomes. These assets contribute to our differentiation and competitive moat, and this is why I was attracted to this company. But there is an imperative to strengthen important and critical marketplace elements. We will achieve this by focusing on product, processes and cost, and organizational improvements. For product, delivering sustainable future growth requires us to prioritize integration of the marketplace instead of trying to scale distinct product verticals. A well-oiled marketplace flywheel is, therefore, the growth engine for the platform and all products. With focused execution, we can create meaningful value while becoming the most trusted marketplace connecting consumers, dealers, and OEMs. I want to be clear that we will achieve our future growth in a responsible manner through process and cost optimization even as we deliver product advancements. As a tech-driven product company, we believe that favorable economics will naturally follow as we consistently increase the value we provide to all stakeholders. I'm now six weeks into this journey and working at full speed with the team to formulate the future initiatives and plans. Organic growth has been challenging in the past. We have good assets, but scaling them will require better integration, simplified processes, and efficient cost and organizational structure. However, our direction is clear, and the team is already executing on a number of opportunities to position Cars as an even more relevant marketplace player. Before I discuss those details, let me turn to Sonia to cover fourth quarter performance and 2026 outlook. Sonia?
Thank you, Tobi. It's been great collaborating with you over the past several weeks, and I'm excited about the fresh perspective you're bringing to the business. I will now recap 2025 and provide guidance before turning it back to Tobi to expand on our 2026 priorities. Let's start with full year performance. In 2025, we managed through early challenges to deliver low single-digit revenue growth in the second half while also maintaining profitability and returning capital to shareholders. Improving dealer revenue trends in the second half produced total annual revenue of $723 million, up 1% year-over-year and in line with our expectations. As you may recall, our path to returning to top line growth relied on volume and pricing levers, which both improved throughout the year. We expanded our customer base to close Q4 with 19,544 dealer customers, adding 338 dealers year-over-year. And while ARPD was flat year-over-year, favorable pricing and repackaging for both websites and marketplace helped drive sequential improvement in ARPD in Q3 and Q4. Profitability and cash generation remained steady. Full year adjusted EBITDA margin of 29.2% was within our range of expectations. Adjusted EBITDA dollars grew 1% year-over-year, keeping pace with revenue growth. We delivered another year of strong adjusted EBITDA to free cash flow conversion of roughly 60%, which translated to free cash flow of $126 million for the year. Our capital allocation plan tilted towards share buybacks in 2025, and we repurchased $86 million of shares, up 75% year-over-year and at the high end of our targeted $70 million to $90 million range. In total, we retired roughly 9% of the outstanding share count in 2025. Overall, dealer revenue health has improved throughout the year. So let's unpack Q4 and the green shoots that we're seeing in key parts of the business. Fourth quarter revenue of $183.9 million was up 2% year-over-year and achieved our guidance. Dealer revenue was up 3% year-over-year, a further improvement over the Q3 growth rate. As I previously mentioned, both dealer count and repackaging were positive revenue contributors in Q4. On a year-over-year basis, dealer count was up 338 customers with marketplace accounting for over 80% of unit growth. On a quarter-over-quarter basis, strong underlying marketplace performance was partially offset by elevated website cancels, which muted total customer growth to 18 units. Given our focus on accelerating the marketplace flywheel, it is important to note that we reversed historical seasonality in Q4 and added over 100 marketplace dealers on a sequential basis for the third straight quarter. As you heard from Tobi earlier, marketplace traction is critical given its outsized impact to revenue, margin, and free cash flow, and our priority is to build on these positive trends in 2026. Turning to our other dealer KPIs. Fourth quarter ARPD of $2,472 was up slightly quarter-over-quarter and flat year-over-year. For Marketplace, new Premium and Premium Plus tiers were rolled out midyear to align pricing and product value. We more than doubled the number of Premium Plus subscribers from Q3 to Q4, a promising sign of customer appetite for our media offerings. Website repackaging has also been a success with some benefits continuing to quarterize through 2026. However, as we saw during the year, small customer and product mix shifts can result in short-term ARPD variance. In particular, softer uptake of dealer media products has somewhat offset solid monetization improvements for the rest of our product suite. Overall, these are small variations in dollar terms, and we expect to return ARPD to more robust growth through continued cross-selling, upgrades, and other pricing and packaging levers. Let's wrap up the dealer revenue discussion with quick updates across our interconnected product suite. Starting with our core marketplace, we attracted total traffic of 627 million visits from nearly 26 million average monthly unique visitors in 2025. Organic traffic remained stable at nearly 60% of total visits. We also continue to be the number one most cited public automotive marketplace across some of the largest AI services such as Google AI overviews and ChatGPT. Our newest marketplace feature, designed to surface the most relevant vehicle listings for each shopper and speed the marketplace flywheel, has performed well since launch. Carson, our AI-powered search assistant, has further improved consumer engagement, now prompting four times more saved vehicles and three times more vehicle listing views from its users. For dealers, our market area expansion product helps them extend the searchability of their inventory to nonlocal markets and ship cars to interested buyers. Consumers are also benefiting from increased access to inventory, and our survey data shows that 80% of recent car buyers are willing to purchase the right vehicle even if it's outside of their market. As we continue to scale our marketplace, including listings inventory, we will also keep developing additional products and features that reduce complexity and enhance the user experience in each part of the flywheel. While taking a slight step back in terms of customer growth in Q4, website solutions still added approximately 130 total subscribers in 2025. And lastly, our AccuTrade subscriber base grew to roughly 1,180 customers in Q4. The average number of vehicles appraised per customer was up another 15% quarter-over-quarter, a record sequential increase that speaks to the product's growing efficacy and value. We also recently launched AccuTrade IMS, the only full life cycle inventory management system that will be fully integrated with the Cars.com marketplace and DI websites. Our IMS sets itself apart by powering profitability on every vehicle, combining optimized VIN-specific pricing with retail or wholesale exit strategy recommendations. Early feedback has been positive, and we are well positioned to tap into the growing demand for AI and data-driven dealership tools. We're pleased that dealer revenue and products, which represent roughly 90% of our total revenue mix, continued to move on a positive trajectory in Q4. This strength helped us manage through softer-than-expected OEM and national revenue, which was down roughly $1.5 million year-over-year. Our original OEM outlook was for year-over-year growth in Q4, but the weak October performance we pointed to on our last earnings call opened up a wide gap that weighed on the total quarter. In contrast, November and December rebounded to be basically flat compared to those same months in 2024. Q4 is a prime example of the episodic nature of OEM media investments and why we are more focused on driving growth in stickier recurring dealer products. Looking ahead, early signals to start the year, such as the notable absence of most automakers from Super Bowl ads, continue to point to evolving marketing and advertising strategies by OEMs. We'll closely monitor those signals to manage potential volatility while remaining anchored to our plans for dealer-driven growth for 2026. Now to discuss costs. Fourth quarter operating expenses were $162.2 million, up 1% year-over-year. The increase was largely driven by marketing investments and severance and stock-based compensation expense that were partially offset by lower depreciation and amortization expense. Q4 adjusted operating expenses were $145.5 million, down 3% year-over-year from lower depreciation and amortization expense that more than offset the aforementioned marketing investment. On a full year basis, operating expenses were $663 million, nearly $3 million lower year-over-year. The bulk of the decline was due to certain assets being fully depreciated and amortized in the current year as compared to the previous period. In terms of offsets, new DealerClub expenses were worth roughly a point of margin, in line with our initial assumptions when we acquired the company in January 2025. Full year adjusted operating expenses were $604 million, down 2% year-over-year, with largely the same puts and takes as mentioned above, supplemented by efficiencies from targeted headcount reduction in Q1 of last year. We ended the year with approximately 1,700 employees compared to 1,800 employees a year ago. For the following line item detail, all comparisons are on a year-over-year basis, unless otherwise noted. Product and technology expense decreased $1.3 million on a reported basis and was roughly flat on an adjusted basis in the fourth quarter. For the full year, product and technology spend was roughly flat on a reported basis and increased $1.6 million on an adjusted basis. Lower overall compensation was driven by less stock-based compensation, which had a slightly unfavorable mix effect on adjusted expenses. Marketing and sales increased roughly $5 million on both a reported and adjusted basis for the fourth quarter, largely reflecting a modest increase in marketing investments. For the full year, marketing and sales expenditures were up $7.1 million on a reported basis and up $3.7 million on an adjusted basis. Higher compensation and severance-related expense followed by marketing were the drivers of increased reported costs. Similar drivers account for the full year increase on an adjusted basis. General and administrative expense was up $6.2 million year-over-year on a reported basis, but decreased $600,000 on an adjusted basis in the fourth quarter. The reported increase was primarily due to stock-based compensation and severance costs that were partially offset by savings from the lease amendment completed in Q4 2024. For the full year, general and administrative expenses were up $7.1 million on a reported basis and down $1.1 million on an adjusted basis. We made strong efficiency gains that will have long-term benefits for our cost structure, though these improvements were masked on the P&L by certain one-time expenses. Fourth quarter net income was $7.4 million or $0.12 per diluted share compared to net income of $17.3 million or $0.26 per diluted share a year ago. Full year net income of $20.1 million or $0.32 per diluted share compared to net income of $48.2 million or $0.72 per diluted share a year ago. The difference in fourth quarter net income was due to the prior year gain on the sale of an equity investment, while the difference in full year net income also included changes in the fair value of contingent consideration for prior acquisitions recorded in 2024. Adjusted net income for the fourth quarter was $27.4 million or $0.44 per diluted share compared to $32.5 million or $0.49 per diluted share a year ago. For the year, adjusted net income was $108.1 million or $1.71 per diluted share compared to $114.9 million or $1.71 per diluted share a year ago. Adjusted EBITDA of $55 million in the fourth quarter was flat year-over-year and adjusted EBITDA margin of 29.9% was 90 basis points lower year-over-year due to the marketing investments mentioned above. For the full year, we delivered adjusted EBITDA of $211.1 million and adjusted EBITDA margin of 29.2%. Our adjusted EBITDA margin was essentially unchanged year-over-year and in line with revenue growth. Moving to the cash flow statement and the balance sheet. Net cash provided by operating activities totaled $151.6 million for the year compared to $152.5 million last year. Free cash flow was $125.7 million for the year, down modestly year-over-year from slightly elevated CapEx. In 2025, we bought back 7.1 million shares for $86 million, returning more than two-thirds of free cash flow to shareholders as we delivered at the high end of our targeted repurchase range of $70 million to $90 million. We also utilized free cash flow to pay down net $5 million of our revolver. Debt outstanding was $455 million as of December 31, 2025, for a total net leverage ratio of 1.9x. Total liquidity was $351.2 million as of December 31, 2025, offering us flexibility and ample capacity to fulfill capital allocation priorities. As we consider our capital allocation framework, our goal continues to be driving shareholder returns and long-term TSR while operating from a position of financial strength. Our strong free cash flow conversion gives us the opportunity to not only continue to return capital to shareholders, but also pay down debt. With value creation as our foremost consideration, we are focused on beginning to pay down our revolver while also remaining committed to return capital to shareholders through robust share buybacks. In aggregate, we expect to buy back at a minimum $60 million of shares for the year with an opportunistic approach to increasing repurchases with excess free cash flow, much as we did last year. Finally, we'll conclude with full year and Q1 2026 outlook. For the full year, we expect revenue to be flat to up 2% year-over-year. Importantly, we expect dealer revenue to continue growing year-over-year as it has for the last two quarters based on marketplace and website repackaging, customer base growth, and further product adoption. OEM and national revenue, which is 9% of our business, experienced some year-end pressure as automakers made fewer investments into our advertising and media solutions. We have seen similar trends persist in Q1 and therefore, believe it's prudent to moderate expectations for this portion of our business until we see improving signals from our partners. Based on those near-term trends, where a favorable Q4 exit rate for subscription-based marketplace and website products is being balanced by pressure in OEM advertising, first quarter revenue is expected to be flat to up 1% year-over-year. Full year 2026 adjusted EBITDA margin is expected to be between 29% to 30%, and we expect to grow absolute adjusted EBITDA dollars year-over-year. Note that DealerClub is expected to generate EBITDA losses in 2026 with the impact more pronounced in Q1 given the timing of the acquisition. And as a result, first quarter adjusted EBITDA margin is expected to be between 26% and 27% due to a lower mix of margin-accretive OEM and national revenue as well as slightly elevated technology and compensation expenses. Now let me turn the call back to Tobi to share his preliminary thoughts on 2026.
Thank you, Sonia. Let me put my earlier thoughts in perspective and in context of the details Sonia just provided. I shared with you that the team and the company needs to work on three dimensions: product, processes and costs, and organizational structure. These will take time to implement and are necessary preconditions to scale. Over the medium to long-term, our goal is to increase the Cars.com growth rate beyond a low single-digit rate, but this requires some difficult decisions and focused work. We know investors have higher expectations than our recent performance, and we are committed to delivering against these expectations. To accelerate growth and reverse this trend, we will begin by strategically addressing the marketplace flywheel and dialing up the team's execution. Making marketplace the priority will drive numerous benefits such as simplifying the go-to-market motion, delivering more inventory to our consumer audience and providing unique data to inform dealer success. So here's the plan. We will accelerate the company in our marketplace by focusing on operating at scale with healthy cost structures whilst pushing for interconnected product and customer experiences for consumers and dealers. First, we will put the existing assets to work from a rather isolated and disconnected offering to an interconnected marketplace offering. We do have solid assets, but they currently lack sufficient integration to deliver a full end-to-end value proposition. Our new products are being designed with integration expressly in mind. Those of you who saw our NADA demos got a first look at how our new AccuTrade IMS integrates with the marketplace to create efficiency gains and a unique user experience. What this means is subscribers making a price or inventory change in AccuTrade IMS will see those changes instantly populate across the Cars.com product suite. Why is this important? We will have the only solution in the market that enables these types of changes in real time, giving dealers meaningful operational velocity. Our product development approach will create even more data and feature linkage as a marketplace ecosystem. We believe this will unlock cross-selling and therefore, ARPD expansion. For example, our new AI-powered VIN videos can turn marketplace vehicle listings into eye-catching video assets in minutes. And early results show a two-times lift in website lead conversion for those AI videos versus other media tactics. We are removing barriers for marketplace dealers to run video campaigns at scale, meaning time and resources savings as they adopt multiple Cars products. We already bundled other interconnected media products into the marketplace packaging last year and saw encouraging customer uptake. Expect further evolution over time in tandem with growing value delivery. Second, we will accelerate developing the right features as a trusted platform for all stakeholders of the marketplace. We have a clear objective to provide the best possible guidance for all stakeholders to empower car transactions in a trusted environment. As one example, we plan to roll out advanced shopper alerts for Premium Plus subscribers in Q2. Directly integrating shopper engagement marketplace data into the dealer CRM helps dealers easily find clear signals to close sales. This helps dealers build confidence in our marketplace as a critical and trusted partner. Nearly two-thirds of marketplace dealers are using the current version of shopper alerts, another step-up from roughly 50% penetration in Q3. We believe that the upcoming CRM integration will drive further customer interest in up-leveling to Premium Plus and lead to ARPD growth over time. Third, we are very clear about our role, positioning, and priorities as we execute our plans. As a reminder, our guidance calls for adjusted EBITDA margin in the high 20% range, which is consistent with prior year performance. Baked into our guidance is an intentional reallocation of existing resources towards marketplace. We are already utilizing internal AI tools that can also help teams bridge some of this transition. We are also closely scrutinizing our cost structure with a goal to improve efficiencies in 2026. Our cost containment, operating leverage, and highly cash-generative model should yield another year of strong free cash flow. As Sonia mentioned, we will continue to buy back shares whilst also paying down debt as we pursue a balanced capital structure. We have started the work already, and I'm excited to share more details as we accelerate our pace. Finally, let me make this clear. Our job is to drive long-term shareholder value, and the team is ready to be focused on that. Let me now open the call to Q&A.
分析師問答
The first question comes from Tom White with D.A. Davidson.
Welcome aboard, Tobi. I guess first one, just on the plan to kind of refocus your priority on marketplace, I think you talked about kind of getting the flywheel going, and I heard some discussions about product. Curious how marketing investments and audience growth might play into that this year and how you're thinking about that? And then I've got a follow-up on AI.
Hello. Thank you for your question. Nice to meet you over the phone. Yes, we're refocusing on marketplace fundamentals, which is literally what we just talked about, which is focused on getting the right inventory and driving engagement. And that means that it's not a lack of marketing that we are currently doing. It's just a lack of focus. We will just refocus on really being centered around the marketplace fundamentals as opposed to driving other isolated solutions. So the current plan foresees that we're not going to dial back on marketing investments, but it's going to be more focused and centered around the marketplace flywheel.
Okay. Great. And then just on AI, a lot of marketplace companies are getting this question from investors. It poses opportunities and risks and the investors seem more focused on kind of the risks as it relates to disintermediation and the companies sort of touting the opportunities if they can kind of incorporate AI into their businesses. Just curious how you envision AI and Agentic AI kind of evolving in this space in automotive? Thanks.
Sure. Thank you. So just starting with the big picture, we probably agree that automotive is a pretty complex industry that requires deep vertical expertise. Also from a shoppers' perspective or consumers' perspective, the car is really the second largest purchase for consumers, and that means that the vast majority of consumers spend a lot of time researching in depth. Now the researching in depth is exactly where we play a competitive role because we have data and we've accumulated the data over the past 25 years. We have it at a local level. We have it at a customer level. We have it at a VIN level. And there's an opportunity to really accompany that research for consumers and then drive through attribution models, a very unique value proposition that we believe is very hard to replicate or be disintermediated. Now will AI play a significant role in our vertical? Absolutely. Now are there a couple of things to think through how it all evolves? As I guess, nobody on the call really knows what will happen next. Absolutely. But we feel confident about our opportunity because we also have something that's key for any LLM and any future AI, which is the brand. And LLMs will always have to revert back to the brand, especially for those consumer verticals that are so deeply engraved in the capital household spend. So more to come on that.
The next question comes from Naved Khan with B. Riley Securities.
Two questions from me. Maybe just on the new product launched recently at NADA. You showcased the AccuTrade IMS and the market area expansion and video ads. I'm wondering what is contemplated in your annual guide in terms of contribution from these new products? And Tobi, when you talked about accelerating the growth for the company up from the low single digits to some higher pace. What kind of time frame do you have in mind? Do you expect that to show up in 2027? Or are we thinking about two to three years from now? Just give us your thoughts there. The second question I had is just around the website customer count. I think it saw a decline quarter-on-quarter in Q4. Is there any seasonality there? Or were there any changes that kind of led to this decline? Just any clarification there would be helpful.
Maybe, thanks for the questions, Naved. Maybe to start with the NADA product launches: IMS, market area expansion, and our AI-based VIN videos are incorporated into our guidance. They're obviously new products, so they will take some time to scale. The sales cycle for each will be slightly different. Market area expansion and AI-generated videos are relatively familiar additions to our existing product suite of media solutions and marketplace-attached products. The IMS sales cycle will be a little different because it is so core to dealer operations, so you can expect a different sales cycle, but they are already captured in our full-year guide for 2026. Regarding the website customer count, one thing we're observing is that some dealer groups periodically want to strike out on their own with some of their technology solutions. In many cases, even though they have this ambition, building the full-service suite that includes things like information security and integration with third parties is hard to do on your own. I don't think there's any specific seasonality or broader long-term concern or trajectory. We would expect many of these dealers to come back to us over time as they test and find the value in the products we offer.
The next question comes from Rajat Gupta with JPMorgan.
Just wanted to clarify as a follow-up to Naved's question around the website. I mean, is there like a different phenomenon potentially this time where the dealers might be opting to maybe test out some of these Agentic AI tools to build out these websites? I'm curious if that is something that you're seeing? Or if this is just like how you described it, where they're just trying to attempt it through other areas to build out these website and services? I'm curious if that is a risk that you see to the business? And how would you navigate that? I have a quick follow-up.
Hello. Thanks for your question. I'll take this. So if you think about the website business and a dealer taking on their own website, this has gotten a lot more complicated than a year ago or even two years ago. The number of changes that the OEMs are posing, the requests that you're getting from a fraud and security standpoint, and the fraudulent AI bots that are out there are creating a new threat. So we actually view this as an opportunity because, obviously, by consolidating and operating this from a size and volume perspective, there are advantages. So yes, absolutely, we are embedding AI tools. We make those available to dealers. And again, the punchline here is this business is getting a lot more complex if you want to solve for that on your own as opposed to having someone like ourselves providing an end-to-end solution. So yes, we are already integrating more and more AI features, and we are also getting some great feedback on some of the roadmaps that we have planned for the website business.
Understood. Thanks for that color. And then maybe if you could help us a little bit, and thanks for all the candid assessment about the business and the areas you want to focus on. I'm curious, with the pickup in product and technology expenses and also on the sales and marketing side, is there a timing or timeline you can provide on when you expect growth to start reaccelerating, not just from 1% to 2% but more in the mid-single-digit range or higher? What kind of visibility do you have early on here? Thanks.
Yes, sure. So as I've mentioned, I'm now six weeks into the journey. And as you know, from the history of the company, the company has acquired a few other assets and companies. I do expect that over the course of this year, which is, by the way, baked into our guidance that we just provided, we will make significant progress. Organizational improvements, system improvements, platform integration, data integration, and process integration take some time. So when we said we would like to deliver a higher growth rate going forward, we're not talking about five years out. We're talking about a short to medium-term outlook. But obviously, this year to date just focuses on 2026, and that's fully baked into what we just talked about and what Sonia shared in terms of guidance. To be concrete, it's our ambition, and it's the expectation to drive further growth following 2026, and it's not five years out. It's rather two years out than five years. So that's probably the summary I can share.
The next question comes from Marvin Fong with BTIG.
Welcome, Tobi. First question, probably for you, Tobi. I wanted to get a little deeper on what you're saying about prioritizing the marketplace, more integration, and related initiatives. Should we take that to mean that ancillary products like AccuTrade, DealerClub, and Website Solutions will remain standalone offerings in this new vision, or do you envision integrating them into a unified subscription? And second, on the full-year guidance: should we think of the algorithm as driving dealer revenue up two to three points while advertising at the consolidated level detracts about one point of growth? Is that the right way to think about it? Finally, what is the envisioned trajectory for OEMs — will that be roughly flat in absolute dollars throughout the year?
Hello, Marvin, thank you. I'll start with the first question and I'll hand it then over to Sonia. So when we talk about a deeper marketplace integration, we really mean the experience for a dealer. There is a difference whether you're selling several different point solutions versus offering a unified, interconnected marketplace membership. I hope you would agree there's a difference between selling four different solutions where a dealer must manage separate subscriptions and a world where, yes, you are unified as part of our subscription service and you have the opportunity to seamlessly use, let's say, AccuTrade because it becomes part of your listing service. Imagine a world where there is a listings product which is part of your membership or subscription service, be it Premium or Premium Plus, where with one click you can activate AccuTrade and run appraisals as an integrated part of your subscription service per month. That is a different value proposition and it's easier and more convenient to consume as opposed to having three to four different applications where you need to train everyone and manage separate plans. So yes, what we mean by that is a deeper integration when it comes to delivering the value proposition from a dealer's perspective. What we also mean is a deeper integration tied back to the marketplace experience, which enables attribution modeling and data enhancement that we can target towards individual dealerships and membership products. Based on my assessment, we can improve and do better. So it doesn't mean that we are not selling standalone, but we are prioritizing the bundling and the integration over standalone solutions, if that makes sense. And on the second question, I will hand it over to Sonia.
Thank you. Marvin, regarding the full year guide, directionally you're generally correct, with a little nuance. I would probably say OEM is expected to be flat to down on a full year basis. Specifically for Q1, based on Q4 exit rates and early trends, we're expecting a similar trajectory heading into Q1, and we will hope over the course of the year we can close some of that gap. But ultimately, we're expecting OEM to be flat to down for the year.
The next question comes from Joe Spak with UBS.
I just wanted to dive in a little bit more to OpEx and costs. I mean you talked about slightly elevated technology. I think that makes sense in the context of the plan you laid out. And it sounded like within marketing, maybe it was a little bit more of a reallocation of dollars. But I guess I'm wondering how we should think about the OpEx trend over your turnaround plan period because marketing used to be significantly higher as a percent of sales, I think 33%, 35%. Now it's been sub-32% for a couple of years. So as the reintegration occurs, as some of the products develop, do we eventually need to see a real acceleration there to help drive that growth? And then maybe just a little bit more on where you're looking to find actual cost savings, not just the reallocation of cost dollars?
Yes, sure. A couple of things. As we had shared during the call and as you probably know, there's still some work to do to integrate these assets. Running assets that are not fully integrated produces duplicated costs across functions, processes, and personnel. There's an opportunity to streamline costs from an operational and organizational standpoint. That's where we think we'll find headroom to create capacity to reallocate towards technology, product investments, and marketing. So our plan is not to dial down marketing, and not to dial down product and tech investments. But if you look at our personnel expenses, we're running at a pretty high percentage. So that's where we're focused, and that comes along with process changes and optimizations that we're driving internally. I hope that makes sense.
Yes. Yes, sure. I guess the second question is, certainly, you sort of talked about the buyback, right, 70% of this year's free cash flow. You talked about how that's sort of still part of the continued capital allocation plan. But to be perfectly blunt, the money you've spent thus far has been value destructive. So I guess I'm wondering how you're sort of thinking about that capital allocation process and plan and why continue right now, I guess, until you feel the business has sort of stabilized a little bit as I think you're clearly indicating it's going through a transition period?
Yes. I think Tobi has articulated our plan to reignite the marketplace flywheel and drive greater levels of growth in this business. We have a collection of good assets that need to be connected together better in order to unlock the revenue growth potential. We firmly believe this. Markets may not always operate in a smooth line, but as we think about creating long-term shareholder value, we see a clear path. As Tobi said, this isn't a five-year mission — we are targeting doing this quickly and aggressively and trying to turn the corner within the next two years. So it does make sense for us to be in the market. We believe the stock is undervalued and there is a lot of growth potential here, and we think setting a floor at $60 million is prudent. You'll get quarterly updates from us on how we're progressing on our plan to turn around the business, and you'll also get quarterly updates on how we think about capital allocation more broadly.
The next question comes from Gary Prestopino with Barrington Research.
Hello, Tobi. I'm trying to understand: when you're talking about the integrated marketplace, did you have separate sales forces selling point solutions as well as the marketplace? If not, what do you need to do with the sales force to start driving more of these integrated sales wrapped around the marketplace?
Yes, we did have separate sales forces at different levels and with different levels of sophistication. What we are doing, and what is in flight already, is that our Chief Commercial Officer has redefined the sales strategy and sales organization. View it as more consultative selling that will be necessary going forward as opposed to selling standalone solutions. That has been in the making, we are doing that as we speak, and I'm confident this is the right approach and that we are well on track.
Okay. And just let me understand again, you did say that you will still be giving dealers the ability, where you can, to buy single point solutions. You're not going to go into dealerships and say, 'you have to buy all of these' to be part of the Cars.com universe?
That's correct. There's absolutely the opportunity to buy standalone. View it like a restaurant: you can order an appetizer or a main course, but there's also a menu and the menu will be a lot more attractive. We are aiming for that, but we will continue to sell standalone solutions as well.
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