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Cars.com Inc.  (NYSE:CARS)
Q4 2018 Earnings Conference Call
Feb. 28, 2019, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to the Cars.com Fourth Quarter 2018 Earnings Conference Call. Hosting the call this morning is Alex Vetter, Chief Executive Officer; and Becky Sheehan, Chief Financial Officer. This call is being recorded and a live webcast can be found at investors.cars.com. A replay of the webcast will be available at this website until March 13th. A copy of the accompanying slides can be found on the Cars.com IR website. Following today's presentation, there will be a question-and-answer session with Alex and Becky.

I'd now like to turn the call over to Jandy Tomy, Vice President of Investor Relations.

Jandy Tomy -- Vice President of Investor Relations

Good morning, everyone, and welcome to our fourth quarter 2018 earnings conference call.

Before, I turn the call over to Alex, I'd like to draw your attention to our forward-looking statements and the description and definition of our non-GAAP financial measures found on Slides two and three of our presentation. We will be discussing certain non-GAAP financial measures today, including adjusted EBITDA, adjusted EBITDA margins, adjusted net income and free cash flow. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measure can be found in the financial tables included with our fourth quarter and full year 2018 earnings press release, and in the appendix of the presentation. For more information, please refer to the risk factors included in our SEC filings, including those in our annual, quarterly and current reports. Cars.com assumes no obligation to update any forward-looking statements or information as of their respective dates.

At this time, I would now like to turn the call over to Alex.

Alex Vetter -- Chief Executive Officer and President

Thank you, Jandy. Good morning, everyone, and welcome to our conference call for the fourth quarter and full year 2018. On this morning's call we'll be discussing highlights of our year, including our achievements toward our digital solution strategy and our position to execute this in 2019. I'll then hand the call over to Becky, who will discuss our financial results, and then I'll return to discuss our three-year outlook.

Let me first start with a recap of our year. 2018 was a pivotal year for us, as we put into place the key products, technology, sales and go-to-market changes designed to underpin a strategy aimed at achieving sustainable market leadership. We accomplished the major milestones set out in our digital solutions approach during a dynamic period in the automobile and automotive advertising sectors.

Notably, we produce reliable traffic growth moving from two years of declines to consistent year-over-year growth each month, reaching 21% in December. This strong traffic growth and momentum continues in 2019, up 15% in January and more than 20% month-to-date in February. We also focused on product innovation as a core element of our sustainable growth strategy in both deployed and launched a steady flow of exciting value added dealer and consumer products.

Our most significant investment that solidified our digital solution strategy was the February 2018 acquisition of Dealer Inspire, almost immediately, we benefited from new dealer and consumer products, faster innovation and access to high growth revenue channels in a large addressable market. The acquisition and collaboration between our two Chicago-based technology teams kick-started the development and launch of Cars Social and Social Sales Drive, two of the fastest growing products in our history.

Our first integration, which was embedding the conversations chat tool Cars.com to less than six weeks to complete, showing strong cultural and operational synergy. More recently, we have built cutting edge marketing and retail solutions like Online Shopper and AutoCorrected, solutions such as these are expected to be key drivers for demonstrating consumer value and increasing our ARPD and resulting improvement in our dealer account growth in 2019.

In 2018, Dealer Inspire contributed $53 million to revenue, representing 44% growth. DI builds disruptive technology that makes each phase of the car buying journey easier, faster and smarter for both shoppers and dealers. In 2018 and 2019, DI increased market share and recognition, resulting in multiple industry awards for innovation and product superiority. In 2018, we deployed and initiated plans to recast important aspects of our operations and organization to accommodate the shift in our business strategy, while also capturing significant cost efficiencies expected to benefit in 2019 and beyond. This includes the transformation of our go-to-market strategy and adapting the structure of our sales and technology organizations through our digital solutions operating strategy. While the Tech transformation will take time, the sales transformation is begun to show a positive trend to help overcome the dealer losses from 2018.

Concurrent with our go-to-market transformation in '18, we strategically set out to convert the majority of our affiliate dealers and we've taken control of approximately 3,500 dealer relationships across more than 30 markets. These early conversions delivered an incremental $10 million to reported revenue in 2018. Keep in mind that if we hadn't incurred additional payments related to these conversions, our 2018 cash flow would have been higher by $25 million.

Strategically, taking back affiliate and markets enables us to cost-effectively pursue our digital solutions strategy in the nation's top DMAs, which drives ARPD growth. In 2018, we achieved ARPD of $2,139 in the fourth quarter, representing 9% growth year-over-year. We are now finding larger dealers to larger packages in former affiliate markets. We believe, we can not only prevent further losses to dealers, but we will continue to cross sell more digital solutions to the nation's largest dealers. For example, we now have stores spending over $10,000 a month consolidating their digital solutions with our full suite of products.

More broadly, the strength of our business model coupled with a focus on operating efficiency, results in consistently high adjusted EBITDA to free cash flow conversion, which was 66% in 2018. During 2018, we used $97 million to repurchase shares over the course of the year. And finally, as many of you are aware, concurrent with all the transformational change happening throughout the business. We also launched the process to explore strategic alternatives to enhance shareholder value. The process is ongoing and we are engaged with multiple parties.

Let me now move to discuss our plans. In 2019, we are firmly committed to reversing the trends in dealer count, based on dealer survey metrics dealer cancellations are the result of two primary factors; either insufficient lead volume or perceived lower sales conversion. Including the one-time impact of our sales transformation and dealer concerns over a softening auto environment, 2019 dealer count has started out soft. We have a three-part plan to turnaround dealer count, which is already showing progress.

First, increased marketing investment that converts traffic into auto sales and provides us with new targeting capabilities. Second, rapid dissemination of product delivery that improved sales conversion and lead generation; including services like AutoCorrected and Online Shopper. And third, our revised sales structure executing on specialized rules and data driven account management. While these investments are expected to impact our 2019 adjusted EBITDA, we are confident they will begin to generate positive momentum in the second half of 2019, with full year returns in 2020 and beyond.

As we ramp our targeted marketing investments and our sales teams to begin to hit their stride. Our plan is already driving significant reductions in cancellation notices for the month of March. We have a portfolio of products that we're proud of, and I'll talk about two of our recent launches. First, at the National Auto Dealers Association Convention last month known as NADA, we announced a new product that we're calling AutoCorrected.

AutoCorrected is an innovative new solution that will help dealers save time and money by helping them instantly populate their listings with hyper accurate data down to the trim, option and transmission level detail. This is a game changer because dealers spend hours manually entering data into their own vehicle listings often missing key information. AutoCorrected not only provides completeness and accuracy of every listing, but it also ensures every vehicle is properly merchandized to highlight all of the features and options to maximize profit on every sale. AutoCorrected will correct listings on Cars.com, which will strengthen the quality of our marketplace.

Next to move more directly to improve lead quality and attributable sales. We launched Online Shopper a best-in-class digital retail solution that allows consumers to show off the dealership and sign on the dotted line with speed and efficiency by beginning the process from the comfort of their own home. Online Shopper provides consumers with advanced payment options, resulting in higher intense, higher quality, faster close leads for dealers and early testing revealed that when a consumer engaged with the product dealers receive trade-in details, estimated credit score, average miles driven per year, and desired payment range, more than 60% of the time. All of this results an increased lead quality.

Product innovation is foundational to our success, continued growth in traffic and higher volume quality leads will require increased investment. We achieved tremendous success with our traffic growth in 2018, including a dramatic turnaround in our organic SEO performance. Our investment in performance marketing and SEO talent gives us highly efficient and optimized system to increase our value delivery cost effectively, even when our spend is low relative to that of our competitors. For us, cash flow and profits remain paramount.

To give you an order of magnitude, we've initiated approximately $15 million incremental marketing investment in 2019 in addition to last year's considerable spend. We're not simply spending more, we are making deliberate investments to drive quality leads to dealers, at lower cost. Principally by hyper targeting and enhancing brand marketing to build on our strong brand awareness.

The result of this investment is expected to the increased lead-delivery both in quantity and quality to our dealers to improve retention. Even with strong product innovation and increased value delivery, dealers need our help recognizing our value and improving their performance. In December we took a big step to transform our go-to-market sales approach and adapt our customer experience to our digital solutions strategy in a targeted manner that better aligns all of our products and customer segments.

The rollout of this comprehensive program now provides a higher level of service that is appropriate to our customer segments and our unique appetite for digital solutions that are relevant to them. It also improves overall sales effectiveness, reducing costs and makes us a better able to sell in accordance with our strategy. We expanded the range of customers served by our Group channel, which results in a higher degree of data-driven support for our largest customers. And churn rates in our Group channel, our half of our average churn. So by putting more of our customers into this category, we anticipate better retention rates and higher average revenue per dealer.

Second, we are doubling down in more sophisticated communications and training's for our sellers, making sure that we have the right conversations to help our dealers understand the value, that we bring to them every day. And third, we overhauled the structure of the sales team serving our customers more efficiently than ever before by providing increased support from our centralized call centers. We're better positioned to focus attention on both new business, retention and upsells.

Although, the impact of these significant changes will take time to realize, particularly as there is customer churn at the beginning of the substantial change in any sales organization, which impacts our customers, we're seeing early traction. Our new specialized sales team is focused on new business and is adding new business at a rate that is more than 3 times that under our old structure. Having more data-driven sales teams that are backed by specialists is also expected to allow us to expand average revenue per dealer. Just as we've done successfully in 2018.

We are in the early innings of this transformation, but we are confident that this is the right structure and we're confident that a strong sales team will be able to deliver a turnaround in dealer count, paired with an increase in leads from continued traffic increases, value delivery and improved retention for our customers. These factors will accelerate our dealer account growth.

I'd now like to turn to our technology platform modernization and then move to a cloud first infrastructure. The work for this initiative started in mid-2018, and it will allow us to be more efficient, shifting 40% of our total technology spend toward innovation, improving the speed of our product delivery by 20% and reducing our data center footprint by 95%. Technology innovation is a driving force of cars and will allow us to innovate faster to outpace the market. Creating integrated solutions with Dealer Inspire and DealerRater and strengthening our competitive position overall. We expect to realize $10 million in annualized cost efficiencies, following the completion in 2020. Keep in mind, in 2019, we will incur the cost of running parallel systems, as we make this migration to the cloud.

Shifting gears now. I'd like to discuss our national advertising business. You will have seen through recent public announcement from major OEMs and large dealer groups widely anticipated softness in the new car market in 2019. Softness in retail sales directly impacts our OEMs, which often manifest itself in cost cutting and advertising pullbacks. Our national advertising business is a $100 million channel, that is very new car oriented and operates in an environment with unlimited choices for advertising. While traffic growth increases of our advertising opportunity grows, we are also taking a number of steps to improve our current product offering and introduce new solutions, while strategically shifting into higher growth channels.

We're ramping our programmatic offering to allow our customers to easily target our audience directly, and we're also leveraging data from our Facebook relationship to provide data-driven social campaigns to OEMs, nearing the same success that we've had with car social dealer offering. We're also bringing deeper data sales discussions with the most progressive clients. Shifting to these new products will take time, but we are cautious about this channel, and are projecting to decline in our National business in 2019.

The 2018 growth plan has been to restore traffic, accelerate product innovation, while taking control of our affiliate markets and differentiating our business model with a focus on providing value-added digital solutions. We've done all of that, and also have made major transformations in both sales and technology. All of this gives me confidence that the infrastructure is now in place and our marketing investment combined with products and programs focused on dealer success will enable us to achieve our goals of sustainable market leadership, revenue growth and double-digit adjusted EBITDA growth.

I'd now like to turn the call over to Becky.

Becky Sheehan -- Chief Financial Officer

Thanks, Alex. Revenue for the full year of 2018 was $662.1 million, compared to $626.3 million in 2017, this 6% increase year-over-year was in line with our last guidance. Retail revenue was up $115.9 million, driven by the early conversion of the Tronc, McClatchy and Washington Post markets, as well as the addition of the Dealer Inspire business, which we acquired in February.

The affiliate conversions resulted in the addition of $88.9 million to direct revenue in 2018, shifting $78.8 million out of wholesale revenue. And net revenue uplift in 2018 from the early conversions was $10.1 million. Keep in mind, this only reflects the uplift from wholesale to retail rates.

Dealer Inspire contributed $53.1 million to revenue in 2018, achieving 44% year-over-year growth on a pro forma basis, as a result of growth across all of its product lines. At December 31st, 2018, we had approximately 2,500 website customers, representing quarter-over-quarter growth of 11%. As a reminder, Dealer Inspire's cost of revenue and operations as a percentage of revenue is approximately 40% to 45%, and DIs adjusted EBITDA margins are in the mid teens.

Excluding the affiliate market conversions and the Dealer Inspire business, our organic direct business declined $16.5 million or 5%, driven by softness in dealer count. Our national advertising business was down 8% year-over-year, impacted by the macro auto industry headwinds as many OEMs are both reducing and shifting spend for programmatic and social. This business line has the most exposure to the macro environment, we're a dealer business is more insulated.

Wholesale revenue of $82.9 million was down $80 million, compared to 2017. $78.8 million of the decline was related to the early conversion, which includes $18.7 million of amortization of the unfavorable contracts liabilities. For the converted markets, this amortization is now reported as an offset to the affiliate revenue share operating expense.

Total operating expenses in 2018 were $578.2 million, compared to $492 million for the prior year. This increase was driven by the addition of $58.6 million of Dealer Inspire costs, an increase of $17.4 million related to non-recurring expenses and a $6.8 million increase in stock-based compensation.

Moving these items, operating expenses were flat year-over-year, even with the addition of 3,000 dealers to our direct sales channel. As I described earlier Dealer Inspire adjusted EBITDA margins in the mid-teens, and the DIs rapid revenue growth, the combination of Dealer Inspire with the rest of the business produces consolidated margin percentages, while adding incremental adjusted EBITDA dollars.

Net income for 2018 was $38.8 million, or $0.55 per diluted share. Adjusted net income for the year was $135.3 million, compared to $165.7 million in the prior year. Adjusted EBITDA for 2018 was $227.6 million or 34% of revenue, which was in line with the guidance. This compares to $238.9 million, or 38% of revenue in the prior year period.

Direct ARPD grew 6% year-over-year, driven by our increased access to large and attractive markets, which carry higher retail rates. Including the affiliate market conversions, direct ARPD was down 1%. Please keep in mind that revenue from Dealer Inspire is not yet included in our ARPD. As of December 31st 2018, total dealer count of 19,921 represent a 2% decline, compared to September 30th of 2018. Direct and affiliate dealers each decreased 2%, due to insufficient lead volume and perceived lower sales conversion rates.

As Alex outlined following the completion of our go-to-market transformation actions in sales, technology, products and marketing, we initiated a bold program of investment in 2019, which will better convert our growing traffic into sales for dealers.

In total, we have converted 3,500 dealer customers into our direct channel, and we now have direct relationships with 84% of our dealer customers. We continue to discuss the possibility of early conversions with the remaining three affiliates. Absence in agreement to convert early, dual dealers are scheduled to convert later this year on October 1st, and the Gannett and TEGNA markets are scheduled to convert next year in June 2020. We call that as a wholesale relationship, we are able to monetize only 60% of the subscription, as we are billing only 60% of retail rates. We incurred additional cost related to the early conversions for which payments totaled $25.5 million in 2018.

Now turning to the financial results for the fourth quarter. Revenue was $164.3 million, reflecting a $7.8 million or 5% increase, compared to $156.6 million in the prior year period. Retail revenue was, up $31.9 million, driven by the addition of Dealer Inspire, as well as the conversion of the affiliate markets, which contributed $27.6 million to direct revenue and was also responsible for the $24.3 million decline in wholesale revenue in the quarter. Dealer Inspire continued its rapid growth in the fourth quarter, growing 43% year-over-year on a pro forma basis to $17.1 million of revenue.

Excluding the affiliate market conversions and the Dealer Inspire business, our direct revenue declined $6.3 million or 8%, driven by softness in dealer count. Our national advertising business was down 19% in the fourth quarter, compared to the prior year. Again the softness was largely the result of a wider auto industry headwinds affecting our OEM customers and the shift to spending to programmatic and social.

Wholesale revenue was $16 million, down $24.1 million, compared to 2017. $24.3 million of the decline was related to the early conversions, which includes $5.8 million of amortization of the unfavorable contract liability. For the converted markets this amortization is now reported as an offset to be affiliate revenue share operating expense.

Total operating expenses for the fourth quarter of 2018 were $140.5 million, compared to $117.7 million for the prior year period. This increase is attributable to $18.2 million of costs related to the Dealer Inspire business, a $7.6 million increase in non-recurring costs, as well as the cost increases related to the affiliate conversions.

Net income for the fourth quarter of 2018 was $9.4 million or $0.14 per diluted share, compared to $151.8 million in the fourth quarter of 2017. Adjusted net income for the fourth quarter of 2018 was $34.1 million, compared to $34.2 million for the prior year period.

Adjusted EBITDA for the fourth quarter of 2018 was $61.1 million or 37% of revenue, compared to $63.5 million or 41% of revenue for the prior year period. Direct ARPD grew 9% year-over-year, driven by our increased access to large and attractive markets, which carry higher retail rates and/or growing digital solutions. Excluding the affiliate market conversions direct ARPD was up slightly.

Net cash provided by operating activities in 2018 was $163.5 million and free cash flow was $149.3 million. With our free cash flow during 2018, we repurchased 3.8 million shares for a total of $97.2 million. As a reminder, we have $102.8 million remaining on our current share repurchase authorization, which expires in March of 2020.

During 2018, we borrowed $165 million to fund the acquisition of Dealer Inspire and we paid down $52.5 million of indebtedness net of revolver borrowings. 2018 cash flow was impacted by the $25.5 million in payments associated with the early conversion of affiliate market. From 2019 through 2021, we expect to add an incremental $25 million of revenue associated with the completion of the affiliate conversions in addition to more than $50 million of cash flow uplift based on our current outlook.

Cash and cash equivalents was $25.5 million and debt outstanding was $696.3 million, as of December 31st, 2018. Net leverage at December 31st, 2018 was 2.9 times. As Alex mentioned earlier this month, we announced the restructuring of our product and technology team as part of our efforts to streamline and modernize our technology platform. We estimate the pre-tax cost for this action to be in the range of approximately $8 million to $10 million, primarily related to employee severance and retention and certain vendor-related costs.

In 2019, the cost savings from this restructuring will be mostly offset by the additional costs of running parallel systems. Full year run rate of these cost savings are expected to be $10 million. The majority of the cost savings from the technology transformation will occur in 2020 once we fully are migrated to the new platform.

And at this time, I'd like to turn the call back over to Alex to review our three year outlook and our path to achieve these targets.

Alex Vetter -- Chief Executive Officer and President

Thank you, Becky. In 2019, we are starting the year with 1,375 fewer dealer customers, compared to a year ago, which will temper our ability to show year-over-year revenue growth in 2019. Softness in the new car environment and the resulting reduction in spending by OEMs also adds volatility to our 2019 revenue outlook. However, we expect that our investments in program centered around dealer success will result in dealer growth beginning in the third quarter and with the continued rollout of dealer solutions, we expect strong growth from Dealer Inspire and growth in direct ARPD.

Taking all these factors into account, including the pace of which we will grow from a lower dealer starting point and the volatility around our national business, we project 2019 revenue to be between a 5% decline and a 2% growth year-over-year. Including the incremental marketing investments and lower margins on a rapidly growing Dealer Inspire revenue base, we still expect to maintain industry-leading adjusted EBITDA margins between 30% and 31% in 2019 with margin expansion in 2020 and 2021.

To give you more color on the phasing of 2019 with our investments ramping in the first quarter, we are starting to see improvements in March, but we expect mid-single digit revenue decline in the first quarter. We also expect to see benefits of our actions reflected in our financials in the second half of 2019, and continue building on that improvement into 2020 and 2021.

With the transformational moves we've made in 2018 and the planned investments for 2019, we expect to achieve year-over-year revenue growth between 5% and 12% in 2020 and 2021, and adjusted EBITDA margins between 32% and 34%. In both years and under all scenarios, we expect double-digit adjusted EBITDA growth. We also expect adjusted EBITDA to free cash flow conversion to remain greater than 60% in both 2020 and 2021.

In closing, we have transformed our business, we are investing to take share and convert traffic to greater levels of auto sales per dealer customers and are differentiating ourselves as a leader in automotive retail. We expect to maintain our strong traffic growth, but we know that we have more work to do in dealer count. We believe that the actions we've taken plus the incremental investments in 2019 will be rewarded by existing and new customers, as we deliver an unmatched value proposition. We are also investing in and launching value-added products for distribution nationwide through our new sales structure, that will drive dealer and Cars.com revenue.

We are making often difficult decisions to ensure that improved operating leverage through cost reductions bring more profit to the bottom line, and we're quickly upgrading our technology platform to enable it to deliver even higher output from our R&D innovation machine. We have made these and other fundamentally important achievements in 2018. And I want to close by thanking our employees, partners and investors.

At this time, I'd like to open up the call to your questions, operator?

Questions and Answers:

Operator

(Operator Instructions) And our first question comes from the line of Tom White from D.A. Davidson. Your line is open.

Tom White -- D.A. Davidson -- Analyst

Great, guys, thanks for taking my question. So, what's like audience growth was quite strong, again in the quarter. I guess was still sort of waiting for that to translate into better dealer trends. Alex, if I heard correctly it sounded like you think the third quarter of 2019 is kind of the quarter when maybe dealer growth comes back. Just curious why that is? Is that just a function of time or maybe the timing of some of these -- this incremental marketing sort of focused on better traffic.

And then just sort of a follow-up on dealer count. Is it possible that some of the -- you guys have made a bunch of change to the sales team recently related to the affiliate market conversions. It sounds like some sales reps have been reassigned when that happens. Also the reorgs, both of those things are obviously good for the long-term health of the business. But I'm curious, if that's kind of exacerbating some of the near-term dealer trends in any way just as sales reps could get moved around or what not. Thanks.

Alex Vetter -- Chief Executive Officer and President

Sure, Tom. Thank you. Well, first of all, I think the traffic trends have been improving. We're really pleased to see the steady progress in the growth throughout 2018, but even seeing those trends accelerate into 2019 with double-digit growth in January and February month-to-date. And we think that is the key marker for the long-term health of the business. Because ultimately all dealers and manufacturers are trying to reach in market car buyers and increasingly we have a larger supply of that target. And I think the challenge has been correlating that to revenue. I think what's changed heading into 2019 time is that the industry is certainly starting with a degree of uncertainty, there is more transformation about the 2019 outlook by dealers and OEMs.

Certainly OEMs have cut back aggressively in the fourth quarter and heading into 2019. But now, we started 2019 seeing more and more dealers cut back. I do think we have seen an increase in cancellations, as a result of our sales transformation that was somewhat expected, because we knew that any time you change reps with dealers that they either want to renegotiate or use that as leveraged and try to negotiate more favorable terms. We saw that in the affiliate takeovers, which increased churn in the short term, but at the same time, we've been able to expand our dealer base under direct management with the reduced sales force. Our direct dealers in -- going into 2018, we were at 14,000, we're finishing the year in 2018 with almost well 16,700 dealers under direct control with a 100 fewer people. So I think there is efficiency being built in the mid to long-term in the business in terms of a more efficient sales structure. But notably, it does add some dealer churn, which is why Q1 is starting soft, but we are seeing the improvements in our traffic and lead-delivery start to pick up in March. We've got 30% fewer cancellations projected in the month of March and we get a good notification window, so we can see that data in real time.

Tom White -- D.A. Davidson -- Analyst

Great. Thanks a lot.

Operator

Our next question comes from the line of Dan Kurnos from Benchmark. Your line is open.

Dan Kurnos -- Benchmark -- Analyst

Great, thanks. Alex just said, let me go back to the question on traffic here. Just -- how much low-hanging fruit do you think there is on SEO and paid channels. Obviously, you guys have sort of underinvested in the past. And it sounds like you're going to plan on shifting spend toward higher converting, which typically means moving down funnel and typically a higher cost customers. So can you just talk about sort of your CAC trends and sort of your expected ROI on the new spend, as well as whatever you've put in place to enhance lead attribution, which I know we've discussed, it's been kind of a challenge in the past?

Alex Vetter -- Chief Executive Officer and President

Absolutely. Thank you, Dan. Well a couple of points, you know, 2018 was a real pivotal year for us to put in place some key product, technology and marketing resources, so fuel our growth going forward. I think most importantly, as you noted the turnaround in our SEO traffic is probably been our most successful reversal of fortune. And we see -- and are seeing continued strength in SEO. To your point, SEO traffic tends to be more research-oriented and people beginning the journey and increasingly heading into 2019, we're seeing dealers trying really hard to attribute sales. And while we know our platforms generating fantastic return on investment for dealers today. We think that a strategic investment to grow our direct value delivery to dealers, particularly those dealers that spend the most money with us, we'll help give clear line of sight to our value, and that will help turn the dealer count.

So we've got a number of dealer success products and programs heading into 2019 ranging from improving product merchandising through products like AutoCorrected, which help dealers better get seen in organic search results. All the way to strategic performance-based marketing that will get better lead redemption in dealer CRM systems, and we see direct correlation between value delivery and the CRM systems with better retention rates. And so, the strategy is to really drive those KPIs for dealers in 2019, so our value is even more overt.

Dan Kurnos -- Benchmark -- Analyst

Great. And then just maybe a little bit more granularity on your forward guidance. Can you just give us a little bit more color on what your underlying assumptions are for dealer growth ARPD national and products embedded in -- and kind of your 2020 and 2021, returned to growth outlook?

Alex Vetter -- Chief Executive Officer and President

Sure, Dan. I mean our marketing investments, get a payback with double-digit adjusted EBITDA growth, and so our mid-to-three year guide, we think we can return double-digit EBITDA growth in all scenarios. Now we know there is volatility in the national business in 2019, which is what is causing sort of a wider range in 2019, because OEMs can come and go, with a bigger impact on the top line, but really the marketing investment, we clearly see having a strong payback going into -- end of -- second half 2019 and into 2020, where we've guided our revenue growth at 5% to 12% growth.

Dan Kurnos -- Benchmark -- Analyst

Do you have any like color on the actual underlying pieces there, like how much you expect dealer count to grow? What your ARPD assumptions are? You gave us the affiliate uptick, which that was helpful. But I was just trying to get a sense of sort of what your embedded assumptions are there, as well as from new products that you plan on launching how much that will all contribute to the overall portfolio?

Becky Sheehan -- Chief Financial Officer

Yes. Well, I think is -- maybe Alex, let me jump in, I think as Alex mentioned, we do expect dealer count, one of the place holder as we've said that you all and we have in our own line of sight is dealer count growth in the third quarter of 2019. So again, if you look forward into the 2020 and 2021 projection periods, there will be some growth assumed with respect to both dealer count and of course as we continue to expand our product and solution portfolio. We expect more of our dealer customers to take more products going forward. So that would also result in ARPD increases. Of course our Dealer Inspire business, as you know has had very strong growth, 44% this year as we look forward again part of the solutions portfolio as we expect our Dealer Inspire business to continue to have strong growth.

And then the last thing I'll remind you about in the 2020 and 2021 period is, we pay control of the remaining affiliates in those markets during that time horizon. And again, as we've talked in the past with you and our investors, that's a really important opportunity for us, both from a revenue and a cash profitability uplift perspective.

Dan Kurnos -- Benchmark -- Analyst

Got it. That's really helpful. And just housekeeping, I think, Becky, you said, or Alex, you said that DI is not included currently in ARPD, I assume it's not in any of the numbers or traffic numbers or anything right now?

Alex Vetter -- Chief Executive Officer and President

Correct.

Becky Sheehan -- Chief Financial Officer

That's right. DI is not in traffic, it is not in ARPD, and you'll recall what it is included in is our dealer count, because of course, those are all customers that are part of our solutions portfolio.

Dan Kurnos -- Benchmark -- Analyst

Got it. Great, thanks for all the color. Appreciate it guys.

Alex Vetter -- Chief Executive Officer and President

Thank you, Dan.

Becky Sheehan -- Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of Sameet Sinha from B. Riley FBR. Your line is open.

Sameet Sinha -- B. Riley FBR -- Analyst

Yes, thank you. Couple of questions. So, as we look into the next couple of years, I think the interplay between gross margin and OpEx, it will be important, and in this case you pointed out DI, you gave the margin, so appreciate that.

Just wanted to talk about the other thing that has high volatility, which is national obviously declining. Are you -- should we assume sort of a similar, sort of, trajectory there. And can you talk about the gross margin profile of that particular product, just because, if I look at, if I just chart out your guidance, just looks like, your expenses will increase dramatically in 2020 in 2021. But, my sense is that's not OpEx, it is probably some gross margin there?

And secondly, Alex, you spoke about increased marketing lead volumes very good, improving quality, but -- and you kind of hinted it attribution. So, the way I understand this, instead of having like an analytic product, which gives you better attribution, you're looking more to sell more products into the dealers, which generates revenue kind of reduces churn, and provide that sort of attribution, but is it -- what's the feasibility of really having a more of an analytics product, which is probably more instantly deployable, and not to make it sound easy, but deployable and shows up in the dashboard, and you can see the attribution clearly? Then I have a follow-up question. Thank you.

Alex Vetter -- Chief Executive Officer and President

Sure. First of all, Sameet, on the national front, we certainly have seen the trend in 2018, to be one of headwinds, and certainly you don't need to go far to see the OEM changes that they're making, particularly in the latter half of 2018, where we saw some of our significant pull back. And so we're being cautious going into 2019, knowing that there could be increased volatility. I know there is softness in new car sales in 2019, to start the year which more directly correlates to this channel.

I would tell you from a gross profitability standpoint, the national business is some of our most profitable revenue, because we're running ads across our existing traffic base. And what's impressed me this year, is that we've been able to deliver our EBITDA targets, despite headwinds in the national business, which I think, underscores some of the operational efficiency moves, we've made in 2018, to take out legacy costs and to modernize the system.

Increasingly going forward, a lot of our product innovation is moving into programmatic channels, that we'll actually have even less overhead to support our clients direct buying in excess of our systems, and more native products and solutions, that don't require the same legacy traditional advertising model to implement or support. And so our business strategy on Nationals to move toward more data-driven partnerships, that provide OEM's, real-time integrations into the system, which I think will offset some of the profitability concerns in terms of slower muted national revenue outlook for 2019.

On the second part, and Becky can certainly add to that. On the lead quality part, what I would tell you, part of the beauty of what I see in the mid-term and long-term, is that there is an increase in the amount of analytics companies coming in and helping dealers analyze their marketing effectiveness. And we are 100%, behind supporting the growth of those entities, because the more dealers use actual data, versus gut to discern what's working for them, there hasn't been an analytics company that hasn't affirmed our value, or shown a much higher rate of return then what the dealerships were guessing on their own.

However, I think anytime Cars.com are to invest, or partner with, or acquire a third-party analytics company, it's somewhat refutes the objectivity, or the independence of their analysis. And so, while yes, I would love to see a faster acceleration of analytics, in demonstrating our value, I think the approach to it is more to help partner and provide those companies with access to our data, which we're now giving our data openly to some of the independent exchanges, the CRM companies we're partnering with them, to make sure that their tagging our information properly, and we are inorganically helping those companies grow by partnering with them as opposed to buying them and/or trying to own them outright. I hope that makes sense.

Sameet Sinha -- B. Riley FBR -- Analyst

No, definitely. Thank you. Thank you for the clarity.

Operator

Our next question comes from the line of Marvin Fong from BTIG. Your line is open.

Marvin Fong -- BTIG -- Analyst

Great, thank you for taking my questions. A lot of them have been asked already. But a couple on national advertising, just to drill down on that. So considering the tough comp, or the easier comps in the back half of the year. Do you think this line item will return to growth sort of by the end of next year, or should we can think of it is just consistently down for the full year? And then I have a follow-up.

Alex Vetter -- Chief Executive Officer and President

Yeah well, we've put certainly a wider range in our revenue guidance for 2019, and I would tell you it's largely driven by the volatility in national, we see a clear path, and line of sight on improvements in dealer count, we're certainly signaled, the 30%, lower cancellation submitted for March as evidence of that, and certainly the increasing traffic trends, and value delivery directly into dealer CRM's give us more certainty on the trajectory that we think dealer count returns in the second half of the year. I think national does have more volatility both on the upside and downside, so that makes that a little bit harder to predict in the softer new car market. We've had four OEM's, with large reductions in spend in the second half of 2018, which will make that sort of a hard comp to cover in the first half of the year, but there is optimism in the second half of the year there as well.

Marvin Fong -- BTIG -- Analyst

Okay, great. And, if I could just, I think last quarter you guys said cars social and that was a $10 million business. I think there's a lot of opportunity in this product. Could you possibly give us an update on, on how that is trending, and what is the long-term possibility for this -- for the social market? Thank you.

Becky Sheehan -- Chief Financial Officer

Sure. So Cars Social, on our last call we said it was a $10 million run rate or annualized business. We were really pleased and have been very pleased, with how that -- how that program has been launched, and dealer interest and excitement around the value delivery that comes from that program. We continue to believe that there is opportunity for growth there, given what we're seeing from our dealer customers. And so that certainly one of our key products, as we've moved into 2019.

Marvin Fong -- BTIG -- Analyst

Okay, great. If I could sneak one more in on just capital structure, and your philosophy on buybacks, through 2021? That'd be great. Thank you very much.

Becky Sheehan -- Chief Financial Officer

Sure. So we still have in place, more than $100 million associated with the existing share buyback program that the Board put in place about a year ago, that program runs through March of 2020. And as you know, we've reported that we bought back $97 million under the share repurchase, since it was put in place in March. So, it's still an active program, and that's use of our capital.

Marvin Fong -- BTIG -- Analyst

Great, thank you very much. Good luck on the future.

Becky Sheehan -- Chief Financial Officer

Thank you.

Operator

Our next question comes from the line of Nick Jones from Citi. Your line is open.

Nick Jones -- Citi -- Analyst

Hi, thanks for taking my question. As traffic starts to bounce back and you are not sure how some of these conversations go with dealers that have canceled, like, what is the lag look like, and how much focus is there on your traffic levels, when you kind of reengage them?

Alex Vetter -- Chief Executive Officer and President

Yeah, I think the traffic trends certainly are the reason to believe and we do see a high percentage of our dealers come back after canceling us. And but part of our sales transformation is designed to give more focused teams responsibilities to both get ahead of cancellations using data. And then secondarily, new business development teams, who are solely focused on new dealer enrollments.

And so part of our sales restructuring we'll have dedicated teams focused on very specific actions. So, our new business development team will principally be going out to former customers and new targets, talking to them about what's changed since they were last working with Cars.com, increased traffic certainly being one of the big messages. And then our inside account management teams are now using data to proactively see dealers that indicate a potential cancellation on the horizon and starting to work ahead of that proactively with them to address either dealer merchandising or competitive actions they can take to improve their performance on the platform.

But overall, when you have traffic growth, the way that we do, double-digit gains accelerating into a down environment, I think increasingly dealership spend money with where they see growth, and that is without a doubt, one of the key reasons that dealers have to reconsider, if they haven't worked with us recently, they certainly need to get back on board.

Nick Jones -- Citi -- Analyst

Okay, thanks. And one quick follow-up. For leads that are generating to your side, but maybe they don't actually make contact your side, and just going to the dealers. Is there any kind of tack or data that you guys are able to deploy, to kind of improve the attribution there?

Alex Vetter -- Chief Executive Officer and President

We've been at the attribution challenge for quite some time, and continue to make improvements on it. Some of the key exhibits there will be our increased marketing investment is very performance and lead-oriented. So we are going to be able to drive PII directly in the dealer CRM systems in 2019, which will help. I think Online Shopper is the other big step we're making an attribution rather than just a generic contact form, we're asking consumers to complete much more of the process online. So that the data that comes through the dealership includes everything from a soft credit pull to their trade in, to monthly payments and purchase horizon data. And so, we think that too is going to help strengthen the value signal for dealers.

Nick Jones -- Citi -- Analyst

Great, thank you.

Operator

Our next question comes from the line of Doug Arthur from Huber Research. Your line is open.

Douglas Arthur -- Huber Research -- Analyst

Yeah, thanks. Couple of questions. You, I see, you didn't disclose average vehicle listings. I don't see it in the press release. Is it fair to say that number was probably down in line with the dealer count year-over-year?

Becky Sheehan -- Chief Financial Officer

Average vehicle listings at the end of the year was $4.8 million, so up sequentially from Q3 -- up from Q3.

Douglas Arthur -- Huber Research -- Analyst

Yeah. Okay, great. And I'm sure that will be in the K. The -- in terms of, Becky, in terms of the phasing of investment cost, you talked about marketing and product in line with what you've sort of said about the dealer count. Is it fair to say we should -- you should heavier spending relative to revenues in the first half, and then a little clearance in the second half or how do you sort of see that pacing throughout the year?

Becky Sheehan -- Chief Financial Officer

Yeah. So, look, we've, as Alex mentioned, we started our marketing investment at the end of January, so it's certainly coming into play. And that speaks also some of the green shoots we see with respect to dealer count in March. The phasing, of course, we have incremental spend across the year, but I also think it's fair to say that we have plans that would accelerated into the first half, as appropriate and as we see a return on that investment.

Douglas Arthur -- Huber Research -- Analyst

Okay, and then just finally, obviously, there's been a big emphasis on dealer solutions and the amount of money dealer spend of third-party sites on their own marketing initiatives. Alex, as you see the retail environment softened a little bit, are you still encouraged by the spending in that part of dealer spend in the marketplace right now?

Alex Vetter -- Chief Executive Officer and President

Absolutely. I think first of all, the fastest growth we see in dealer spending is in technology solutions, which our DI business and in car sales teams are ramping. We saw the DI business consistently maintain 40 plus percent growth every quarter. In 2018 and we see that TAM continuing to grow. There's also been great news in the past quarter in terms of large captive OEMs breaking exclusivity with legacy website technology providers, which only increases the available market for us. And so, part of our EBITDA picture is, because we're more aggressively ramping up that business for future growth. The solutions business does come in at a lower margin profile than our media business, but certainly that's where the growth in spending is occurring and we're well positioned to capture a lot of that upside.

Douglas Arthur -- Huber Research -- Analyst

Terrific, thank you.

Operator

And there are no further questions at this time. I will turn the call back over to Alex for closing remarks.

Alex Vetter -- Chief Executive Officer and President

I just want to thank everybody for participating in the call today. We look forward to speaking with you again soon.

Becky Sheehan -- Chief Financial Officer

Thank you.

Operator

And this does concludes today's conference call. You may now disconnect.

Duration: 58 minutes

Call participants:

Jandy Tomy -- Vice President of Investor Relations

Alex Vetter -- Chief Executive Officer and President

Becky Sheehan -- Chief Financial Officer

Tom White -- D.A. Davidson -- Analyst

Dan Kurnos -- Benchmark -- Analyst

Sameet Sinha -- B. Riley FBR -- Analyst

Marvin Fong -- BTIG -- Analyst

Nick Jones -- Citi -- Analyst

Douglas Arthur -- Huber Research -- Analyst

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