j
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
b
For the quarterly period ended June 30,March 31, 20222023
OR
☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission File Number: 001-37869
Cars.com Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware | 81-3693660 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
300 S. Riverside Plaza, Suite 1000
Chicago, Illinois 60606
(Address of principal executive offices)
(312) 601-5000
Registrant’s telephone number, including area code
Securities registered pursuant to Section 12(b) of the Act: | ||||
Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Common Stock | CARS | New York Stock Exchange |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☒ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☐ | Smaller reporting company | ☐ | |||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of JulyApril 27, 2022,2023, the registrant had 67,864,26066,721,646 shares of common stock, $0.01 par value per share, outstanding.
Table of Contents
Page | ||
PART I. | 2 | |
Item 1. | 2 | |
2 | ||
3 | ||
4 | ||
5 | ||
6 | ||
Notes to the Consolidated Financial Statements (Unaudited) | 7 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
Item 3. |
| |
Item 4. |
| |
PART II. |
| |
Item 1. |
| |
Item 1A. |
| |
Item 2. |
| |
Item 3. |
| |
Item 4. |
| |
Item 5. |
| |
Item 6. |
| |
|
1
PART I—FINANCIAL INFORMATION
Item 1. Financial Statements (unaudited).Statements.
Cars.com Inc.
Consolidated Balance Sheets
(In thousands, except per share data)
|
| June 30, 2022 |
|
| December 31, 2021 |
|
| March 31, 2023 |
|
| December 31, 2022 |
| ||||
|
| (unaudited) |
|
|
|
| (unaudited) |
|
|
| ||||||
Assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current assets: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash and cash equivalents |
| $ | 18,134 |
|
| $ | 39,069 |
|
| $ | 18,838 |
|
| $ | 31,715 |
|
Accounts receivable, net |
|
| 104,402 |
|
|
| 98,893 |
|
|
| 114,035 |
|
|
| 107,930 |
|
Prepaid expenses |
|
| 11,330 |
|
|
| 7,810 |
|
|
| 11,369 |
|
|
| 8,377 |
|
Other current assets |
|
| 3,796 |
|
|
| 1,665 |
|
|
| 409 |
|
|
| 605 |
|
Total current assets |
|
| 137,662 |
|
|
| 147,437 |
|
|
| 144,651 |
|
|
| 148,627 |
|
Property and equipment, net |
|
| 43,529 |
|
|
| 43,005 |
|
|
| 45,692 |
|
|
| 45,218 |
|
Goodwill |
|
| 103,194 |
|
|
| 26,227 |
|
|
| 102,856 |
|
|
| 102,856 |
|
Intangible assets, net |
|
| 745,405 |
|
|
| 769,424 |
|
|
| 687,930 |
|
|
| 707,088 |
|
Investments and other assets, net |
|
| 21,669 |
|
|
| 21,112 |
|
|
| 21,092 |
|
|
| 21,081 |
|
Total assets |
| $ | 1,051,459 |
|
| $ | 1,007,205 |
|
| $ | 1,002,221 |
|
| $ | 1,024,870 |
|
Liabilities and stockholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Current liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts payable |
| $ | 13,212 |
|
| $ | 15,420 |
|
| $ | 17,424 |
|
| $ | 18,230 |
|
Accrued compensation |
|
| 13,708 |
|
|
| 23,612 |
|
|
| 12,412 |
|
|
| 19,316 |
|
Current portion of long-term debt, net |
|
| 11,522 |
|
|
| 8,941 |
|
|
| 15,444 |
|
|
| 14,134 |
|
Other accrued liabilities |
|
| 46,383 |
|
|
| 46,317 |
|
|
| 62,068 |
|
|
| 54,332 |
|
Total current liabilities |
|
| 84,825 |
|
|
| 94,290 |
|
|
| 107,348 |
|
|
| 106,012 |
|
Noncurrent liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Long-term debt, net |
|
| 495,968 |
|
|
| 457,383 |
|
|
| 438,739 |
|
|
| 458,249 |
|
Other noncurrent liabilities |
|
| 79,278 |
|
|
| 57,512 |
|
|
| 71,147 |
|
|
| 76,179 |
|
Total noncurrent liabilities |
|
| 575,246 |
|
|
| 514,895 |
|
|
| 509,886 |
|
|
| 534,428 |
|
Total liabilities |
|
| 660,071 |
|
|
| 609,185 |
|
|
| 617,234 |
|
|
| 640,440 |
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Stockholders' equity: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Preferred Stock at par, $0.01 par value; 5,000 shares authorized; 0 shares |
|
| 0 |
|
|
| 0 |
| ||||||||
Common Stock at par, $0.01 par value; 300,000 shares authorized; 68,244 and |
|
| 682 |
|
|
| 692 |
| ||||||||
Preferred Stock at par, $0.01 par value; 5,000 shares authorized; no shares |
|
| — |
|
|
| — |
| ||||||||
Common Stock at par, $0.01 par value; 300,000 shares authorized; 66,850 and |
|
| 668 |
|
|
| 662 |
| ||||||||
Additional paid-in capital |
|
| 1,526,203 |
|
|
| 1,544,712 |
|
|
| 1,501,016 |
|
|
| 1,511,944 |
|
Accumulated deficit |
|
| (1,135,497 | ) |
|
| (1,145,382 | ) |
|
| (1,116,697 | ) |
|
| (1,128,176 | ) |
Accumulated other comprehensive loss |
|
| — |
|
|
| (2,002 | ) | ||||||||
Total stockholders' equity |
|
| 391,388 |
|
|
| 398,020 |
|
|
| 384,987 |
|
|
| 384,430 |
|
Total liabilities and stockholders' equity |
| $ | 1,051,459 |
|
| $ | 1,007,205 |
|
| $ | 1,002,221 |
|
| $ | 1,024,870 |
|
The accompanying notes are an integral part of the Consolidated Financial Statements.
2
Cars.com Inc.
Consolidated Statements of Income
(In thousands, except per share data)
(Unaudited)
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| Three Months Ended March 31, |
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Dealer |
| $ | 143,987 |
|
| $ | 136,866 |
|
| $ | 284,403 |
|
| $ | 269,824 |
|
| $ | 149,843 |
|
| $ | 140,416 |
|
OEM and National |
|
| 14,144 |
|
|
| 16,329 |
|
|
| 29,318 |
|
|
| 34,398 |
|
|
| 13,543 |
|
|
| 15,174 |
|
Other |
|
| 4,742 |
|
|
| 2,335 |
|
|
| 7,359 |
|
|
| 4,603 |
|
|
| 3,682 |
|
|
| 2,617 |
|
Total revenue |
|
| 162,873 |
|
|
| 155,530 |
|
|
| 321,080 |
|
|
| 308,825 |
|
|
| 167,068 |
|
|
| 158,207 |
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Cost of revenue and operations |
|
| 29,504 |
|
|
| 28,219 |
|
|
| 57,256 |
|
|
| 56,050 |
|
|
| 29,795 |
|
|
| 27,752 |
|
Product and technology |
|
| 23,117 |
|
|
| 19,434 |
|
|
| 44,424 |
|
|
| 36,194 |
|
|
| 24,101 |
|
|
| 21,307 |
|
Marketing and sales |
|
| 54,655 |
|
|
| 51,309 |
|
|
| 111,749 |
|
|
| 104,520 |
|
|
| 58,297 |
|
|
| 57,094 |
|
General and administrative |
|
| 17,211 |
|
|
| 15,615 |
|
|
| 33,771 |
|
|
| 28,881 |
|
|
| 18,304 |
|
|
| 16,560 |
|
Depreciation and amortization |
|
| 23,001 |
|
|
| 25,298 |
|
|
| 47,554 |
|
|
| 50,978 |
|
|
| 24,042 |
|
|
| 24,553 |
|
Total operating expenses |
|
| 147,488 |
|
|
| 139,875 |
|
|
| 294,754 |
|
|
| 276,623 |
|
|
| 154,539 |
|
|
| 147,266 |
|
Operating income |
|
| 15,385 |
|
|
| 15,655 |
|
|
| 26,326 |
|
|
| 32,202 |
|
|
| 12,529 |
|
|
| 10,941 |
|
Nonoperating expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Interest expense, net |
|
| (9,047 | ) |
|
| (9,839 | ) |
|
| (18,377 | ) |
|
| (19,840 | ) |
|
| (8,244 | ) |
|
| (9,330 | ) |
Other (expense) income, net |
|
| (54 | ) |
|
| (39 | ) |
|
| 154 |
|
|
| (1 | ) | ||||||||
Other income, net |
|
| 8,239 |
|
|
| 208 |
| ||||||||||||||||
Total nonoperating expense, net |
|
| (9,101 | ) |
|
| (9,878 | ) |
|
| (18,223 | ) |
|
| (19,841 | ) |
|
| (5 | ) |
|
| (9,122 | ) |
Income before income taxes |
|
| 6,284 |
|
|
| 5,777 |
|
|
| 8,103 |
|
|
| 12,361 |
|
|
| 12,524 |
|
|
| 1,819 |
|
Income tax expense (benefit) |
|
| 739 |
|
|
| (189 | ) |
|
| (1,782 | ) |
|
| 1,117 |
|
|
| 1,045 |
|
|
| (2,521 | ) |
Net income |
| $ | 5,545 |
|
| $ | 5,966 |
|
| $ | 9,885 |
|
| $ | 11,244 |
|
| $ | 11,479 |
|
| $ | 4,340 |
|
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Basic |
|
| 69,194 |
|
|
| 68,869 |
|
|
| 69,329 |
|
|
| 68,328 |
|
|
| 66,530 |
|
|
| 69,463 |
|
Diluted |
|
| 70,257 |
|
|
| 70,694 |
|
|
| 70,505 |
|
|
| 70,790 |
|
|
| 67,747 |
|
|
| 70,899 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Basic |
| $ | 0.08 |
|
| $ | 0.09 |
|
| $ | 0.14 |
|
| $ | 0.16 |
| $ | 0.17 |
|
| $ | 0.06 |
| |
Diluted |
|
| 0.08 |
|
|
| 0.08 |
|
|
| 0.14 |
|
|
| 0.16 |
|
| 0.17 |
|
|
| 0.06 |
|
The accompanying notes are an integral part of the Consolidated Financial Statements.
3
Cars.com Inc.
Consolidated Statements of Comprehensive Income
(In thousands)
(Unaudited)
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
| Three Months Ended March 31, |
| |||||||||||||||
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
| 2023 |
|
| 2022 |
| ||||||
Net income | $ | 5,545 |
|
| $ | 5,966 |
|
| $ | 9,885 |
|
| $ | 11,244 |
| $ | 11,479 |
|
| $ | 4,340 |
|
Other comprehensive income, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Reclassification of accumulated other comprehensive loss on interest |
| 800 |
|
|
| 1,201 |
|
|
| 2,002 |
|
|
| 2,401 |
| |||||||
Reclassification of Accumulated other comprehensive loss on interest |
| — |
|
|
| 1,202 |
| |||||||||||||||
Total other comprehensive income |
| 800 |
|
|
| 1,201 |
|
|
| 2,002 |
|
|
| 2,401 |
|
| — |
|
|
| 1,202 |
|
Comprehensive income | $ | 6,345 |
|
| $ | 7,167 |
|
| $ | 11,887 |
|
| $ | 13,645 |
| $ | 11,479 |
|
| $ | 5,542 |
|
The accompanying notes are an integral part of the Consolidated Financial Statements.
4
Cars.com Inc.
Consolidated Statements of Stockholders’ Equity
(In thousands)
(Unaudited)
| Preferred Stock |
|
| Common Stock |
|
| Additional |
| Accumulated |
|
| Accumulated |
|
| Stockholders' |
| Preferred Stock |
|
| Common Stock |
|
| Additional |
| Accumulated |
|
| Accumulated |
|
| Stockholders' |
| ||||||||||||||||||||||||||||||
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Loss |
|
| Equity |
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Loss |
|
| Equity |
| ||||||||||||||||
Balance at December 31, 2021 |
| — |
|
| $ | — |
|
|
| 69,170 |
|
| $ | 692 |
|
| $ | 1,544,712 |
|
| $ | (1,145,382 | ) |
| $ | (2,002 | ) |
| $ | 398,020 |
| |||||||||||||||||||||||||||||||
Balance at December 31, 2022 |
| — |
|
| $ | — |
|
|
| 66,287 |
|
| $ | 662 |
|
| $ | 1,511,944 |
|
| $ | (1,128,176 | ) |
| $ | — |
|
| $ | 384,430 |
| |||||||||||||||||||||||||||||||
Net income |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,340 |
|
|
| — |
|
|
| 4,340 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 11,479 |
|
|
| — |
|
|
| 11,479 |
|
Other comprehensive income, net of tax |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,202 |
|
|
| 1,202 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Repurchases of common stock |
| — |
|
|
| — |
|
|
| (338 | ) |
|
| (3 | ) |
|
| (4,997 | ) |
|
| — |
|
|
| — |
|
|
| (5,000 | ) |
| — |
|
|
| — |
|
|
| (413 | ) |
|
| (4 | ) |
|
| (7,170 | ) |
|
| — |
|
|
| — |
|
|
| (7,174 | ) |
Shares issued in connection with |
| — |
|
|
| — |
|
|
| 971 |
|
|
| 9 |
|
|
| (7,705 | ) |
|
| — |
|
|
| — |
|
|
| (7,696 | ) |
| — |
|
|
| — |
|
|
| 976 |
|
|
| 10 |
|
|
| (9,807 | ) |
|
| — |
|
|
| — |
|
|
| (9,797 | ) |
Stock-based compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,221 |
|
|
| — |
|
|
| — |
|
|
| 5,221 |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,049 |
|
|
| — |
|
|
| — |
|
|
| 6,049 |
|
Balance at March 31, 2022 |
| — |
|
|
| — |
|
|
| 69,803 |
|
|
| 698 |
|
|
| 1,537,231 |
|
|
| (1,141,042 | ) |
|
| (800 | ) |
|
| 396,087 |
| |||||||||||||||||||||||||||||||
Net income |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,545 |
|
|
| — |
|
|
| 5,545 |
| |||||||||||||||||||||||||||||||
Other comprehensive income, net of tax |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 800 |
|
|
| 800 |
| |||||||||||||||||||||||||||||||
Repurchases of common stock |
| — |
|
|
| — |
|
|
| (1,717 | ) |
|
| (17 | ) |
|
| (18,292 | ) |
|
| — |
|
|
| — |
|
|
| (18,309 | ) | |||||||||||||||||||||||||||||||
Shares issued in connection with |
| — |
|
|
| — |
|
|
| 158 |
|
|
| 1 |
|
|
| 857 |
|
|
| — |
|
|
| — |
|
|
| 858 |
| |||||||||||||||||||||||||||||||
Stock-based compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 6,407 |
|
|
| — |
|
|
| — |
|
|
| 6,407 |
| |||||||||||||||||||||||||||||||
Balance at June 30, 2022 |
| — |
|
| $ | — |
|
|
| 68,244 |
|
| $ | 682 |
|
| $ | 1,526,203 |
|
| $ | (1,135,497 | ) |
| $ | — |
|
| $ | 391,388 |
| |||||||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||||||||||||||||||||
| Preferred Stock |
|
| Common Stock |
|
| Additional |
| Accumulated |
|
| Accumulated |
| Stockholders' |
| |||||||||||||||||||||||||||||||||||||||||||||||
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Loss |
|
| Equity |
| |||||||||||||||||||||||||||||||||||||||
Balance at December 31, 2020 |
| — |
|
| $ | — |
|
|
| 67,387 |
|
| $ | 674 |
|
| $ | 1,530,493 |
|
| $ | (1,156,173 | ) |
| $ | (6,804 | ) |
| $ | 368,190 |
| |||||||||||||||||||||||||||||||
Net income |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,278 |
|
|
| — |
|
|
| 5,278 |
| |||||||||||||||||||||||||||||||
Other comprehensive income, net of tax |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,200 |
|
|
| 1,200 |
| |||||||||||||||||||||||||||||||
Shares issued in connection with |
| — |
|
|
| — |
|
|
| 1,144 |
|
|
| 11 |
|
|
| (5,641 | ) |
|
| — |
|
|
| — |
|
|
| (5,630 | ) | |||||||||||||||||||||||||||||||
Stock-based compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,978 |
|
|
| — |
|
|
| — |
|
|
| 4,978 |
| |||||||||||||||||||||||||||||||
Balance at March 31, 2021 |
| — |
|
|
| — |
|
|
| 68,531 |
|
|
| 685 |
|
|
| 1,529,830 |
|
|
| (1,150,895 | ) |
|
| (5,604 | ) |
|
| 374,016 |
| |||||||||||||||||||||||||||||||
Net income |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,966 |
|
|
| — |
|
|
| 5,966 |
| |||||||||||||||||||||||||||||||
Other comprehensive income, net of tax |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,201 |
|
|
| 1,201 |
| |||||||||||||||||||||||||||||||
Shares issued in connection with |
| — |
|
|
| — |
|
|
| 433 |
|
|
| 5 |
|
|
| (1,424 | ) |
|
| — |
|
|
| — |
|
|
| (1,419 | ) | |||||||||||||||||||||||||||||||
Stock-based compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,692 |
|
|
| — |
|
|
| — |
|
|
| 5,692 |
| |||||||||||||||||||||||||||||||
Balance at June 30, 2021 |
| — |
|
| $ | — |
|
|
| 68,964 |
|
| $ | 690 |
|
| $ | 1,534,098 |
|
| $ | (1,144,929 | ) |
| $ | (4,403 | ) |
| $ | 385,456 |
| |||||||||||||||||||||||||||||||
Balance at March 31, 2023 |
| — |
|
| $ | — |
|
|
| 66,850 |
|
| $ | 668 |
|
| $ | 1,501,016 |
|
| $ | (1,116,697 | ) |
| $ | — |
|
| $ | 384,987 |
|
| Preferred Stock |
|
| Common Stock |
|
| Additional |
|
| Accumulated |
|
| Accumulated |
|
| Stockholders' |
| ||||||||||||||
| Shares |
|
| Amount |
|
| Shares |
|
| Amount |
|
| Capital |
|
| Deficit |
|
| Loss |
|
| Equity |
| ||||||||
Balance at December 31, 2021 |
| — |
|
| $ | — |
|
|
| 69,170 |
|
| $ | 692 |
|
| $ | 1,544,712 |
|
| $ | (1,145,382 | ) |
| $ | (2,002 | ) |
| $ | 398,020 |
|
Net income |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 4,340 |
|
|
| — |
|
|
| 4,340 |
|
Other comprehensive income, net of tax |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 1,202 |
|
|
| 1,202 |
|
Repurchases of common stock |
| — |
|
|
| — |
|
|
| (338 | ) |
|
| (3 | ) |
|
| (4,997 | ) |
|
| — |
|
|
| — |
|
|
| (5,000 | ) |
Shares issued in connection with |
| — |
|
|
| — |
|
|
| 971 |
|
|
| 9 |
|
|
| (7,705 | ) |
|
| — |
|
|
| — |
|
|
| (7,696 | ) |
Stock-based compensation |
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 5,221 |
|
|
| — |
|
|
| — |
|
|
| 5,221 |
|
Balance at March 31, 2022 |
| — |
|
| $ | — |
|
|
| 69,803 |
|
| $ | 698 |
|
| $ | 1,537,231 |
|
| $ | (1,141,042 | ) |
| $ | (800 | ) |
| $ | 396,087 |
|
The accompanying notes are an integral part of the Consolidated Financial Statements.
5
Cars.com Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
| Six Months Ended |
|
| Three Months Ended |
| ||||||||||
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Net income |
| $ | 9,885 |
|
| $ | 11,244 |
|
| $ | 11,479 |
|
| $ | 4,340 |
|
Adjustments to reconcile Net income to Net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation |
|
| 7,857 |
|
|
| 7,980 |
|
|
| 4,884 |
|
|
| 4,014 |
|
Amortization of intangible assets |
|
| 39,697 |
|
|
| 42,998 |
|
|
| 19,158 |
|
|
| 20,539 |
|
Amortization of Accumulated other comprehensive loss on interest rate swap |
|
| 2,362 |
|
|
| 2,835 |
|
|
| — |
|
|
| 1,417 |
|
Changes in fair value of contingent consideration |
|
| (8,259 | ) |
|
| — |
| ||||||||
Stock-based compensation |
|
| 11,628 |
|
|
| 10,670 |
|
|
| 5,982 |
|
|
| 5,221 |
|
Deferred income taxes |
|
| (92 | ) |
|
| (442 | ) |
|
| (228 | ) |
|
| (374 | ) |
Provision for doubtful accounts |
|
| 463 |
|
|
| 211 |
|
|
| 447 |
|
|
| 27 |
|
Amortization of debt issuance costs |
|
| 1,630 |
|
|
| 1,657 |
|
|
| 781 |
|
|
| 816 |
|
Amortization of deferred revenue related to Accu-Trade Acquisition |
|
| (1,767 | ) |
|
| 0 |
|
|
| (883 | ) |
|
| (442 | ) |
Other, net |
|
| 173 |
|
|
| (44 | ) |
|
| 134 |
|
|
| 87 |
|
Changes in operating assets and liabilities, net of acquisitions: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Accounts receivable |
|
| (4,383 | ) |
|
| (7,053 | ) |
|
| (6,552 | ) |
|
| 4,442 |
|
Prepaid expenses and other assets |
|
| (6,683 | ) |
|
| 7,829 |
|
|
| (3,039 | ) |
|
| (3,073 | ) |
Accounts payable |
|
| (2,422 | ) |
|
| 8,888 |
|
|
| (859 | ) |
|
| 1,081 |
|
Accrued compensation |
|
| (9,904 | ) |
|
| (4,393 | ) |
|
| (6,904 | ) |
|
| (13,488 | ) |
Other liabilities |
|
| (6,164 | ) |
|
| (2,761 | ) |
|
| 12,000 |
|
|
| 5,751 |
|
Net cash provided by operating activities |
|
| 42,280 |
|
|
| 79,619 |
|
|
| 28,141 |
|
|
| 30,358 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Payments for acquisitions, net of cash acquired |
|
| (64,770 | ) |
|
| 0 |
|
|
| — |
|
|
| (64,770 | ) |
Capitalization of internally developed technology |
|
| (5,172 | ) |
|
| (3,516 | ) | ||||||||
Purchase of property and equipment |
|
| (8,555 | ) |
|
| (13,095 | ) |
|
| (199 | ) |
|
| (492 | ) |
Net cash used in investing activities |
|
| (73,325 | ) |
|
| (13,095 | ) |
|
| (5,371 | ) |
|
| (68,778 | ) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Proceeds from Revolving Loan borrowings |
|
| 45,000 |
|
|
| 0 |
|
|
| — |
|
|
| 45,000 |
|
Payments of long-term debt |
|
| (5,000 | ) |
|
| (75,000 | ) |
|
| (18,750 | ) |
|
| (2,500 | ) |
Payments for stock-based compensation plans, net |
|
| (6,838 | ) |
|
| (7,049 | ) |
|
| (9,797 | ) |
|
| (7,696 | ) |
Repurchases of common stock |
|
| (23,052 | ) |
|
| 0 |
|
|
| (7,100 | ) |
|
| (5,000 | ) |
Payments of debt issuance costs and other fees |
|
| 0 |
|
|
| (9 | ) | ||||||||
Net cash provided by (used in) financing activities |
|
| 10,110 |
|
|
| (82,058 | ) | ||||||||
Net cash (used in) provided by financing activities |
|
| (35,647 | ) |
|
| 29,804 |
| ||||||||
Net decrease in cash and cash equivalents |
|
| (20,935 | ) |
|
| (15,534 | ) |
|
| (12,877 | ) |
|
| (8,616 | ) |
Cash and cash equivalents at beginning of period |
|
| 39,069 |
|
|
| 67,719 |
|
|
| 31,715 |
|
|
| 39,069 |
|
Cash and cash equivalents at end of period |
| $ | 18,134 |
|
| $ | 52,185 |
|
| $ | 18,838 |
|
| $ | 30,453 |
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cash paid (received) for income taxes |
| $ | 629 |
|
| $ | (8,875 | ) | ||||||||
Cash paid for income taxes |
| $ | 96 |
|
| $ | 17 |
| ||||||||
Cash paid for interest and swap |
|
| 17,664 |
|
|
| 19,634 |
|
|
| 1,486 |
|
|
| 2,743 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the Consolidated Financial Statements.
6
Cars.com Inc.
Notes to the Consolidated Financial Statements
(Unaudited)
NOTE 1. Description of Business and Summary of Significant Accounting Policies
Description of Business. Cars.com Inc. (the “Company” or “CARS”) is a leading automotive marketplace platform that provides a robust set of digital solutions that connect car shoppers with sellers. The Company empowers shoppers with the data, resources and digital tools needed to make informed buying decisions and seamlessly connect with automotive retailers. In a rapidly changing market, CARS enables dealershipsdealers and automotive manufacturers (“OEMs”), with innovative technical solutions and data-driven intelligence, to better reach and influence ready-to-buy shoppers, increase inventory turn and gain market share.
In addition to Cars.com™, the Company’s brands include Dealer Inspire®, a website and digital solutions provider enabling dealershipsdealers to be more efficient through connected digital experiences; FUEL™, an advertising solution providing dealers and OEMs the benefit of leveraging targeted digital video and display marketing to Cars.com’s audience of in-market car shoppers; DealerRater®, a leading car dealer review and reputation management technology solution; CreditIQ™CreditIQ®, digital financing technology and Accu-Trade™, vehicle valuation and appraisal technology. The Company's portfolio of brands also includes Auto.com™, PickupTrucks.com™ and NewCars.com®.
Basis of Presentation. These accompanying unaudited interim Consolidated Financial Statements (“Consolidated Financial Statements”) have been prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and the rules and regulations of the Securities and Exchange Commission (the “SEC”) for interim financial statements. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. These Consolidated Financial Statements should be read in conjunction with the audited Consolidated Financial Statements and the notes thereto for the year ended December 31, 2021,2022, which are included in the Company's Annual Report on Form 10-K as filed with the SEC on February 25, 202223, 2023 (the “December 31, 20212022 Financial Statements”).
The significant accounting policies used in preparing these Consolidated Financial Statements were applied on a basis consistent with those reflected in the December 31, 20212022 Financial Statements. In the opinion of management, the Consolidated Financial Statements contain all adjustments (consisting of a normal, recurring nature) necessary to present fairly the Company's financial position, results of operations, cash flows and changes in stockholders' equity as of the dates and for the periods indicated. The unaudited results of operations for the three and six months ended June 30, 2022March 31, 2023 are not necessarily indicative of results that may be expected for the year ending December 31, 2022.2023.
Use of Estimates. The preparation of the accompanying Consolidated Financial Statements in accordance with U.S. GAAP requires management to make estimates and assumptions that affect amounts reported in the Consolidated Financial Statements and accompanying disclosures. Although these estimates are based on management’s best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from those estimates.
Reclassifications. Certain prior year balances have been reclassified to conform to the current year presentation.
Principles of Consolidation. The accompanying Consolidated Financial Statements include the accounts of Cars.com Inc. and its 100% owned subsidiaries. All intercompany transactions and accounts are eliminated in consolidation.
Correction of Certain Amounts Relating to Previously Issued Financial Statements. During the first quarter of 2022, the Company identified a $30.8 million overstatement of the valuation allowance recorded against deferred tax assets that originated in 2020. In addition, the Company adjusted 2020 to reflect an immaterial income tax adjustment related to this same period. The Company has concluded that these items are not material to the previously issued Consolidated Financial Statements and has therefore corrected these prior period amounts as presented in the Consolidated Financial Statements for the six months ended June 30, 2022. The impact of correcting these items on the related financial statement line items is as follows (in thousands):
7
Cars.com Inc.
Notes to the Consolidated Financial Statements (continued)
(Unaudited)
Consolidated Balance Sheet |
| ||||||||||
| As of December 31, 2021 |
| |||||||||
Financial statement line item | As reported |
|
| Adjustment |
|
| As adjusted |
| |||
Deferred tax liability | $ | 31,086 |
|
| $ | (31,086 | ) |
| $ | 0 |
|
Total noncurrent liabilities |
| 545,981 |
|
|
| (31,086 | ) |
|
| 514,895 |
|
Total liabilities |
| 640,271 |
|
|
| (31,086 | ) |
|
| 609,185 |
|
|
|
|
|
|
|
|
|
| |||
Consolidated Balance Sheet and Statement of Stockholders' Equity |
| ||||||||||
| As of December 31, 2021 |
| |||||||||
Financial statement line item | As reported |
|
| Adjustment |
|
| As adjusted |
| |||
Accumulated deficit | $ | (1,176,468 | ) |
| $ | 31,086 |
|
| $ | (1,145,382 | ) |
Total stockholders' equity |
| 366,934 |
|
|
| 31,086 |
|
|
| 398,020 |
|
|
|
|
|
|
|
|
|
| |||
Consolidated Statement of Stockholders' Equity |
| ||||||||||
| Six Months Ended June 30, 2021 |
| |||||||||
Financial statement line item | As reported |
|
| Adjustment |
|
| As adjusted |
| |||
Accumulated deficit balance at December 31, 2020 | $ | (1,184,187 | ) |
| $ | 28,014 |
|
| $ | (1,156,173 | ) |
Total stockholders' equity balance at December 31, 2020 |
| 340,176 |
|
|
| 28,014 |
|
|
| 368,190 |
|
Accumulated deficit balance at March 31, 2021 |
| (1,178,909 | ) |
|
| 28,014 |
|
|
| (1,150,895 | ) |
Total stockholders' equity balance at March 31, 2021 |
| 346,002 |
|
|
| 28,014 |
|
|
| 374,016 |
|
Accumulated deficit balance at June 30, 2021 |
| (1,172,943 | ) |
|
| 28,014 |
|
|
| (1,144,929 | ) |
Total stockholders' equity balance at June 30, 2021 |
| 357,442 |
|
|
| 28,014 |
|
|
| 385,456 |
|
These adjustments had no impact to Net cash provided by operating activities, Net cash used in investing activities or Net cash provided by (used in) financing activities on the Consolidated Statements of Cash Flows. In addition, these adjustments had no impact to the Consolidated Statements of Income and Earnings per share for the three and six months ended June 30, 2021.
NOTE 2. Revenue
Revenue Summary.In the table below (in thousands), revenue is disaggregated by major products and services. The Company only has 1one reportable segment; therefore, further disaggregation is not applicable at this time.
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| Three Months Ended March 31, |
| |||||||||||||||
Major products and services |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||||
Subscription advertising and digital solutions |
| $ | 135,432 |
|
| $ | 128,733 |
|
| $ | 267,679 |
|
| $ | 254,179 |
|
| $ | 137,334 |
|
| $ | 132,247 |
|
Display advertising |
|
| 20,859 |
|
|
| 21,322 |
|
|
| 41,908 |
|
|
| 43,279 |
|
|
| 23,857 |
|
|
| 21,049 |
|
Pay per lead |
|
| 2,129 |
|
|
| 3,280 |
|
|
| 4,546 |
|
|
| 7,040 |
|
|
| 2,275 |
|
|
| 2,417 |
|
Other |
|
| 4,453 |
|
|
| 2,195 |
|
|
| 6,947 |
|
|
| 4,327 |
|
|
| 3,602 |
|
|
| 2,494 |
|
Total revenue |
| $ | 162,873 |
|
| $ | 155,530 |
|
| $ | 321,080 |
|
| $ | 308,825 |
|
| $ | 167,068 |
|
| $ | 158,207 |
|
7
Cars.com Inc.
Notes to the Consolidated Financial Statements (continued)
(Unaudited)
NOTE 3. Goodwill, Indefinite-lived Intangible Asset and Business CombinationCombinations
The changes in the carrying amount of goodwill and indefinite-lived intangible asset are as follows (in thousands):
| December 31, 2021 |
|
| Additions |
|
| Adjustment (1) |
|
| Impairment |
|
| June 30, 2022 |
| |||||
Goodwill | $ | 26,227 |
|
| $ | 75,536 |
|
| $ | 1,431 |
|
| $ | — |
|
| $ | 103,194 |
|
Indefinite-lived intangible asset |
| 390,020 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| 390,020 |
|
Business Combinations. The below transactions were accounted for as business combinations.
Accu-Trade Acquisition. On March 1, 2022, the Company acquired certain of the assets and assumed certain liabilities of Accu-Trade, LLC; Accu-Trade Canada, LLC; Galves Market Data; and Headstart Logistics, LLC d/b/a/a MADE Logistics (collectively,
8
Cars.com Inc.
Notes to the Consolidated Financial Statements (continued)
(Unaudited)
“Accu-Trade” “Accu-Trade”), which provides dealers with VIN-specific vehicle VIN-specific valuation and appraisal data, instant guaranteed offer capabilities and logistics technology (the “Accu-Trade Acquisition”).
The Company expensed as incurred total acquisition costs of $2.0 million, of which zero and $1.00.9 million were recorded during the sixthree months ended June 30, 2022.March 31, 2023 and 2022, respectively. These costs were recorded in General and administrative expenses in the Consolidated Statements of Income.
Preliminary Purchase Price Allocation. The preliminary fair values assigned to the tangible and intangible assets acquired and liabilities assumed were determined based on management’s estimates and assumptions, as well as other information compiled by management, including third-party valuations that utilize customary valuation procedures and techniques, such as the multi-period excess earnings and the relief of royalty methods. These preliminary fair values are subject to change within the one-year measurement period. The Accu-Trade Acquisition purchase price allocation is as follows (in thousands):
|
| Acquisition-date |
| |
Cash consideration |
| $ | 64,663 |
|
Other consideration (1) |
|
| 5,300 |
|
Contingent consideration (2) |
|
| 23,936 |
|
Total purchase consideration |
| $ | 93,899 |
|
|
|
|
| |
Assets acquired (3) |
| $ | 1,595 |
|
Identified intangible assets (4) |
|
| 15,679 |
|
Total assets acquired |
|
| 17,274 |
|
Total liabilities assumed (5) |
|
| (235 | ) |
Net identifiable assets |
|
| 17,039 |
|
Goodwill |
|
| 76,860 |
|
Total purchase consideration |
| $ | 93,899 |
|
|
| Preliminary |
| |
Cash consideration |
| $ | 64,770 |
|
Other consideration (1) |
|
| 5,300 |
|
Contingent consideration (2) (3) |
|
| 23,936 |
|
Total purchase consideration (3) |
| $ | 94,006 |
|
|
|
|
| |
Assets acquired (4) |
| $ | 1,595 |
|
Identified intangible assets (5) |
|
| 15,679 |
|
Total assets acquired |
|
| 17,274 |
|
Total liabilities assumed (6) |
|
| (235 | ) |
Net identifiable assets |
|
| 17,039 |
|
Goodwill (3) |
|
| 76,967 |
|
Total purchase consideration (3) |
| $ | 94,006 |
|
|
| Acquisition-Date |
|
| Amortization Period | |
Acquired software |
| $ | 12,926 |
|
| 5 |
Trade name |
|
| 1,446 |
|
| 10 |
Customer relationships |
|
| 1,307 |
|
| 7 |
Total |
| $ | 15,679 |
|
|
|
98
Cars.com Inc.
Notes to the Consolidated Financial Statements (continued)
(Unaudited)
|
| Acquisition-Date |
|
| Weighted-Average Amortization Period | |
Acquired software |
| $ | 12,926 |
|
| 5 |
Trade name |
|
| 1,446 |
|
| 10 |
Customer relationships |
|
| 1,307 |
|
| 7 |
Total |
| $ | 15,679 |
|
|
Goodwill. In connection with the Accu-Trade Acquisition, the Company recorded goodwill in the amount of $77.076.9 million, which is primarily attributable to sales growth from existing and future technology, product offerings, customers and the value of the acquired assembled workforce. All of the goodwill is considered deductible for income tax purposes.
CreditIQ Acquisition.
On November 5, 2021, the Company acquired all of the outstanding stock of CreditIQ, Inc. (the “CIQ Acquisition”), an automotive fintech platform that provides instant online loan screening and approvals to facilitate online car buying. Through the CIQ Acquisition, the Company will provide dealers with access to advanced digital financing technology across the CARS platform.NOTE 4. Fair Value Measurements
The Company expensed as incurred total acquisition costs of $1.4 million, of which $0.2 million were recorded during the six months ended June 30, 2022. These costs were recorded in General and administrative in the Consolidated Statements of Income. In connection with the CIQ Acquisition, CreditIQ’s unvested equity awards were cash-settled for a total of $9.6 million. TheCompany's liabilities measured at fair value of these awards was based on the price paid per common share to the ownersa recurring basis consisted of the acquired business and recognized immediately after the CIQ Acquisition in November 2021 as compensation expense in the Company’s Consolidated Statements of Income.following (in thousands):
|
|
|
| Fair value measurement at reporting date |
| ||||||||||
| Total as of |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Contingent consideration | $ | 47,612 |
|
| $ | — |
|
| $ | — |
|
| $ | 47,612 |
|
Total | $ | 47,612 |
|
| $ | — |
|
| $ | — |
|
| $ | 47,612 |
|
Preliminary Purchase Price Allocation.
|
|
|
| Fair value measurement at reporting date |
| ||||||||||
| Total as of |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Contingent consideration | $ | 55,871 |
|
| $ | — |
|
| $ | — |
|
| $ | 55,871 |
|
Total | $ | 55,871 |
|
| $ | — |
|
| $ | — |
|
| $ | 55,871 |
|
The fair values assigned toroll-forward of the tangible and intangible assets acquired and liabilities assumed were determined based on management’s estimates and assumptions, as well as other information compiled by management, including third-party valuations that utilize customary valuation procedures and techniques, such as the multi-period excess earnings and the relief of royalty methods. The preliminary fair values of all assets acquired and liabilities assumed are subject to change within the one-year measurement period. The CIQ Acquisition purchase price allocationLevel 3 contingent consideration from December 31, 2022 is as follows (in thousands):
| As of |
|
| Fair Value |
|
| As of |
| |||
Contingent consideration | $ | 55,871 |
|
| $ | (8,259 | ) |
| $ | 47,612 |
|
|
| Preliminary |
| |
Cash consideration (1) |
| $ | 29,965 |
|
Contingent consideration (2) |
|
| 23,805 |
|
Cash settlement of CIQ Acquisition's unvested equity awards (3) |
|
| (9,626 | ) |
Total purchase consideration |
| $ | 44,144 |
|
|
|
|
| |
Assets acquired (4) |
| $ | 193 |
|
Identified intangible assets (5) |
|
| 19,900 |
|
Total assets acquired |
|
| 20,093 |
|
Total liabilities assumed (6) |
|
| (2,176 | ) |
Net identifiable assets |
|
| 17,917 |
|
Goodwill |
|
| 26,227 |
|
Total purchase consideration |
| $ | 44,144 |
|
Cash consideration |
| $ | 29,965 |
|
Less: Cash settlement of CIQ Acquisition's unvested equity awards (3) |
|
| (9,626 | ) |
Less: Cash acquired |
|
| (81 | ) |
Payments for CIQ Acquisition, net of cash acquired |
| $ | 20,258 |
|
10The contingent consideration is classified on the Consolidated Balance Sheets based on expected payment dates. As of March 31, 2023, $6.2 million and $41.4 million were included within Other accrued liabilities and Other noncurrent liabilities on the Consolidated Balance Sheets, respectively. As of December 31, 2022, $9.4 million and $46.5 million were included within Other accrued liabilities and Other noncurrent liabilities on the Consolidated Balance Sheets.
As of March 31, 2023, other than projected financial information, volatility was the only significant input and assumption in the contingent consideration valuations. The volatility input ranged from 25% to 51%.
We expect to make payments on the contingent consideration in 2023, 2024 and 2025. For more information relating to contingent consideration, see Note 3 (Business Combinations).
NOTE 5. Debt
As of March 31, 2023, the Company was in compliance with the covenants under its debt agreements.
Term Loan. As of March 31, 2023, the outstanding principal amount under the Term Loan was $62.5 million and the interest rate in effect was 7.2%. During the three months ended March 31, 2023, the Company made $3.8 million in Term Loan payments.
9
Cars.com Inc.
Notes to the Consolidated Financial Statements (continued)
(Unaudited)
|
| Acquisition-Date |
|
| Amortization Period | |
Trade name |
| $ | 900 |
|
| 10 |
Acquired software |
|
| 19,000 |
|
| 5 |
Total |
| $ | 19,900 |
|
|
|
Goodwill. In connection with the CIQ Acquisition, the Company recorded goodwill in the amount of $26.2 million, which is primarily attributable to sales growth from existing and future technology, product offerings, customers and the value of the acquired assembled workforce. None of the goodwill is considered deductible for income tax purposes.
NOTE 4. Debt
As of June 30, 2022, the Company was in compliance with the covenants under its debt agreements.
Term Loan. As of June 30, 2022, the outstanding principal amount under the Term Loan was $72.5 million and the interest rate in effect was 4.3%. During the six months ended June 30, 2022, the Company made $5.0 million in Term Loan payments.
Revolving Loan. As of June 30, 2022, the outstanding borrowings under the Revolving Loan wereMarch 31, 2023, $45.0 million and the interest rate in effect was 3.7%. As of June 30, 2022, $185.0230.0 million was available to borrow under the Revolving Loan. The Company paid down $15.0 million and had zero drawdowns on the Revolving Loan during the three months ended March 31, 2023. The Company’s borrowings are limited by its Senior Secured Leverage Ratio and Consolidated Interest Coverage Ratio, which are calculated in accordance with ourthe Company's Credit Agreement, and were 0.7x0.3x and 5.2x5.7x as of June 30, 2022,March 31, 2023, respectively.
Senior Unsecured Notes. In October 2020, the Company issued $400.0 million aggregate principal amount of 6.375% Senior Unsecured Notes due 2028. Interest on the notes is due semi-annually on May 1 and November 1.
Fair Value. The Company's debt is classified as Level 2 in the fair value hierarchy and the fair value is measured based on comparable trading prices, ratings, sectors, coupons and maturities of similar instruments. As of June 30, 2022, theThe approximate fair value and related carrying value of the Company's outstanding indebtedness, was approximately $449.1 million, compared to the carrying value $517.5 million. Asas of March 31, 2023 and December 31, 2021, the fair value of the outstanding indebtedness was approximately $2022 were as follows (in millions):502.7
million, compared to the carrying value of $477.5 million.
| March 31, 2023 |
|
| December 31, 2022 |
| ||
Fair value | $ | 440.2 |
|
| $ | 435.4 |
|
Carrying value |
| 462.5 |
|
|
| 481.3 |
|
NOTE 5.6. Interest Rate Swap
The interest rate on borrowings under the Company’s Term Loan and Revolving Loan is floating and, therefore, subject to fluctuations. In order to manage the risk associated with changes in interest rates on its borrowing under the Term Loan and Revolving Loan prior to the October 2020 refinancing, the Company entered into an interest rate swap (the “Swap”) effective December 31, 2018. Under the terms of the Swap, the Company was locked into a fixed rate of interest of 2.96% plus an applicable margin, as defined in the Company’s Credit Agreement, on a notional amount of $300 million until May 31, 2022. Although the Swap was initially designated as a cash flow hedge of interest rate risk, hedge accounting was discontinued in June 2020. The loss on the hedge that was recorded in Accumulated other comprehensive loss at that time was amortized into Interest expense, net in the Consolidated Statements of Income ratably over the remaining term of the Swap.
The Swap expired on May 31, 2022 and, as such, is no longer recorded on the Consolidated Balance Sheets. As of DecemberDuring the three months ended March 31, 2021, the fair value of the Swap was an unrealized loss of2023 and 2022, zero and $3.51.4 million, which was recorded in Other accrued liabilities on the Consolidated Balance Sheets. During the six months ended June 30, 2022 and 2021, $2.4 million and $2.8 millionrespectively was reclassified from Accumulated other comprehensive loss and recorded in Interest expense, net, respectively.net. During the sixthree months ended June 30,March 31, 2022, the Company
11
Cars.com Inc.
Notes to the Consolidated Financial Statements (continued)
(Unaudited)
made payments of $3.32.1 million related to the Swap and $0.40.2 million was reclassified as a tax benefit from Accumulated other comprehensive loss into Income tax expense (benefit) on the Consolidated Statements of Income.
NOTE 6.7. Commitments and Contingencies
The Company and its subsidiaries are parties fromFrom time to time, the Company may become involved in actions, claims, suits or other legal andor administrative proceedings involving matters incidental to itsarising in the ordinary course of business. These matters, whetherThe Company is currently not involved in any pending or threatened litigation or unasserted,claim that if decideddetermined adversely toagainst the Company, individually or settled, may result in liabilitiesthe aggregate, would have a material to itsadverse impact on the Company’s financial position, results of operations or cash flows. The Company records a liability when it believes that it is both probable that a loss will be incurred and the amount of loss can be reasonably estimated. The Company evaluates, at least quarterly, developments in its legal matterscommitments and contingencies that could affect the amount of liability that has been previously accrued and makes adjustments as appropriate. Significant judgment is required to determine both the probability and the estimated amount.
NOTE 7.8. Stockholders' Equity
InOn February 24, 2022, the Company'sCompany announced that its Board of Directors authorized a three-year share repurchase program to acquire up to $200 million of the Company's common stock. The Company may repurchase shares from time to time in open market transactions or through privately negotiated transactions in accordance with applicable federal securities laws and other applicable legal requirements and subject to the Company's blackout periods. The timing and amounts of any purchases under the share repurchase program will be based on market conditions and other factors, including price. The repurchase program may be suspended or discontinued at any time and does not obligate the Company to repurchase any dollarspecific amount or particular amountnumber of shares. The Company funds the share repurchase program principally with cash from operations. During the sixthree months ended June 30, 2022,March 31, 2023, the Company repurchased and subsequently retired 2.10.4 million shares for $23.37.2 million at an average price paid per share of $11.3417.38. During the three months ended
10
Cars.com Inc.
Notes to the Consolidated Financial Statements (continued)
(Unaudited)
March 31, 2022, the Company repurchased and subsequently retired 0.3 million shares for $5.0 million at an average price paid per share of $14.78.
NOTE 8.9. Stock-Based Compensation
Restricted Share Units (“RSUs”). RSUs represent the right to receive unrestricted shares of the Company’s common stock at the time of vesting, subject to any restrictions as specified in the individual holder’s award agreement. RSUs are subject to graded vesting, generally ranging between one and fourthree years and the fair value of the RSUs is equal to the Company’sCompany's common stock price on the date of grant. RSU activity for the sixthree months ended June 30, 2022March 31, 2023 is as follows (in thousands, except for weighted-average grant date fair value):
|
| Number |
|
| Weighted-Average |
| ||
Outstanding as of December 31, 2021 |
|
| 3,683 |
|
| $ | 10.95 |
|
Granted |
|
| 2,115 |
|
|
| 14.38 |
|
Vested and delivered |
|
| (1,517 | ) |
|
| 10.55 |
|
Forfeited |
|
| (471 | ) |
|
| 12.45 |
|
Outstanding as of June 30, 2022 (1) |
|
| 3,810 |
|
|
| 12.83 |
|
|
| Number |
|
| Weighted-Average |
| ||
Outstanding as of December 31, 2022 |
|
| 3,771 |
|
| $ | 12.88 |
|
Granted |
|
| 1,676 |
|
|
| 16.47 |
|
Vested and delivered |
|
| (1,496 | ) |
|
| 10.53 |
|
Forfeited |
|
| (26 | ) |
|
| 14.92 |
|
Outstanding as of March 31, 2023 (1) |
|
| 3,925 |
|
| $ | 15.29 |
|
Performance Share Units (“PSUs”). PSUs represent the right to receive unrestricted shares of the Company’s common stock at the time of vesting. The fair value of the PSUs is equal to the Company’s common stock price on the date of grant. Expense related to PSUs is recognized when the performance conditions are probable of being achieved. The percentage of PSUs that shall vest will range from 0% to 200% of the number of PSUs granted based on the Company’s future performance related to certain revenue and adjusted earnings before interest, income taxes, depreciation and amortization targets over a three-year performance period. These PSUs are subject to cliff vesting atafter the end of the respective performance period. PSU activity for the sixthree months ended June 30, 2022March 31, 2023 is as follows (in thousands, except for weighted-average grant date fair value):
12
Cars.com Inc.
Notes to the Consolidated Financial Statements (continued)
(Unaudited)
|
| Number |
|
| Weighted-Average |
|
| Number |
|
| Weighted-Average |
| ||||
Outstanding as of December 31, 2021 |
|
| 142 |
|
| $ | 23.98 |
| ||||||||
Outstanding as of December 31, 2022 |
|
| 245 |
|
| $ | 14.78 |
| ||||||||
Granted |
|
| 275 |
|
|
| 15.07 |
|
|
| 267 |
|
|
| 16.47 |
|
Vested and delivered |
|
| (142 | ) |
|
| 23.98 |
|
|
| — |
|
|
| — |
|
Forfeited |
|
| (59 | ) |
|
| 15.07 |
|
|
| — |
|
|
| — |
|
Outstanding as of June 30, 2022 |
|
| 216 |
|
|
| 15.07 |
| ||||||||
Outstanding as of March 31, 2023 |
|
| 512 |
|
| $ | 15.66 |
|
Stock Options. Stock options represent the right to purchase shares of the Company’s common stock at the time of vesting, subject to any restrictions as specified in the individual holder’s award agreement. Stock options are subject to three-year cliff vesting and expire 10 years from the grant date. Stock option activity for the sixthree months ended June 30, 2022March 31, 2023 is as follows (in thousands, except for weighted-average grant date fair value and weighted-average remaining contractual term):
|
| Number of Options |
|
| Weighted-Average |
|
| Weighted-Average Remaining Contractual Term (in years) |
|
| Aggregate |
| ||||
Outstanding as of December 31, 2021 |
|
| 804 |
|
| $ | 5.27 |
|
|
| 8.58 |
|
| $ | 5,754 |
|
Granted |
|
| 263 |
|
|
| 9.39 |
|
|
|
|
|
|
| ||
Vested and delivered |
|
| 0 |
|
|
| 0 |
|
|
|
|
|
|
| ||
Forfeited |
|
| 0 |
|
|
| 0 |
|
|
|
|
|
|
| ||
Outstanding as of June 30, 2022 |
|
| 1,067 |
|
|
| 6.28 |
|
|
| 8.48 |
|
|
| 2,068 |
|
Exercisable as of June 30, 2022 |
|
| 0 |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| Number of Options |
|
| Weighted-Average |
|
| Weighted-Average Remaining Contractual Term (in years) |
|
| Aggregate |
| ||||
Outstanding as of December 31, 2022 |
|
| 1,067 |
|
| $ | 6.28 |
|
|
| 7.98 |
|
| $ | 4,296 |
|
Granted |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Exercised |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Forfeited |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Outstanding as of March 31, 2023 |
|
| 1,067 |
|
| $ | 6.28 |
|
|
| 7.73 |
|
| $ | 9,449 |
|
Exercisable as of March 31, 2023 |
|
| 513 |
|
| $ | 2.80 |
|
|
| 6.97 |
|
| $ | 7,134 |
|
11
Cars.com Inc.
Notes to the Consolidated Financial Statements (continued)
(Unaudited)
There were no stock options granted during the three months ended March 31, 2023. The fair value of the stock options granted during the sixthree months ended June 30,March 31, 2022 and June 30, 2021 are estimated on the grant date using the Black-Scholes option pricing model, using the following assumptions:
| 2022 |
|
| 2021 |
| ||
Risk-free interest rate |
| 2.21 | % |
|
| 1.15 | % |
Weighted-average volatility |
| 65.22 | % |
|
| 69.00 | % |
Dividend yield |
| 0 | % |
|
| 0 | % |
Expected years until exercise |
| 6.5 |
|
|
| 6.5 |
|
2022 | |||
Risk-free interest rate | 2.21 | % | |
Weighted-average volatility | 65.22 | % | |
Dividend yield | 0 | % | |
Expected years until exercise | 6.5 |
NOTE 9.10. Earnings Per Share
Basic earnings per share is calculated by dividing Net income by the weighted-average number of shares of common stock outstanding. Diluted earnings per share is similarly calculated, except that the calculation includes the dilutive effect of the assumed issuance of shares under stock-based compensation plans, unless the inclusion of such shares would have an anti-dilutive effect. impact. As part of the Accu-Trade Acquisition, the Company may pay up to $15.0 million of the contingent consideration in stock at a future date. Those potential shares have been excluded from the computations below because they are contingently issuable shares, and the contingency to which the issuance relates was not met at the end of the reporting period.The computation of Earnings per share is as follows (in thousands, except per share data):
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| Three Months Ended March 31, |
| |||||||||||||||
|
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||||
Net income |
| $ | 5,545 |
|
| $ | 5,966 |
|
| $ | 9,885 |
|
| $ | 11,244 |
|
| $ | 11,479 |
|
| $ | 4,340 |
|
Basic weighted-average common shares outstanding |
|
| 69,194 |
|
|
| 68,869 |
|
|
| 69,329 |
|
|
| 68,328 |
|
|
| 66,530 |
|
|
| 69,463 |
|
Effect of dilutive stock-based compensation awards (1) |
|
| 1,063 |
|
|
| 1,825 |
|
|
| 1,176 |
|
|
| 2,462 |
|
|
| 1,217 |
|
|
| 1,436 |
|
Diluted weighted-average common shares outstanding |
|
| 70,257 |
|
|
| 70,694 |
|
|
| 70,505 |
|
|
| 70,790 |
|
|
| 67,747 |
|
|
| 70,899 |
|
Earnings per share, basic |
| $ | 0.08 |
|
| $ | 0.09 |
|
| $ | 0.14 |
|
| $ | 0.16 |
|
| $ | 0.17 |
|
| $ | 0.06 |
|
Earnings per share, diluted |
|
| 0.08 |
|
|
| 0.08 |
|
|
| 0.14 |
|
|
| 0.16 |
|
|
| 0.17 |
|
|
| 0.06 |
|
13
Cars.com Inc.
Notes to the Consolidated Financial Statements (continued)
(Unaudited)
NOTE 10.11. Income Taxes
Deferred Tax Asset and Valuation Allowance.The Company has concluded a valuation allowance is required against its deferred tax assets as of June 30, 2022.March 31, 2023. In reaching this conclusion, in accordance with U.S. GAAP, the Company has evaluated all available evidence, both positive and negative, and determined that the Company’s history of recent losses, primarily due to the goodwill and indefinite-lived intangible asset impairments, was sufficient significant negative evidence to require a valuation allowance. Therefore, the Company has recorded a valuation allowance to reduce its deferred tax assets as of June 30, 2022March 31, 2023 to the amount that is more likely than not to be realized in future periods. At each reporting date, management considers new evidence, both positive and negative, that could affect its view of the future realization of deferred tax assets.
Effective Tax Rate. The effective income tax rate, expressed by calculating the income tax expense (benefit) as a percentage of Incomeincome before income tax, was (22.08.3)% for the sixthree months ended June 30, 2022,March 31, 2023, which varied from the statutory federal income tax rate of 21%, primarily due to the incremental tax benefits realized on a partial releasededuction that the Company received upon vesting of the valuation allowance, stock-based compensation and the impact of uncertain tax positions.its equity awards.
(In thousands, except percentages) |
| Three Months Ended June 30, 2022 |
|
| Six Months Ended June 30, 2022 |
|
| Three Months Ended March 31, 2023 |
| |||||||||||||||
Income tax provision at statutory rate |
| $ | 1,319 |
|
|
| 21.0 | % |
| $ | 1,701 |
|
|
| 21.0 | % |
| $ | 2,630 |
|
|
| 21.0 | % |
State income taxes, net of federal income tax benefit |
|
| 342 |
|
|
| 5.4 |
|
|
| 546 |
|
|
| 6.7 |
|
|
| 340 |
|
|
| 2.7 |
|
Stock-based compensation |
|
| 214 |
|
|
| 3.4 |
|
|
| (1,211 | ) |
|
| (14.9 | ) |
|
| (1,891 | ) |
|
| (15.1 | ) |
Uncertain tax positions |
|
| — |
|
|
| — |
|
|
| (1,015 | ) |
|
| (12.5 | ) |
|
| 289 |
|
|
| 2.3 |
|
Valuation allowance |
|
| (1,530 | ) |
|
| (24.3 | ) |
|
| (2,447 | ) |
|
| (30.2 | ) |
|
| 714 |
|
|
| 5.7 |
|
Other, net |
|
| 394 |
|
|
| 6.3 |
|
|
| 644 |
|
|
| 7.9 |
|
|
| (1,037 | ) |
|
| (8.3 | ) |
Income tax expense (benefit) |
| $ | 739 |
|
|
| 11.8 | % |
| $ | (1,782 | ) |
|
| (22.0 | )% | ||||||||
Income tax expense |
| $ | 1,045 |
|
|
| 8.3 | % |
1412
Note About Forward-Looking Statements
This report contains “forward-looking statements” within the meaning of the federal securities laws. All statements other than statements of historical facts are forward-looking statements. These statements often includeuse words such as “believe,” “expect,” “project,” “anticipate,” “outlook,” “intend,” “strategy,” “plan,” “estimate,” “target,” “seek,” “will,” “may,” “would,” “should,” “could,” “forecasts,” “mission,” “strive,” “more,” “goal” or similar expressions. As a result, our actual financial results, performance, achievements, strategic actions, or prospects may differ materially from those expressed or impliedAll forward-looking statements contained in this report are qualified by these forward-lookingcautionary statements. Forward-looking statements are based on our current expectations, beliefs, strategies, estimates, projections and assumptions, based on our experience in the industry as well as our perceptions of historical trends, current conditions, expected future developments, currentcontinuing developments regarding the COVID-19 pandemic, global supply chain shortages, risingfluctuating fuel prices, rising interest rates, inflation and other factors we think are appropriate. Such forward-looking statements are necessarily based uponon estimates and assumptions that, while considered reasonable by usthe Company and ourits management based on ourtheir knowledge and understanding of the business and industry, including the supply chain, are inherently uncertain. TheseWhile the Company and its management make such statements are expressed in good faith and we believe thesesuch judgments are reasonable; however,reasonable, you should understand that these statements are not guarantees of future strategic action, performance or results. Our actual results, andperformance, achievements, strategic actions or prospects could differ materially from those expressed in theor implied by these forward-looking statements. Given these uncertainties, forward-looking statementsyou should not be reliedrely on forward-looking statements in making investment decisions. ComparisonsWhen we make comparisons of results between current and prior periods, arewe do not intendedintend to express any future trends, or indications of future performance, unless expressed as such, and you should only be viewedview such comparisons as historical data. Whether or not any such forward-looking statement is in fact achieved will depend on future events, someForward-looking statements are subject to a number of risks, uncertainties and other important factors, many of which are beyond our control.
Important factorscontrol, that could cause our actual results or eventsand strategic actions to differ materially from those anticipatedexpressed in the forward-looking statements contained in this report. Factors that might cause such differences include, among others:but are not limited to:
13
15
For a detailed discussion of many of these risks and uncertainties, see “Part I, Item 1A., Risk Factors” and “Part II, Item 7., Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021,2022, as filed with the Securities and Exchange Commission (“SEC”) on February 25, 2022,23, 2023, our Current Reports on Form 8-K and our other filings filed with the SEC and available on our website at investor.cars.com or via EDGAR at www.sec.gov. All forward-looking statements contained in this report are qualified by these cautionary statements. You should evaluate all forward-looking statements made in this report in the context of these risks and uncertainties. The forward-looking statements contained in this report are based only on information currently available to us and speak only as of the date of this report. We undertake no obligation, other than as may be required by law, to update or revise any forward-looking or cautionary statements in this report to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, or changes in future operating results
14
over time or otherwise. The forward-looking statements in this report are intended to be subject to the safe harbor protection provided by the federal securities laws.
1615
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our business, financial condition, results of operations and quantitative and qualitative disclosures should be read in conjunction with our Consolidated Financial Statements and related notes included elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis also contains forward-looking statements and should be read in conjunction with the disclosures and information contained in “Note About Forward-Looking Statements” in this Quarterly Report on Form 10-Q. The financial information discussed below and included elsewhere in this Quarterly Report on Form 10-Q may not necessarily reflect what our financial condition, results of operations and cash flows may be in the future.
References in this discussion and analysis to “we,” “us,” “our” and similar terms refer to Cars.com Inc. and its subsidiaries, collectively, unless the context indicates otherwise.
Business Overview
We are a leading automotive marketplace platform that provides a robust set of digital solutions that connect car shoppers with sellers. We empower shoppers with the data, resources and digital tools needed to make informed buying decisions and seamlessly connect with automotive retailers.retailers, automotive manufacturers (“OEMs”), other national advertisers and lenders. In a rapidly changing market, we enable dealershipsdealers and automotive manufacturers (“OEMs”),OEMs with innovative technical solutions and data-driven intelligence, to better reach and influence ready-to-buy shoppers, increase inventory turn and operating efficiencies and gain market share.
In addition to Cars.com™, our brands include Dealer Inspire®, a website and digital solutions provider enabling dealershipsdealers to be more efficient through connected digital experiences; FUEL™, an advertising solution providing dealers and OEMs the benefit of leveraging targeted digital video and display marketing to Cars.com’s audience of in-market car shoppers; DealerRater®, a leading car dealer review and reputation management technology solution; CreditIQ™CreditIQ®, digital financing technologytechnology; and Accu-Trade™, vehicle valuation and appraisal technology. Our portfolio of brands also includes Auto.com™, PickupTrucks.com™ and NewCars.com®.
Overview of Results
|
| Three Months Ended June 30, |
|
| Six Months Ended June 30, |
|
| Three Months Ended March 31, |
| |||||||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| 2022 |
|
| 2021 |
|
| 2023 |
|
| 2022 |
| ||||||
Revenue |
| $ | 162,873 |
|
| $ | 155,530 |
|
| $ | 321,080 |
|
| $ | 308,825 |
|
| $ | 167,068 |
|
| $ | 158,207 |
|
Net income |
|
| 5,545 |
|
|
| 5,966 |
|
|
| 9,885 |
|
|
| 11,244 |
|
|
| 11,479 |
|
|
| 4,340 |
|
2022 Highlights and Trends
Accu-Trade Acquisition. In March 2022, we acquired certain assets and assumed certain liabilities of Accu-Trade, LLC; Accu-Trade Canada, LLC; Galves Market Data; and Headstart Logistics, LLC d/b/a MADE Logistics (collectively, “Accu-Trade”), which includes real-time, VIN-specific appraisal and valuation data, instant guaranteed offer capabilities and logistics technology (the “Accu-Trade Acquisition”). Consideration for the transaction was composed of $64.8 million of cash and $5.3 million in other consideration. As part of the transaction, upon achievement of certain financial targets, we may be required to pay additional cash and stock consideration to the former owners.
CreditIQ Acquisition. In November 2021, we acquired all the outstanding stock of CreditIQ, Inc. (the "CIQ Acquisition"), an automotive fintech platform that provides instant online loan screening and approvals to facilitate online car buying. Through the CIQ Acquisition, we will provide dealers with access to advanced digital financing technology across the CARS platform. Using cash on hand, we paid $30.0 million at the closing excluding transaction fees and expenses. As part of the transaction, we may be required to pay additional cash consideration of up to $50.0 million based on future performance over a three-year period with a mutually agreed upon option for a fourth year.
Share Repurchase Program. In February 2022, our Board of Directors authorized a three-year share repurchase program to acquire up to $200 million of the Company's common stock. We may repurchase shares from time to time in open market transactions or through privately negotiated transactions in accordance with applicable federal securities laws and other applicable legal requirements, and subject to our blackout periods. We will fund the share repurchase program principally with cash from operations. During the six months ended June 30, 2022, the Company repurchased and subsequently retired 2.1 million shares for $23.3 million at an average price paid per share of $11.34.
17
Key Operating Metrics
We regularly review a number of key metrics to evaluate our business, measure our performance, identify trends affecting our business, formulate financial projections and make operating and strategic decisions. The most critical of these key metricsKey Operating Metrics are as follows:follows (in thousands, except for ARPD and percentages):
|
| Three Months Ended |
|
|
|
|
| Six Months Ended |
|
|
|
|
| Three Months Ended March 31, |
|
|
|
| ||||||||||||||||||
(in thousands) |
| 2022 |
|
| 2021 |
|
| % Change |
|
| 2022 |
|
| 2021 |
|
| % Change |
| ||||||||||||||||||
|
| 2023 |
|
| 2022 |
|
| % Change |
| |||||||||||||||||||||||||||
Traffic |
|
| 148,010 |
|
|
| 158,438 |
|
|
| (7 | )% |
|
| 296,500 |
|
|
| 315,042 |
|
|
| (6 | )% |
|
| 164,782 |
|
|
| 148,491 |
|
|
| 11 | % |
Average Monthly Unique Visitors |
|
| 27,079 |
|
|
| 26,391 |
|
|
| 3 | % |
|
| 26,820 |
|
|
| 26,174 |
|
|
| 2 | % |
|
| 28,478 |
|
|
| 26,562 |
|
|
| 7 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||
|
| June 30, 2022 |
|
| June 30, 2021 |
|
| % Change |
|
| March 31, 2022 |
|
| % Change |
|
| March 31, 2023 |
|
| March 31, 2022 |
|
| % Change |
|
| December 31, 2022 |
|
| QoQ |
| ||||||||||
Dealer Customers |
|
| 19,517 |
|
|
| 18,845 |
|
|
| 4 | % |
|
| 19,500 |
|
|
| 0 | % |
|
| 19,186 |
|
|
| 19,500 |
|
|
| (2 | )% |
|
| 19,506 |
|
|
| (2 | )% |
Monthly Average Revenue Per Dealer |
| $ | 2,326 |
|
| $ | 2,299 |
|
|
| 1 | % |
| $ | 2,291 |
|
|
| 2 | % |
| $ | 2,386 |
|
| $ | 2,291 |
|
|
| 4 | % |
| $ | 2,361 |
|
|
| 1 | % |
Average Monthly Unique Visitors (“UVs”) and Traffic ("Visits"). UVs and Traffic isare fundamental to our business. Traffic to the CARS network of websites and mobile apps provides value to our advertisers in terms of audience, awareness, consideration and conversion. In addition to tracking traffic volume and sources, we monitor activity on our properties, allowing us to innovate and refine our consumer-facing offerings. Traffic is defined as the number of visits to CARS desktop and mobile properties (responsive sites and mobile apps), measured using Adobe Analytics. Traffic does not include traffic to Dealer Inspire websites. Traffic provides an indicationThey are indicative of our consumer reach. reach and the level of engagement they have with our platform.
Although our consumer reachengagement does not directly result in revenue, we believe our ability to reach in-market car shoppers is attractive to our dealer customersdealers, OEMs and national advertisers.advertisers and a primary reason they do business with us. We have achieved audience scale as measured by UVs and Traffic, and we drive increased Traffic through a combination of continued growth in UVs and higher repeat visitation and engagement. Traffic increases can result in increased impressions, clicks and other lead events that we can ultimately monetize through our products and services.
The declinegrowth in trafficUVs and Traffic for the first three and six months ended June 30, 2022March 31, 2023, was primarily due to elevated traffic in the prior year period related to an increase in consumer confidence and heighteneddriven by increased consumer demand from the federal economic stimulus program that ran during the six months ended June 30, 2021.we capitalized on as a result of shifts in paid user acquisition strategy and enhancements in our App and Website experiences.
16
Average Monthly Unique Visitors (“UVs”).
Growth in unique visitors and consumer traffic to our network of websites and mobile apps increases the number of impressions, clicks, leads and other events we can monetize to generate revenue. We define UVs in a given month as the number of distinct visitors that engage with our platform during that month. Visitors are identified when a user first visits an individual CARS property on an individual device/browser combination or installs one of our mobile apps on an individual device. If a visitor accesses more than one of our web properties or apps or uses more than one device or browser, each of those unique property/browser/app/device combinations counts toward the number of UVs. Traffic is defined as the number of visits to CARS desktop and mobile properties (responsive sites and mobile apps). We measure UVs and Traffic via Adobe Analytics. These metrics do not include traffic to Dealer Inspire UVs. We measure UVs using Adobe Analytics.websites.
The growth in UVs for the three and six months ended June 30, 2022 as compared to the decline in Traffic was primarily related to changes in our traffic mix and to shifts in our marketing strategy to drive greater growth in market share. In addition, due to the continued lower vehicle inventory levels, we believe our users now have a shorter shopping lifecycle and are purchasing cars with fewer visits.
Average Revenue Per Dealer (“ARPD”). We believe that our ability to grow ARPD is an indicator of the value proposition of our platform. We define ARPD as Dealer revenue, excluding digital advertising services, during the period divided by the monthly average number of Dealer Customers during the same period. For the three months ended June 30, 2022, Accu-Trade is included in our ARPD metric, which had an immaterial impact on ARPD; however, no prior period has been recast as it would be impracticable to do so.
For the three months ended June 30, 2022, ARPD increased 1% and 2% compared to the three months ended June 30, 2021 and March 31, 2022, respectively, primarily driven by growth in digital solutions, as well as growth in FUEL revenue.
Dealer Customers. Dealer Customers represent dealerships using our products as of the end of each reporting period. Each physical or virtual dealership location is counted separately, whether it is a single-location proprietorship or part of a large, consolidated dealer group. Multi-franchise dealerships at a single location are counted as one dealer. As ofBeginning June 30, 2022, this key operating metric includes Accu-Trade; however, no prior period has been recast as it would be impracticable to do so.
Dealer Customers increased 4% from June 30, 2021, driven by sustained high retention rates, strong new sales to Dealer Customers, as well as the inclusion of 180 Accu-Trade only dealers.
18
Dealer Customers was essentially flatdecreased 2% from March 31, 2022 and December 31, 2022, due to elevated cancellations from digital dealers.
Monthly Average Revenue Per Dealer (“ARPD”). We believe that our ability to grow ARPD is an indicator of the value proposition of our platform. We define ARPD as Dealer revenue, excluding digital advertising services, during the inclusionperiod divided by the monthly average number of 180Dealer Customers during the same period. Beginning with the three months ended June 30, 2022, Accu-Trade only dealersis included in our ARPD metric, which had an immaterial impact on ARPD for the quarterly periods. No prior period has been recast as it would be impracticable to do so.
For the three months ended March 31, 2023, ARPD increased 4% and 1% compared to the three months ended March 31, 2022 and December 31, 2022, respectively. The increase was primarily driven by growth in digital solutions, offset bycancellations related to a single digital dealer. Excluding the impact of the inclusion of Accu-Trade and cancellations related to a single digital dealer, Dealer Customers would have slightly increasedreduction in the period.FUEL revenue.
Factors Affecting Our Performance. Our business is impacted by the changes in the larger automotive ecosystem, including inventory supply, and supply-chainsupply chain disruptions, which continue to be under pressure due tosemiconductor shortages, of key materials,vehicle acquisition cost, electric vehicle adoption, employee retention and changes related to automotive advertising, as well asamong other macroeconomic factors including inflation, rising interest rates and a potential recession.factors. Changes in vehicle sales volumes in the United States also influence OEMs’ and dealerships’ willingness to increase investments in technology solutions and automotive marketplaces like Cars.com and could impact our pricing strategies and/or revenue mix.
Our long-term success will depend in part on our ability to continue to evolvetransform our business toward a multi-faceted suite of digital solutions that complement our online marketplace offerings. Webelieve our core strategic strengths, including our strong brand portfolio,powerful family of brands, growing high-quality audience and suite of specialized digital solutions for advertisers, and sales and service teams will assist us as we navigate a rapidly changing automotive environment. Additionally, we are focused on equipping our dealer customers with digital solutions to enable them to compete in an environment in which an increasing number of car-buying customers are shopping online. These solutions include digital financing, vehicle appraisal, virtual showrooms, online chat, vehicle financing, appraisal and digital advertising product targetingvaluation, instant offer capabilities and our audience targeted marketing solutions, which allows dealers to target in-market buyers.shoppers on streaming platforms. The foundation of our continued success is the value we deliver to customers and we believe thatvia our large audience of in-market, car shoppers and innovative solutions deliver significant value to our customers.solutions.
The future effects of the COVID-19 pandemic continue to be unknown and depend on numerous factors outside of our control. However, we believe our marketplace, advertising and digital solutions remain critical in helping our customers navigate certain challenges of the pandemic. We also believe our solutions will continue to be important tools for our customers in the future and, in particular, may help mitigate potential future impacts of the pandemic.
17
Results of Operations
Three Months Ended June 30, 2022March 31, 2023 Compared to Three Months Ended June 30, 2021March 31, 2022
|
| Three Months Ended June 30, |
|
|
|
|
|
|
|
| Three Months Ended March 31, |
|
|
|
|
|
|
| ||||||||||||||
(In thousands, except percentages) |
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
|
| 2023 |
|
| 2022 |
|
| $ Change |
|
| % Change |
| ||||||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Dealer |
| $ | 143,987 |
|
| $ | 136,866 |
|
| $ | 7,121 |
|
|
| 5 | % |
| $ | 149,843 |
|
| $ | 140,416 |
|
| $ | 9,427 |
|
|
| 7 | % |
OEM and National |
|
| 14,144 |
|
|
| 16,329 |
|
|
| (2,185 | ) |
|
| (13 | )% |
|
| 13,543 |
|
|
| 15,174 |
|
|
| (1,631 | ) |
|
| (11 | )% |
Other |
|
| 4,742 |
|
|
| 2,335 |
|
|
| 2,407 |
|
|
| 103 | % |
|
| 3,682 |
|
|
| 2,617 |
|
|
| 1,065 |
|
|
| 41 | % |
Total revenue |
|
| 162,873 |
|
|
| 155,530 |
|
|
| 7,343 |
|
|
| 5 | % |
|
| 167,068 |
|
|
| 158,207 |
|
|
| 8,861 |
|
|
| 6 | % |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Cost of revenue and operations |
|
| 29,504 |
|
|
| 28,219 |
|
|
| 1,285 |
|
|
| 5 | % |
|
| 29,795 |
|
|
| 27,752 |
|
|
| 2,043 |
|
|
| 7 | % |
Product and technology |
|
| 23,117 |
|
|
| 19,434 |
|
|
| 3,683 |
|
|
| 19 | % |
|
| 24,101 |
|
|
| 21,307 |
|
|
| 2,794 |
|
|
| 13 | % |
Marketing and sales |
|
| 54,655 |
|
|
| 51,309 |
|
|
| 3,346 |
|
|
| 7 | % |
|
| 58,297 |
|
|
| 57,094 |
|
|
| 1,203 |
|
|
| 2 | % |
General and administrative |
|
| 17,211 |
|
|
| 15,615 |
|
|
| 1,596 |
|
|
| 10 | % |
|
| 18,304 |
|
|
| 16,560 |
|
|
| 1,744 |
|
|
| 11 | % |
Depreciation and amortization |
|
| 23,001 |
|
|
| 25,298 |
|
|
| (2,297 | ) |
|
| (9 | )% |
|
| 24,042 |
|
|
| 24,553 |
|
|
| (511 | ) |
|
| (2 | )% |
Total operating expenses |
|
| 147,488 |
|
|
| 139,875 |
|
|
| 7,613 |
|
|
| 5 | % |
|
| 154,539 |
|
|
| 147,266 |
|
|
| 7,273 |
|
|
| 5 | % |
Operating income |
|
| 15,385 |
|
|
| 15,655 |
|
|
| (270 | ) |
|
| (2 | )% |
|
| 12,529 |
|
|
| 10,941 |
|
|
| 1,588 |
|
|
| 15 | % |
Nonoperating expense: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
Interest expense, net |
|
| (9,047 | ) |
|
| (9,839 | ) |
|
| 792 |
|
|
| (8 | )% |
|
| (8,244 | ) |
|
| (9,330 | ) |
|
| 1,086 |
|
|
| (12 | )% |
Other expense, net |
|
| (54 | ) |
|
| (39 | ) |
|
| (15 | ) |
|
| 38 | % | ||||||||||||||||
Other income, net |
|
| 8,239 |
|
|
| 208 |
|
|
| 8,031 |
|
| ***% |
| |||||||||||||||||
Total nonoperating expense, net |
|
| (9,101 | ) |
|
| (9,878 | ) |
|
| 777 |
|
|
| (8 | )% |
|
| (5 | ) |
|
| (9,122 | ) |
|
| 9,117 |
|
| ***% |
| |
Income before income taxes |
|
| 6,284 |
|
|
| 5,777 |
|
|
| 507 |
|
|
| 9 | % |
|
| 12,524 |
|
|
| 1,819 |
|
|
| 10,705 |
|
| ***% |
| |
Income tax expense (benefit) |
|
| 739 |
|
|
| (189 | ) |
|
| 928 |
|
| *** |
|
|
| 1,045 |
|
|
| (2,521 | ) |
|
| 3,566 |
|
| ***% |
| ||
Net income |
| $ | 5,545 |
|
| $ | 5,966 |
|
| $ | (421 | ) |
|
| (7 | )% |
| $ | 11,479 |
|
| $ | 4,340 |
|
| $ | 7,139 |
|
| ***% |
|
*** Not meaningful
Dealer revenue. Dealer revenue consists of marketplace, and digital solutions, including website solutions and Accu-Trade and media products sold to dealer customers.customers, and is typically subscription oriented in nature. Dealer revenue is our largest revenue stream, representing 88%90% and 89% of total revenue for the three months ended June 30,March 31, 2023 and 2022, and 2021.respectively. Dealer revenue increased $7.1$9.4 million or 5%7% compared to the three months ended June 30, 2021,March 31, 2022, driven primarily by a 4%an increase in Dealer Customers, as well as a 1% increase in ARPDdigital solutions revenue from June 30, 2021.March 31, 2022.
19
OEM and National revenue. OEM and National revenue consists of display advertising and other solutions sold to OEMs, advertising agencies, automotive dealer associations and auto adjacent businesses.businesses, including insurance companies. OEM and National revenue represents 9%8% and 10% of total revenue for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively. OEM and National revenue decreased 13%$1.6 million or 11%, primarily due to pullbacks in spending from some of our insurance customers in response to certain OEM spending associated with production delays and shortages, both driven by supply-chain disruptions.macroeconomic factors.
Other revenue. Other revenue primarily consists of revenue related to the Accu-Trade license agreement and vehicle listing data sold to third parties, as well as a lead product. Other revenue represents 2% and 1% of total revenue for the three months ended March 31, 2023 and 2022, respectively. Other revenue increased $1.1 million or 41%, primarily due to the Accu-Trade license agreement. For more information, see Note 3 (Business Combinations).
Cost of revenue and operations. Cost of revenue and operations expense primarily consists of costs related to processing dealer vehicle inventory, pay-per-lead products, product fulfillment, pay per lead products and compensation costs for the product fulfillment and customer service teams. Cost of revenue and operations expense represents 18% of total revenue for the three months ended June 30, 2022March 31, 2023 and 2021.2022. Cost of revenue and operations expense increased, primarily due to higher compensation costs.
Product and technology. The product team creates and manages consumer and dealer-facing innovation and user experience. The technology team develops and supports our products, websites and mobile apps. Product and technology expense includes compensation costs, consulting and contractor costs, hardware and software maintenance, software licenses data center and other infrastructure costs. Product and technology expense represents 14% and 12%13% of total revenue for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively. Product and technology expense increased, primarily due to an additional two months of expenses in the current quarter related to the acquisition of Accu-Trade in March 2022 as well as higher compensation and consultingthird-party costs, including costs related to the Accu-Tradelicenses and CreditIQ Acquisitions.consulting.
18
Marketing and sales. Marketing and sales expense primarily consists of traffic and lead acquisition costs, (including search engineperformance and other online marketing), TV and digital display and video advertising and creative production, market research,brand marketing, trade events, compensation costs and travel for the marketing, sales and sales support teams, as well as bad debt expense related to the allowance for doubtful accounts. Marketing and sales expense represents 34%35% and 33%36% of total revenue for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively. Marketing and sales expense increased, primarily due to continued investmenthigher compensation, partially offset by lower spend due to strong traffic generation in traffic generationin 2022.the quarter.
General and administrative. General and administrative expense primarily consists of compensation costs for certain of the executive, finance, legal, human resources, facilities and other administrative employees. In addition, general and administrative expense includes office space rent, legal, accounting and other professional services, transaction-related costs, severance, transformation and other exit costs and costs related to the write-off and loss onof assets. General and administrative expense represents 11% and 10% of total revenue for the three months ended June 30,March 31, 2023 and 2022, and 2021, respectively. General and administrative expense increased primarily due to higher third-partyincreased compensation costs, and higherincluding stock-based compensation as well as severance related costs, partially offset by a decrease in transaction-related costs.
Depreciation and amortization. Depreciation and amortization expense decreased, primarily due to certain assets being fully depreciated and amortized as compared to the prior-year period, partially offset by depreciation and amortization on additional assets acquired.
Interest expense, net. Interest expense, net decreased by $0.8$1.1 million compared to the prior year period due to the maturity of the interest rate swap and a reduction in total indebtedness.indebtedness, partially offset by higher interest rates in 2023. For information related to our debt, see Note 45 (Debt) and Note 56 (Interest Rate Swap) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements (unaudited)”Statements” of this Quarterly Report on Form 10-Q.
Other income, net. Other income, net changed primarily due to the change in the fair value of contingent consideration associated with the CreditIQ and Accu-Trade acquisitions. For more information related to contingent consideration, see the Liquidity and Capital Resources section below, Note 3 (Business Combinations) and Note 4 (Fair Value Measurements).
Income tax expense (benefit). The effective income tax rate, expressed by calculating the Income tax expense (benefit) as a percentage of Income before income taxes, was 11.8%8.3% for the three months ended June 30, 2022,March 31, 2023, and the Income tax expense was $0.7$1.0 million. The effective income tax rate was lower thandifferent from the statutory federal income tax rate of 21%, primarily due to the tax benefits realized on a partial release of the valuation allowance, partially offset by the impact of state income taxes.stock-based compensation.
20
19
Six Months Ended June 30, 2022 Compared to Six Months Ended June 30, 2021
|
| Six Months Ended June 30, |
|
|
|
|
|
|
| |||||||
(In thousands, except percentages) |
| 2022 |
|
| 2021 |
|
| $ Change |
|
| % Change |
| ||||
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Dealer |
| $ | 284,403 |
|
| $ | 269,824 |
|
| $ | 14,579 |
|
|
| 5 | % |
OEM and National |
|
| 29,318 |
|
|
| 34,398 |
|
|
| (5,080 | ) |
|
| (15 | )% |
Other |
|
| 7,359 |
|
|
| 4,603 |
|
|
| 2,756 |
|
|
| 60 | % |
Total revenue |
|
| 321,080 |
|
|
| 308,825 |
|
|
| 12,255 |
|
|
| 4 | % |
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Cost of revenue and operations |
|
| 57,256 |
|
|
| 56,050 |
|
|
| 1,206 |
|
|
| 2 | % |
Product and technology |
|
| 44,424 |
|
|
| 36,194 |
|
|
| 8,230 |
|
|
| 23 | % |
Marketing and sales |
|
| 111,749 |
|
|
| 104,520 |
|
|
| 7,229 |
|
|
| 7 | % |
General and administrative |
|
| 33,771 |
|
|
| 28,881 |
|
|
| 4,890 |
|
|
| 17 | % |
Depreciation and amortization |
|
| 47,554 |
|
|
| 50,978 |
|
|
| (3,424 | ) |
|
| (7 | )% |
Total operating expenses |
|
| 294,754 |
|
|
| 276,623 |
|
|
| 18,131 |
|
|
| 7 | % |
Operating income |
|
| 26,326 |
|
|
| 32,202 |
|
|
| (5,876 | ) |
|
| (18 | )% |
Nonoperating expense: |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Interest expense, net |
|
| (18,377 | ) |
|
| (19,840 | ) |
|
| 1,463 |
|
|
| (7 | )% |
Other income (expense), net |
|
| 154 |
|
|
| (1 | ) |
|
| 155 |
|
| *** |
| |
Total nonoperating expense, net |
|
| (18,223 | ) |
|
| (19,841 | ) |
|
| 1,618 |
|
|
| (8 | )% |
Income before income taxes |
|
| 8,103 |
|
|
| 12,361 |
|
|
| (4,258 | ) |
|
| (34 | )% |
Income tax (benefit) expense |
|
| (1,782 | ) |
|
| 1,117 |
|
|
| (2,899 | ) |
| *** |
| |
Net income |
| $ | 9,885 |
|
| $ | 11,244 |
|
| $ | (1,359 | ) |
|
| (12 | )% |
*** Not meaningful
Dealer revenue. Dealer revenue is our largest revenue stream, representing 89% and 87% of total revenue for the six months ended June 30, 2022 and 2021, respectively. Dealer revenue increased $14.6 million or 5% compared to the six months ended June 30, 2021, driven by a 4% increase in Dealer Customers, as well as a 1% increase in ARPD from June 30, 2021.
OEM and National revenue. OEM and National revenue represents 9% and 11% of total revenue for the six months ended June 30, 2022 and 2021, respectively. OEM and National revenue decreased 15%, primarily due to pullbacks in certain OEM spending associated with continued production delays and shortages, both driven by supply-chain disruptions.
Cost of revenue and operations. Cost of revenue and operations expense represents 18% of total revenue for the six months ended June 30, 2022 and 2021, respectively. Cost of revenue and operations expense increased, primarily due to higher compensation costs, partially offset by lower third-party costs.
Product and technology.Product and technology expense represents 14% and 12% of total revenue for the six months ended June 30, 2022 and 2021, respectively. Product and technology expense increased, primarily due to higher compensation and consulting costs, including costs associated with the Accu-Trade and CreditIQ Acquisitions, as well as higher licensing and other technology costs.
Marketing and sales. Marketing and sales expense represents 35% and 34% of total revenue for the six months ended June 30, 2022 and 2021, respectively. Marketing and sales expense increased, primarily due to continued investment in marketing in 2022, including a return to in-person industry events that had been curtailed due to the pandemic.
General and administrative. General and administrative expense represents 11% and 9% of total revenue for the six months ended June 30, 2022 and 2021, respectively. General and administrative expense increased, primarily due to higher compensation costs, including stock-based compensation, as well as third-party costs and transaction-related costs related to the Accu-Trade Acquisition.
Depreciation and amortization. Depreciation and amortization expense decreased, primarily due to certain assets being fully depreciated and amortized as compared to the prior year period, partially offset by depreciation and amortization on additional assets acquired.
Interest expense, net. Interest expense, net decreased by $1.5 million compared to the prior year period due to a reduction in total indebtedness and the expiration of the Swap. For information related to our debt, see Note 4 (Debt) and Note 5 (Interest Rate Swap) to the accompanying Consolidated Financial Statements included in Part I, Item 1, “Financial Statements” of this Quarterly Report on Form 10-Q.
21
Income tax (benefit) expense. The effective income tax rate, expressed by calculating the Income tax (benefit) expense as a percentage of Income before income taxes, was (22.0)% for the six months ended June 30, 2022, and the Income tax benefit was $1.8 million. The effective income tax rate was lower than the statutory federal income tax rate of 21%, primarily due to the tax benefits realized on a partial release of the valuation allowance, stock-based compensation and the impact of uncertain tax positions.
22
Liquidity and Capital Resources
Overview. Our primary sources of liquidity are cash flows from operations, available cash reserves and debtborrowing capacity available under our credit facilities. Our positive operating cash flow, along with our Revolving Loan, described below, provide adequate liquidity to meet our business needs for the next 12 months and beyond, including those for investments, debt service, share repurchases and strategic acquisitions. However, our ability to maintain adequate liquidity for our operations in the future is dependent upon a number of factors, including our revenue, macroeconomic conditions, our ability to contain costs, including capital expenditures, and to collect accounts receivable and various other macroeconomic factors, many of which are beyond our direct control.
As discussed below, we are subject to certain financial and other covenants contained in our debt agreements, as amended, including by the Third Amendment to the Credit Agreement. For information related to the Credit Amendment, as amended, see Note 75 (Debt) in Part II, Item 8., “Financial Statements and Supplementary Data”, of our Annual Report on Form 10-K for the year ended December 31, 20212022 as filed with the SEC on February 25, 2022.23, 2023.
We may also seek to raise funds through debt or equity financing in the future to fund operations, significant investments or acquisitions that are consistent with our strategy. If we need to access the capital markets, there can be no assurance that financing may be available on attractive terms, if at all. As of June 30, 2022,March 31, 2023, Cash and cash equivalents were $18.1$18.8 million and including our undrawn Revolving Loan, our total liquidity was $203.1$248.8 million.
Indebtedness. As of June 30, 2022,March 31, 2023, the outstanding aggregate principal amount of our debtindebtedness was $517.5$462.5 million, withat an effective interest rate of 5.8%6.5%, including $72.5$400.0 million of outstanding principal under our Term Loan, withthe bonds, which carries an interest rate of 4.3%, $45.06.375% and $62.5 million of outstanding borrowings on our Revolvingprincipal under the Term Loan withwhich had an interest rate of 3.7% and outstanding Senior Unsecured Notes of $400.0 million, with an interest rate of 6.375%. 7.2% at March 31, 2023.
During the sixthree months ended June 30, 2022,March 31, 2023, we made $5.0$3.8 million in mandatory Term Loan payments.payments and we repaid $15.0 million on our Revolving Loan. As of June 30, 2022, we had $185.0March 31, 2023, $230.0 million was available to borrow under ourthe Revolving Loan. Our borrowings are limited by our Senior Secured Leverage Ratio and Consolidated Interest Coverage Ratio, which are calculated in accordance with our Credit Agreement, which were 0.3x and were 0.7x and 5.2x5.7x as of June 30, 2022,March 31, 2023, respectively. For further information, see Note 5 (Debt) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements” of this Quarterly Report on Form 10-Q.
Interest Rate Swap. Share Repurchase ProgramThe interest rate on borrowings under.On February 24, 2022, we announced that our Term LoanBoard of Directors authorized a three-year share repurchase program to acquire up to $200 million of our common stock. We may repurchase shares from time to time in open market transactions or through privately negotiated transactions in accordance with applicable federal securities laws and Revolving Loan is floatingother applicable legal requirements, and therefore, subject to fluctuations. In orderour blackout periods. We intend to managefund the risk associatedshare repurchase program principally with changes in interest rates on our borrowing undercash from operations. During the Term Loan prior to the October 2020 refinancing,three months ended March 31, 2023, we entered intorepurchased and subsequently retired 0.4 million shares for $7.2 million at an interest rate swap (the “Swap”) effective December 31, 2018. Under the termsaverage price paid per share of the Swap, we were locked into a fixed rate of interest of 2.96% plus an applicable margin, on a notional amount of $300 million until May 31, 2022. Although the Swap was initially designated as a cash flow hedge of interest rate risk, hedge accounting was discontinued in June 2020. The loss on the hedge that was recorded in Accumulated other comprehensive loss at that time was amortized into the Consolidated Statements of Income over the remaining term of the Swap.$17.38.
Contingent Consideration.The Swap expired on May 31, 2022 and, as such, is no longer recorded on the Consolidated Balance Sheets. As of December 31, 2021, the fair value as of March 31, 2023 for the Swap was an unrealized loss of $3.5 million, which was recorded in Other accrued liabilities on the Consolidated Balance Sheets. During the six months ended June 30, 2022 and 2021, $2.4 million and $2.8 million was reclassified from Accumulated other comprehensive loss and recorded in Interest expense, net, respectively. During the six months ended June 30, 2022, we made payments of $3.3 millioncontingent consideration related to the SwapCreditIQ and $0.4Accu-Trade acquisitions was $47.6 million. Within the next twelve months, we expect to pay $6.7 million was reclassified asof the potential contingent consideration amounts discussed below.
As part of the Accu-Trade Acquisition, we may be required to pay additional consideration to the former owners based on achievement of an earnings-related metric. For the Accu-Trade contingent consideration, we have the option to pay consideration in cash or certain amounts in stock, which may result in a tax benefit from Accumulated other comprehensive loss into Income tax expense (benefit)variable number of shares being issued. The actual amount to be paid will be based on the Consolidated Statements of Income.acquired business’ future performance to be attained over a three-year performance period through February 2025.
As part of the CreditIQ Acquisition, we may be required to pay additional cash consideration to the former owners based on two earn-out achievement objectives, including an earnings-related metric and lender market share. The actual amount to be paid will be based on the acquired business’ future performance to be attained over a three-year performance period through December 2024. For information related to the contingent consideration, see Note 4 (Fair Value Measurements) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements” of this Quarterly Report on Form 10-Q and Note 3 (Business Combinations) in Part II, Item 8., “Financial Statements and Supplementary Data”, of our Annual Report on Form 10-K for the year ended December 31, 2022 as filed with the SEC on February 23, 2023.
20
Cash Flows. Details of our cash flows are as follows (in thousands):
|
| Six Months Ended June 30, |
|
|
|
|
| Three Months Ended March 31, |
|
|
|
| ||||||||||||
|
| 2022 |
|
| 2021 |
|
| Change |
|
| 2023 |
|
| 2022 |
|
| Change |
| ||||||
Net cash provided by (used in): |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Operating activities |
| $ | 42,280 |
|
| $ | 79,619 |
|
| $ | (37,339 | ) |
| $ | 28,141 |
|
| $ | 30,358 |
|
| $ | (2,217 | ) |
Investing activities |
|
| (73,325 | ) |
|
| (13,095 | ) |
|
| (60,230 | ) |
|
| (5,371 | ) |
|
| (68,778 | ) |
|
| 63,407 |
|
Financing activities |
|
| 10,110 |
|
|
| (82,058 | ) |
|
| 92,168 |
|
|
| (35,647 | ) |
|
| 29,804 |
|
|
| (65,451 | ) |
Net change in cash and cash equivalents |
| $ | (20,935 | ) |
| $ | (15,534 | ) |
| $ | (5,401 | ) |
| $ | (12,877 | ) |
| $ | (8,616 | ) |
| $ | (4,261 | ) |
Operating Activities. The changedecrease in cash provided by operating activities was primarily related to changes in operating assets and liabilities particularly due toduring the timing of vendor payments, in that the sixthree months ended June 30, 2022 included an additional week of vendor payments as compared to the six months ended June 30, 2021. In addition, during the six months ended June 30, 2021, we received a $9.1 million tax refund related to the carryback of federal and state income tax net operating loss as a result of the CARES Act.March 31, 2023.
23
Investing Activities. The changedecrease in cash used in investing activities was primarily related to the payment for the Accu-Trade Acquisition partially offset by lower capital expenditures in the current year period.2022.
Financing Activities. During the sixthree months ended June 30,March 31, 2023, cash used in financing activities was primarily related to debt repayments, tax payments made in connection with the vesting of certain equity awards and repurchases of common stock. During the three months ended March 31, 2022, cash provided by financing activities was primarily related to $45.0 million of proceeds from Revolving Loan borrowings related to the Accu-Trade Acquisition, partially offset by repurchases of common stock and tax payments made in connection with the vesting of certain equity award vestings. During the six months ended June 30, 2021, cash used in financing activities was primarily related to $75.0 millionawards and repurchases of debt repayments, of which $70.0 million were voluntary pre-payments.common stock. For information related to our debt and repurchases of common stock, see Note 45 (Debt) and Note 78 (Stockholders' Equity) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements (unaudited)”Statements” of this Quarterly Report on Form 10-Q.
Commitments and Contingencies. For information related to commitments and contingencies, see Note 67 (Commitments and Contingencies) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements (unaudited)”Statements” of this Quarterly Report on Form 10-Q.
Off-Balance Sheet Arrangements. We do not have any material off-balance sheet arrangements.
Critical Accounting Policies. For information related to critical accounting policies, see “Critical Accounting Policies and Estimates” in Part II, Item 7., “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, of our Annual Report on Form 10-K for the year ended December 31, 20212022 as filed with the SEC on February 25, 202223, 2023 and see Note 1 (Description of Business and Summary of Significant Accounting Policies) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements (unaudited)”Statements” of this Quarterly Report on Form 10-Q. During the sixthree months ended June 30, 2022,March 31, 2023, there have been no changes to our critical accounting policies.
Recent Accounting Pronouncements. There were no significant new accounting pronouncements applicable to us in the period.
2421
Item 3. Quantitative and Qualitative Disclosures about Market Risk
For quantitative and qualitative disclosures about market risk, see “Quantitative and Qualitative Disclosures About Market Risk,” in Part II, Item 7A., of our Annual Report on Form 10-K for the year ended December 31, 2021,2022, as filed with the Securities and Exchange Commission (“SEC”)SEC on February 25, 2022.23, 2023. Our exposures to market risk have not changed materially since December 31, 2021.2022.
Item 4. Controls and Procedures
Disclosure Controls and Procedures. Management, with the participation of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of such date, our disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Changes in Internal Control Over Financial Reporting. During the period covered by this Quarterly Report on Form 10-Q, there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
2522
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
For information relating to legal proceedings, see Note 67 (Commitments and Contingencies) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements (unaudited)”Statements” of this Quarterly Report on Form 10-Q.
Item 1A. Risk Factors
Our business and the ownership of our common stock are subject to a number of risks and uncertainties, including those described in Part I, Item 1A., “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 20212022 as filed with the Securities and Exchange Commission (“SEC”)SEC on February 25, 2022,23, 2023, which could materially affect our business, financial condition, results of operations and future results. There have been no material changes from the risk factors described in our Annual Report on Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Sales of Unregistered Securities by Issuer
None.
Purchases of Equity Securities by Issuer
Our stock repurchase activity for the three months ended June 30, 2022March 31, 2023 is as follows:
Period | Total Number of Shares Purchased (1) |
| Average Price Paid per Share (1) |
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) |
| Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (3) |
| ||||
April 1 through April 30, 2022 |
| 472,006 |
| $ | 12.62 |
|
| 472,006 |
| $ | 189,043 |
|
May 1 through May 31, 2022 |
| 628,874 |
|
| 10.11 |
|
| 628,874 |
|
| 182,685 |
|
June 1 through June 30, 2022 |
| 616,031 |
|
| 9.73 |
|
| 616,031 |
|
| 176,691 |
|
|
| 1,716,911 |
|
|
|
| 1,716,911 |
|
|
|
Period | Total Number of |
| Average Price Paid per Share (1) |
| Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2) |
| Maximum Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs (in thousands) (3) |
| ||||
January 1 through January 31, 2023 |
| 83,171 |
| $ | 15.81 |
|
| 83,171 |
| $ | 149,702 |
|
February 1 through February 28, 2023 |
| 111,934 |
|
| 17.80 |
|
| 111,934 |
|
| 147,710 |
|
March 1 through March 31, 2023 |
| 217,654 |
|
| 17.77 |
|
| 217,654 |
|
| 143,843 |
|
|
| 412,759 |
|
|
|
| 412,759 |
|
|
|
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
2623
Item 6. Exhibits
Exhibit Index
Exhibit Number | Description | |
| ||
| ||
| ||
31.1* | ||
31.2* | ||
32.1* | ||
32.2* | ||
101.INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
104 | The cover page from this Quarterly Report on Form 10-Q for the quarter ended | |
* Filed herewith.
** Previously filed.
27
24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Cars.com Inc. | |||||
Date: | By: | /s/ T. Alex Vetter | |||
T. Alex Vetter | |||||
Chief Executive Officer | |||||
Date: | By: | /s/ | |||
| |||||
Chief Financial Officer |
2825