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

For the quarterly period ended September 30, ~~2017~~2022


☐	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, Illinois60606

(Address of principal executive offices)

~~(312)~~ (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 ☒^*☐

* The registrant became subject to the requirements on May 15, 2017.

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ 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 ~~and post~~ 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	☐
~~Non-accelerated filer~~	☒ ~~(Do not check if a smaller reporting company)~~	~~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 October ~~25, 2017,~~26, 2022, the registrant had ~~71,625,610~~66,610,408 shares of common stock, $0.01 par value per share, outstanding.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION	2
Item 1.	Financial Statements (unaudited):	2
	~~Condensed~~ Consolidated ~~and Combined~~ Balance Sheets	2
	Consolidated ~~and Combined~~ Statements of (Loss) Income	3
	~~Condensed~~ Consolidated ~~and Combined~~Statements of Comprehensive (Loss) Income	4
	Consolidated Statements of Stockholders’ Equity	5
	Consolidated Statements of Cash Flows	46
	Notes to the Consolidated ~~and Combined~~Financial Statements ~~of Stockholders’ Equity~~ (Unaudited)	57
Item 2.	~~Notes to Unaudited Condensed Consolidated and Combined Financial Statements~~	6
~~Item 2.~~	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1418
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2326
Item 4.	Controls and Procedures	2326
PART II.	OTHER INFORMATION	2427
Item 1.	Legal Proceedings	2427
Item 1A.	Risk Factors	2427
Item 6.2.	~~Exhibits~~Unregistered Sales of Equity Securities and Use of Proceeds	2427
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	28
Signatures		25
		29

PART I—~~FINANCI~~ALFINANCIAL INFORMATION

Item 1. Financial ~~Statements.~~Statements (unaudited).

Cars.com Inc.

~~CONDENSED CONSOLIDATED AND COMBINED BALANCE SHEETS~~Consolidated Balance Sheets

(In thousands, ~~(except~~except per share data)

September 30, 2017

December 31, 2016

(unaudited)

Assets

Current assets

Cash and cash equivalents

$
27,428

$
8,896

Accounts receivable, less allowance of $3,437 and $3,527, respectively

93,077

98,303

Prepaid expenses and other current assets

18,298

12,342

Total current assets

138,803

119,541

Property and equipment

Cost

61,783

37,190

Less accumulated depreciation

(20,908
)

(16,729
)
Net property and equipment

40,875

20,461

Intangible and other assets

Goodwill

788,107

788,107

Intangible assets, less accumulated amortization of $224,053 and $165,651, respectively

1,548,967

1,607,369

Investments and other assets

11,172

11,788

Total assets

$
2,527,924

$
2,547,266

Liabilities and equity

Current liabilities

Accounts payable

$
6,787

$
7,844

Current portion of long-term debt

21,162

—

Accrued liabilities

69,137

64,140

Total current liabilities

97,086

71,984

Noncurrent liabilities

Deferred incentive plans

1,677

3,913

Unfavorable contracts liability

25,185

44,085

Long-term debt

597,468

—

Deferred tax liability

282,504

8,325

Other noncurrent liabilities

17,532

1,674

Total noncurrent liabilities

924,366

57,997

Total liabilities

1,021,452

129,981

Commitments and contingent liabilities

Stockholders' equity

TEGNA's investment, net

—

2,417,285

Common Stock at par, $0.01 par value; authorized 300,000,000 shares; issued and outstanding 71,625,405 shares at September 30, 2017; no shares authorized, issued and outstanding at December 31, 2016

716

—

Additional paid-in capital

1,480,932

—

Retained earnings

24,824

—

Total stockholders' equity

1,506,472

2,417,285

Total liabilities and stockholders' equity

$
2,527,924

$
2,547,266


	September 30, 2022			December 31, 2021
	(unaudited)
Assets:
Current assets:
Cash and cash equivalents	$	31,920		$	39,069
Accounts receivable, net		106,966			98,893
Prepaid expenses		10,539			7,810
Other current assets		5,093			1,665
Total current assets		154,518			147,437
Property and equipment, net		45,403			43,005
Goodwill		102,477			26,227
Intangible assets, net		726,247			769,424
Investments and other assets, net		21,523			21,112
Total assets	$	1,050,168		$	1,007,205
Liabilities and stockholders' equity:
Current liabilities:
Accounts payable	$	18,622		$	15,420
Accrued compensation		15,727			23,612
Current portion of long-term debt, net		12,829			8,941
Other accrued liabilities		59,051			46,317
Total current liabilities		106,229			94,290
Noncurrent liabilities:
Long-term debt, net		482,740			457,383
Other noncurrent liabilities		84,672			57,512
Total noncurrent liabilities		567,412			514,895
Total liabilities		673,641			609,185
Commitments and contingencies
Stockholders' equity:
Preferred Stock at par, $0.01 par value; 5,000 shares authorized; no shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		—			—
Common Stock at par, $0.01 par value; 300,000 shares authorized; 66,850 and 69,170 shares issued and outstanding as of September 30, 2022 and December 31, 2021, respectively		668			692
Additional paid-in capital		1,515,014			1,544,712
Accumulated deficit		(1,138,438	)		(1,145,382	)
Accumulated other comprehensive loss		(717	)		(2,002	)
Total stockholders' equity		376,527			398,020
Total liabilities and stockholders' equity	$	1,050,168		$	1,007,205

The accompanying notes are an integral part of ~~these condensed consolidated and combined financial statements.~~the Consolidated Financial Statements.

Cars.com Inc.

~~CONSOLIDATED AND COMBINED STATEMENTS OF INCOME~~Consolidated Statements of (Loss) Income

~~Unaudited, in~~(In thousands, ~~(except~~except per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Revenues:

Retail

$
118,825

$
119,828

$
346,780

$
343,013

Wholesale^(a)

41,074

42,467

122,917

128,421

Total

159,899

162,295

469,697

471,434

Operating expenses:

Product support, technology and operations

36,598

32,469

106,479

98,381

Marketing and sales

50,733

48,670

160,246

160,275

General and administrative

11,606

7,738

42,305

23,277

Affiliate revenue share

2,121

2,162

6,837

6,264

Amortization of intangible assets

19,467

19,088

58,402

55,416

Total

120,525

110,127

374,269

343,613

Operating income

39,374

52,168

95,428

127,821

Nonoperating (expense) income:

Interest (expense) income, net

(5,431
)

41

(7,160
)

53

Other income, net

64

88

199

142

Total nonoperating (expense) income, net

(5,367
)

129

(6,961
)

195

Income before income taxes

34,007

52,297

88,467

128,016

Provision for income taxes

13,019

452

15,782

452

Net income

$
20,988

$
51,845

$
72,685

$
127,564

Earnings per share, basic

$
0.29

$
0.72

$
1.01

$
1.78

Weighted-average common shares outstanding, basic

71,699

71,588

71,693

71,588

Earnings per share, diluted

$
0.29

$
0.72

$
1.01

$
1.78

Weighted-average common shares outstanding, diluted

71,767

71,588

71,763

71,588

(Unaudited)


	Three Months Ended September 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
Revenue:
Dealer	$	145,395		$	139,321		$	429,798		$	409,145
OEM and National		14,909			15,273			44,227			49,671
Other		4,291			1,959			11,650			6,562
Total revenue		164,595			156,553			485,675			465,378
Operating expenses:
Cost of revenue and operations		28,828			28,928			86,084			84,978
Product and technology		21,425			20,132			65,849			56,326
Marketing and sales		53,615			51,948			165,364			156,468
General and administrative		17,694			17,919			51,465			46,800
Depreciation and amortization		23,134			25,552			70,688			76,530
Total operating expenses		144,696			144,479			439,450			421,102
Operating income		19,899			12,074			46,225			44,276
Nonoperating expense:
Interest expense, net		(8,501	)		(9,522	)		(26,878	)		(29,362	)
Other (expense) income, net		(13,387	)		19			(13,233	)		18
Total nonoperating expense, net		(21,888	)		(9,503	)		(40,111	)		(29,344	)
(Loss) income before income taxes		(1,989	)		2,571			6,114			14,932
Income tax expense (benefit)		952			140			(830	)		1,257
Net (loss) income	$	(2,941	)	$	2,431		$	6,944		$	13,675
Weighted-average common shares outstanding:
Basic		67,680			69,067			68,775			68,576
Diluted		67,680			70,945			70,023			71,065
(Loss) earnings per share:
Basic	$	(0.04	)	$	0.04		$	0.10		$	0.20
Diluted		(0.04	)		0.03			0.10			0.19

The accompanying notes are an integral part of ~~these condensed consolidated and combined financial statements.~~the Consolidated Financial Statements.

^(a)

Wholesale revenue includes related party revenue generated from TEGNA, Inc., through the Separation date of May 31, 2017, of $0 million and $3.4 million during the three and nine months ended September 30, 2017, respectively, and $2.1 million and $6.3 million during the three and nine months ended September 30, 2016, respectively (See Note 13). The commercial agreement with TEGNA is still effective after the Separation.

Cars.com Inc.

~~CONDENSED CONSOLIDATED AND COMBINED STATEMENTS OF CASH FLOWS~~Consolidated Statements of Comprehensive (Loss) Income

~~Unaudited, in thousands~~(In thousands)

Nine Months Ended September 30,

2017

2016

Cash flows from operating activities:

Net income

$
72,685

$
127,564

Adjustments to reconcile net income to operating cash flows:

Depreciation and amortization

66,343

61,549

Amortization of unfavorable contracts liability

(18,900
)

(18,900
)
Write-off and loss on assets

1,446

111

Gain on trading securities related to deferred compensation

(199
)

(143
)
Provision for doubtful accounts receivable

2,561

2,177

Deferred income taxes

8,388

(34
)
Share-based compensation

1,493

—

Amortization of debt issuance costs

463

—

Increase (decrease) in operating assets and liabilities

12,916

(31,888
)
Net cash flow provided by operating activities

147,196

140,436

Cash flows from investing activities:

Purchase of property and equipment

(27,631
)

(7,387
)
Purchase of investments

—

(2,216
)
Payment for acquisition, net of cash acquired

—

(114,945
)
Proceeds from sale of property and equipment

—

15

Net cash used in investing activities

(27,631
)

(124,533
)
Cash flows from financing activities:

Proceeds from issuance of long-term debt

675,000

—

Payments of debt issuance costs and other fees

(6,208
)

—

Payments of long-term debt

(50,625
)

—

Cash distribution to TEGNA related to Separation

(650,000
)

—

Transactions with TEGNA, net

(69,200
)

(11,283
)
Net cash used in financing activities

(101,033
)

(11,283
)
Increase in cash and cash equivalents

18,532

4,620

Cash and cash equivalents at beginning of period

8,896

100

Cash and cash equivalents at end of period

$
27,428

$
4,720

Supplemental non-cash information:

Purchases of property and equipment in accrued liabilities and accounts payable

$
3,050

$
50

Supplemental cash flow information:

Cash paid for income taxes, net of refunds

$
5,726

$
—

Cash paid for interest

$
6,826

$
—

(Unaudited)


	Three Months Ended September 30,					Nine Months Ended September 30,
	2022			2021		2022			2021
Net (loss) income	$	(2,941	)	$	2,431	$	6,944		$	13,675
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments		(717	)		—		(717	)		—
Reclassification of accumulated other comprehensive loss on interest rate swap into Net (loss) income		—			1,202		2,002			3,603
Total other comprehensive (loss) income		(717	)		1,202		1,285			3,603
Comprehensive (loss) income	$	(3,658	)	$	3,633	$	8,229		$	17,278

The accompanying notes are an integral part of ~~these condensed consolidated and combined financial statements.~~the Consolidated Financial Statements.

Cars.com Inc.

~~CONSOLIDATED AND COMBINED STATEMENTS OF STOCKHOLDERS’ EQUITY~~Consolidated Statements of Stockholders’ Equity

~~Unaudited, in thousands~~(In thousands)

(Unaudited)


	Preferred Stock				Common Stock						Additional Paid-In			Accumulated			Accumulated Other Comprehensive			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 stock-based compensation plans, net		—		—		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
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 stock-based compensation plans, net		—		—		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
Net loss		—		—		—			—			—			(2,941	)		—			(2,941	)
Other comprehensive loss, net of tax		—		—		—			—			—			—			(717	)		(717	)
Repurchases of common stock		—		—		(1,433	)		(14	)		(16,664	)		—			—			(16,678	)
Shares issued in connection with stock-based compensation plans, net		—		—		39			—			—			—			—			—
Stock-based compensation		—		—		—			—			5,475			—			—			5,475
Balance at September 30, 2022		—	$	—		66,850		$	668		$	1,515,014		$	(1,138,438	)	$	(717	)	$	376,527

Common Stock

Shares

Amount

Additional Paid in Capital

TEGNA's Investment, net

Retained Earnings

Stockholders' Equity

Balance at December 31, 2016

—

$
—

$
—

$
2,417,285

$
—

$
2,417,285

Net income

—

—

—

47,861

24,824

72,685

Transactions with TEGNA, net

—

—

—

(69,200
)

—

(69,200
)
Cash distribution to TEGNA related to Separation

—

—

—

(650,000
)

—

(650,000
)
Deferred taxes related to Separation

—

—

—

(265,791
)

—

(265,791
)
Distribution by TEGNA

71,588

716

1,479,439

(1,480,155
)

—

—

Issuance of share-based compensation awards

37

—

—

—

—

—

Share-based compensation

—

—

1,493

—

—

1,493

Balance at September 30, 2017

71,625

$
716

$
1,480,932

$
—

$
24,824

$
1,506,472

Balance at December 31, 2015

—

$
—

$
—

$
2,304,519

$
—

$
2,304,519

Net income

—

—

—

127,564

—

127,564

Transactions with TEGNA, net

—

—

—

(11,283
)

—

(11,283
)
Balance at September 30, 2016

—

$
—

$
—

$
2,420,800

$
—

$
2,420,800


	Preferred Stock				Common Stock				Additional Paid-In			Accumulated			Accumulated Other Comprehensive			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 stock-based compensation plans, net		—		—		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 stock-based compensation plans, net		—		—		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
Net income		—		—		—		—		—			2,431			—			2,431
Other comprehensive income, net of tax		—		—		—		—		—			—			1,202			1,202
Shares issued in connection with stock-based compensation plans, net		—		—		61		—		(1	)		—			—			(1	)
Stock-based compensation		—		—		—		—		5,486			—			—			5,486
Balance at September 30, 2021		—	$	—		69,025	$	690	$	1,539,583		$	(1,142,498	)	$	(3,201	)	$	394,574

The accompanying notes are an integral part of ~~these condensed consolidated~~the Consolidated Financial Statements.

Cars.com Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)


	Nine Months Ended September 30,
	2022			2021
Cash flows from operating activities:
Net income	$	6,944		$	13,675
Adjustments to reconcile Net income to Net cash provided by operating activities:
Depreciation		11,833			12,193
Amortization of intangible assets		58,855			64,337
Amortization of Accumulated other comprehensive loss on interest rate swap		2,362			4,252
Changes in fair value of contingent consideration		13,360			—
Stock-based compensation		17,103			16,156
Deferred income taxes		676			(659	)
Provision for doubtful accounts		1,047			350
Amortization of debt issuance costs		2,440			2,513
Amortization of deferred revenue related to Accu-Trade Acquisition		(3,092	)		—
Other, net		279			722
Changes in operating assets and liabilities, net of acquisitions:
Accounts receivable		(7,532	)		(5,933	)
Prepaid expenses and other assets		(7,279	)		6,911
Accounts payable		2,882			(796	)
Accrued compensation		(7,885	)		(367	)
Other liabilities		(702	)		2,872
Net cash provided by operating activities		91,291			116,226
Cash flows from investing activities:
Payments for acquisitions, net of cash acquired		(64,770	)		—
Purchase of property and equipment		(14,399	)		(17,879	)
Net cash used in investing activities		(79,169	)		(17,879	)
Cash flows from financing activities:
Proceeds from Revolving Loan borrowings		45,000			—
Payments of long-term debt		(17,500	)		(107,500	)
Payments for stock-based compensation plans, net		(6,838	)		(7,050	)
Repurchases of common stock		(39,933	)		—
Payments of debt issuance costs and other fees		—			(9	)
Net cash used in financing activities		(19,271	)		(114,559	)
Net decrease in cash and cash equivalents		(7,149	)		(16,212	)
Cash and cash equivalents at beginning of period		39,069			67,719
Cash and cash equivalents at end of period	$	31,920		$	51,507
Supplemental cash flow information:
Cash paid (received) for income taxes	$	741		$	(8,392	)
Cash paid for interest and swap		19,041			22,687

The accompanying notes are an integral part of the Consolidated Financial Statements.

Cars.com Inc.

Notes to the Consolidated Financial Statements

(Unaudited)

NOTE 1. Description of Business and ~~combined financial statements.~~

~~NOTES TO CONDENSED CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS~~Summary of Significant Accounting Policies

~~NOTE 1~~

~~Separation from TEGNA, description~~Description of ~~business and basis of presentation~~

~~Separation from TEGNA. On September 7, 2016, TEGNA~~Business. Cars.com Inc. ~~(“TEGNA”~~(the “Company” or “CARS”)~~, our former parent company, announced its plan to separate its digital~~ is a leading automotive marketplace ~~business, including Cars.com, LLC,~~platform that provides a robust set of digital solutions that connect car shoppers with sellers. The Company empowers shoppers with the ~~principal entity~~data, resources and digital tools needed to make informed buying decisions and seamlessly connect with automotive retailers. In a rapidly changing market, CARS enables dealerships 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 dealerships to be more efficient through ~~which TEGNA’s~~connected digital ~~automotive marketplace business has historically been operated,~~experiences; FUEL™, an advertising solution providing dealers and ~~DMR Holdings, Inc. (“DealerRater”)~~OEMs the benefit of leveraging targeted digital video and display marketing to Cars.com’s audience of in-market car shoppers; DealerRater®, a leading ~~automotive~~car dealer review ~~website, from its other~~and reputation management technology solution; CreditIQ™, digital ~~businesses (the “Separation”)~~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. ~~The Separation occurred on May 31, 2017 by means~~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 ~~a spin-off~~America (“U.S. GAAP”) and the rules and regulations of ~~a newly formed company named Cars.com Inc. (“Cars.com,”~~ the ~~“Company,” “our,” “us” or “we”), which now owns the digital automotive marketplace business. We filed a Registration Statement on Form 10 relating to the Separation with the U.S.~~ Securities and Exchange Commission (the “SEC”) on May 5, 2017, that was declared effective by the SEC on May 15, 2017 (the “Registration Statement on Form 10”). On May 31, 2017, we made a $650 million cash transfer to TEGNA, and TEGNA completed the Separation through a pro rata distribution to its stockholders of all of the outstanding shares of our common stock. Our common stock began trading “regular way” on the New York Stock Exchange on June 1, 2017. Each holder of TEGNA common stock received one share of our common stock for every three shares of TEGNA common stock held on May 18, 2017, the record date for the distribution. TEGNA structured the distribution to be tax-free to its U.S. stockholders for U.S. federal income tax purposes.

In connection with the Separation and prior to the distribution, we entered into various agreements to effect the Separation and provide a framework for our relationship with TEGNA after the Separation and distribution. These agreements include a separation and distribution agreement, a transition services agreement, a tax matters agreement and an employee matters agreement. These agreements provide for the allocation between Cars.com and TEGNA of the assets, employees, liabilities and obligations (including investments, property, employee benefits and tax-related assets and liabilities) of TEGNA and its subsidiaries attributable to periods prior to, at and after the Separation and govern the relationship between Cars.com and TEGNA subsequent to the completion of the Separation. A summary of these agreements can be found in our Registration Statement on Form 10.

In connection with the Separation and distribution, on May 30, 2017, we adopted several compensation and benefit plans, including the Cars.com Inc. Omnibus Incentive Compensation Plan (the “Omnibus Plan”). A summary of each of these plans can be found in the Registration Statement on Form 10. At the time of the distribution, we issued equity awards under the Omnibus Plan as a result of the conversion of certain outstanding share-based awards previously granted by TEGNA into awards denominated in our shares in accordance with the terms of the separation and distribution agreement and the employee matters agreement we entered into with TEGNA.

~~Description of business~~. Cars.com is a leading online destination that helps car shoppers and owners navigate every turn of car ownership. A pioneer in automotive classifieds, the Company has evolved into one of the largest digital automotive platforms, connecting consumers with local dealers across the country anytime, anywhere. Through trusted expert content, on-the-lot mobile app features, millions of new and used vehicle listings, a comprehensive set of research tools and the largest database of consumer reviews in the industry, Cars.com helps shoppers buy, sell and service their vehicles. Cars.com properties include DealerRater®, Auto.com™, PickupTrucks.com™ and NewCars.com®. The Company was founded in 1998 and is headquartered in Chicago, Illinois.

~~Basis of Presentation~~. On August 1, 2016, TEGNA purchased 100% of DealerRater, a leading automotive dealer review website. DealerRater was included in the distribution to Cars.com as part of the Separation. The accompanying financial statements combine the activity for the acquired business from the date of acquisition and reflect the application of push down accounting. The accompanying interim financial statements are derived from the historical accounting records of TEGNA and present our financial position, results of operations and cash flows as of the periods presented as if we were a separate entity. These interim financial statements are presented in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial statements. Accordingly, ~~the interim financial statements do not include all~~certain information and ~~footnotes~~footnote disclosures normally included in ~~annual~~ financial statements prepared in accordance with U.S. ~~GAAP.~~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, which are included in the Company's Annual Report on Form 10-K as filed with the SEC on February 25, 2022 (the “December 31, 2021 Financial Statements”).

~~Since TEGNA’s acquisition~~

The significant accounting policies used in preparing these Consolidated Financial Statements were applied on a basis consistent with those reflected in the December 31, 2021 Financial Statements. In the opinion of ~~Cars.com, LLC~~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 ~~2014, Cars.com, LLC has primarily operated~~stockholders' equity as ~~a standalone entity within TEGNA’s broader corporate organization.~~of the dates and for the periods indicated. The ~~historical financial statements include allocations~~unaudited results of certain TEGNA corporate expenses. Such costs primarily include insurance and other general corporate overhead expenses and were allocated based on either the actual costs incurred, or Cars.com, LLC’s headcount relative to TEGNA’s consolidated headcount. The historical allocated corporate costs, through the Separation, were $0 million and $2.5 million duringoperations for the three and nine months ended September 30, ~~2017, respectively,~~2022 are not necessarily indicative of results that may be expected for the year ending December 31, 2022.

Use of Estimates. The preparation of the accompanying Consolidated Financial Statements in accordance with U.S. GAAP requires management to make estimates and ~~$0.3~~assumptions that affect amounts reported in the Consolidated Financial Statements and accompanying disclosures. Although these estimates are based on management’s knowledge of current events and actions that the Company may undertake in the future, actual results may differ from those estimates.

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 ~~$0.5 million during~~has therefore corrected these prior period amounts as presented in the Consolidated Financial Statements for the nine months ended September 30, 2022. The impact of correcting these items on the related financial statement line items is as follows (in thousands):

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	)	$	—
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
	Nine Months Ended September 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
Accumulated deficit balance at September 30, 2021		(1,170,512	)		28,014			(1,142,498	)
Total stockholders' equity balance at September 30, 2021		366,560			28,014			394,574

These adjustments had no impact to Net cash provided by operating activities, Net cash used in investing activities or Net cash used in financing activities on the Consolidated Statements of Cash Flows. In addition, these adjustments had no impact to the Consolidated Statements of (Loss) Income and Earnings per share for the three and nine months ended September 30, ~~2016, respectively. Our management believes that such allocations are reasonable. These allocated expenses relate to~~2021.

NOTE 2. Revenue

Revenue Summary. In the ~~various services that have historically been provided to Cars.com, LLC~~table below (in thousands), revenue is disaggregated by ~~TEGNA. However, such expenses may~~major products and services. The Company only has one reportable segment; therefore, further disaggregation is not be indicative of the actual level of expense that would have been incurred by Cars.com, LLC if it had operated as an independent, publicly-traded company prior to the Separation or the costs expected to be incurredapplicable at this time.


	Three Months Ended September 30,				Nine Months Ended September 30,
Major products and services	2022		2021		2022		2021
Subscription advertising and digital solutions	$	135,433	$	131,293	$	403,112	$	385,472
Display advertising		22,699		20,766		64,607		64,045
Pay per lead		2,381		2,739		6,927		9,779
Other		4,082		1,755		11,029		6,082
Total revenue	$	164,595	$	156,553	$	485,675	$	465,378

NOTE 3. Goodwill, Indefinite-lived Intangible Asset and Business Combinations

The changes in the ~~future.~~carrying amount of goodwill and indefinite-lived intangible asset are as follows (in thousands):


	December 31, 2021		Additions		Foreign Currency Translation			September 30, 2022
Goodwill	$	26,227	$	76,967	$	(717	)	$	102,477
Indefinite-lived intangible asset		390,020		—		—			390,020

~~settled through equity contributions or distributions at the time the~~

Business Combinations. The below transactions were recorded. The accumulated net effect of intercompany transactions between either (i) us and TEGNA or (ii) us and TEGNA affiliates are included in “TEGNA’s investment, net.” The total net effect of these intercompany transactions is reflected in the Condensed Consolidated and Combined Statements of Cash Flows as financing activities.

These interim financial statements should be read in conjunction with the audited annual financial statements, and notes thereto, as of and for the year ended December 31, 2016 included in our Registration Statement on Form 10. These interim financial statements follow the same accounting policies and methods in their application as the most recent audited financial statements. In the opinion of management, the interim financial statements reflect all adjustments (all of which are of a normal and recurring nature), which are necessary to present fairly the financial position, results of operations and cash flows for the interim periods.

~~NOTE 2~~

~~Summary of significant accounting policies~~

~~See Note 2, “Summary of significant accounting policies” in Part I, Item 13 of our Registration Statement on Form 10 for a discussion of Cars.com’s significant accounting policies.~~

~~Recent accounting pronouncements~~

~~The Financial Accounting Standards Board (the “FASB”) amended the FASB Accounting Standards Codification and created a new Topic 606,~~ ~~Revenue from Contracts with Customers.~~ Under the amendment, recognition of revenue occurs when a customer obtains control of promised goods or services in an amount that reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The required adoption date of the standard is January 1, 2018. The two permitted transition methods are the full retrospective method, in which case the standard would be applied to each prior reporting period presented and the cumulative effect of applying the standard would be recognized at the earliest period shown; and the modified retrospective method, in which case the cumulative effect of applying the standard would be recognized at the date of initial application. We will adopt the standard using the modified retrospective method. Our primary source of revenue is through the sale of online subscription advertising products to car dealerships. We currently do not expect the standard to have a material impact on this revenue stream, which will continue to be recognized primarily on a straight-line basis over the contract term as the service is provided to our customers.

~~In January 2016, the FASB issued Accounting Standards Update No. 2016-01,~~ ~~Financial Instruments—Overall~~ (Subtopic 825-10). This guidance amended several elements surrounding the recognition and measurement of financial instruments. The new guidance requires equity investments (except those accounted for under the equity method of accounting, or those that result in consolidation) to be measured at fair value with changes in fair value recognized in Net income. The new guidance is effective for us beginning in the first quarter of 2018. We are currently evaluating the effect this new guidance will have on our financial statements and related disclosures.

~~In February 2016, the FASB amended the FASB Accounting Standards Codification and created a new Topic 842,~~ ~~Leases~~. This guidance related to leases which will require lessees to recognize assets and liabilities on the Condensed Consolidated and Combined Balance Sheets for leases with lease terms of more than 12 months. Consistent with current U.S. GAAP, the recognition, measurement and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current U.S. GAAP—which requires only capital leases to be recognized on the Condensed Consolidated and Combined Balance Sheets—the new guidance will require both types of leases to be recognized on the Condensed Consolidated and Combined Balance Sheets. The new guidance is effective for us beginning in the first quarter of 2019 and will be adopted using a modified retrospective approach. We are currently evaluating the effect it is expected to have on our financial statements and related disclosures.

~~In June 2016, the FASB issued Accounting Standards Update No. 2016-13,~~ ~~Financial Instruments—Credit Losses (Topic 326).~~ This guidance related to the measurement of credit losses on financial instruments. The new guidance changes the way credit losses on accounts receivable are estimated. Under current U.S. GAAP, credit losses on trade accounts receivable are recognized once it is probable that such losses will occur. Under the new guidance, we will be required to estimate credit losses based on the expected amount of future collections which may result in earlier recognition of allowance for doubtful accounts. The new guidance is effective for public companies beginning in the first quarter of 2020 and will be adopted using a modified retrospective approach. We are currently evaluating the effect this new guidance will have on our financial statements and related disclosures.

~~In January 2017, the FASB issued Accounting Standards Update No. 2017-04,~~ ~~Simplifying the Test for Goodwill Impairment.~~ ~~This guidance eliminates the requirement to calculate the implied fair value of goodwill (i.e., Step 2 of today’s goodwill~~

impairment test) to measure a goodwill impairment charge. Instead, companies will record an impairment charge based on the excess of a reporting unit’s carrying amount over its fair value (i.e., measure the charge based on Step 1 of the impairment test). The standard has tiered effective dates, starting in 2020. Early adoption is permitted for interim and annual goodwill impairment testing dates after January 1, 2017. We are currently evaluating the effect this new guidance will have on our financial statements and related disclosures.

~~In May 2017, the FASB issued ASU No. 2017-09,~~ ~~Compensation—Stock Compensation (Topic 718).~~ ~~This guidance clarifies when changes to the terms or conditions of a share-based payment award must be~~ accounted for as ~~modifications. The new guidance will allow~~business combinations.

Accu-Trade Acquisition.On March 1, 2022, the Company ~~to make~~acquired certain ~~changes to awards without accounting for them as modifications and does not change~~of the accounting for modifications. The new guidance should be applied prospectively and is effective for us beginning in the first quarter of 2018. We are currently evaluating the effect this new guidance will have on our financial statements and related disclosures.

~~NOTE 3~~

~~Goodwill and other intangible~~ 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,

~~The following table displays goodwill, indefinite-lived intangibles and amortizable intangible assets at September 30, 2017 and December 31, 2016 (in thousands):~~8

Cars.com Inc.

Gross

Accumulated
Amortization

Net

September 30, 2017

Goodwill

$
788,107

$
—

$
788,107

Indefinite-lived intangibles:

Trade name

872,320

—

872,320

Amortizable intangible assets:

Customer relationships

814,240

(189,090
)

625,150

Acquired software

71,700

(31,069
)

40,631

Trade name

9,800

(953
)

8,847

Non-compete agreements

2,860

(1,716
)

1,144

Content library

2,100

(1,225
)

875

Total amortizable intangible assets

900,700

(224,053
)

676,647

Total

$
2,561,127

$
(224,053
)

$
2,337,074

December 31, 2016

Goodwill

$
788,107

$
—

$
788,107

Indefinite-lived intangibles:

Trade name

872,320

—

872,320

Amortizable intangible assets:

Customer relationships

814,240

(140,788
)

673,452

Acquired software

71,700

(22,798
)

48,902

Trade name

9,800

(340
)

9,460

Non-compete agreements

2,860

(1,287
)

1,573

Content library

2,100

(438
)

1,662

Total amortizable intangible assets

900,700

(165,651
)

735,049

Total

$
2,561,127

$
(165,651
)

$
2,395,476

~~We also have an intangible liability related~~Notes to unfavorable wholesale contracts that Cars.com, LLC entered into as part of the acquisition by TEGNA in October 2014. The unfavorable contracts liability at September 30, 2017 and December 31, 2016 was $50.4 million and $69.3 million, respectively. Liabilities that will be amortized in the next twelve months are recorded in accrued liabilities, with the remainder recorded in unfavorable contracts liability on the Condensed Consolidated and Combined Balance Sheets. Amortization of the liability is recognized as wholesale revenue on the Consolidated ~~and Combined~~Financial Statements ~~of Income and was $6.3 million and $18.9 million in the three and nine months ended September 30, 2017 and 2016, respectively.~~

~~NOTE 4~~(continued)

~~Investments~~(Unaudited)

~~We have a 21% ownership interest in RepairPal, Inc. (“RepairPal”~~

“Accu-Trade”), ~~an online marketplace offering consumers a price estimator for car repairs~~which provides dealers with VIN-specific vehicle valuation and an ability to research repair shop reviews. We account for our investment under the cost method. While we believe that we have the ability to exercise significant influence, it has been determined that our investment is not substantially similar to common stock on theappraisal data, instant offer capabilities and logistics technology (the “Accu-Trade Acquisition”).

The Company expensed as incurred total acquisition ~~date because it has a substantive liquidation preference over RepairPal’s common stock. This factor precludes us from accounting for the investment under the equity method.~~

~~In May 2016, we purchased $2.2~~costs of $2.1 million, of convertible debt issued by RepairPal. The debt accrues interest at an annual rate of 7% and matures in May 2018. The debt converts into shares of preferred stock upon the earlier of May 2018 or the date on which ~~RepairPal raises proceeds of at least $5~~$1.1 million ~~through a single or series of related transactions related to any sale of preferred stock.~~

The aggregate carrying amount of the investment at September 30, 2017 and December 31, 2016 was $9.4 million and $9.3 million, respectively. We record these amounts in investments and other assets on the Condensed Consolidated and Combined Balance Sheets. No events or circumstances have occurred in the three and nine months ended September 30, 2017 that required us to estimate the fair value of the investment.

~~NOTE 5~~

~~Income taxes~~

Prior to the Separation, Cars.com LLC was a multi-member LLC that is considered to be a partnership for U.S. income tax purposes. Multi-member LLCs are generally considered flow-through entities and therefore not subject to federal, state, or local income taxes. Effective with the Separation, the Company established a corporate legal entity structure that is subject to U.S. corporate income tax on a stand-alone basis post-Separation. Income tax expense was $13.0 million for the three months ended September 30, 2017, compared to income tax expense of $0.5 million for the same period of the prior year. The prior year income tax expense represents only two months of DealerRater activity as DealerRater was acquired on August 1, 2016. The effective income tax rate, expressed by calculating the income tax expense as a percentage of income before income taxes, was 38.3% for the three months ended September 30, 2017 and differed from the U.S. federal statutory rate primarily due to state income taxes.

~~Income tax expense was $15.8 million for~~were recorded during the nine months ended September 30, ~~2017,~~2022. These costs were recorded in General and administrative expenses in the Consolidated Statements of (Loss) Income.

Preliminary Purchase Price Allocation. The preliminary fair values assigned to the tangible and intangible assets acquired and liabilities assumed were determined based ~~upon four months~~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 ~~Cars.com, LLC information and nine months of DealerRater information, compared~~royalty methods. These preliminary fair values are subject to ~~income tax expense of $0.5 million for~~change within the ~~same period~~one-year measurement period. The Accu-Trade Acquisition purchase price allocation is as follows (in thousands):


	Preliminary Acquisition-date Fair Value
Cash consideration	$	64,770
Other consideration (1)		5,300
Contingent consideration (2)		23,936
Total purchase consideration	$	94,006

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		76,967
Total purchase consideration	$	94,006

(1)

In connection with the Accu-Trade Acquisition, the Company entered into an agreement to provide one of the ~~prior year.~~former owners with a one-year license to a certain product. The ~~prior year income tax expense represents only two months~~preliminary fair value of ~~DealerRater activity~~the license was determined to be $6.5 million, of which the Company received $1.2 million in cash upon the close of the Accu-Trade Acquisition. The $5.3 million difference between the fair value of $6.5 million and the $1.2 million in cash was recorded as ~~DealerRater~~non-cash consideration and the $6.5 million license fee was ~~acquired on August 1, 2016. The effective income tax rate, expressed by calculating the income tax expense~~recorded in Other accrued liabilities as a ~~percentage~~contract liability on the Consolidated Balance Sheets and is being amortized into Other revenue on the Consolidated Statements of ~~income before income taxes, was 17.8%~~(Loss) Income over the one-year contract term. The current period revenue related to the non-cash consideration of $5.3 million is a non-cash reconciling item titled Amortization of deferred revenue related to Accu-Trade Acquisition on the Consolidated Statements of Cash Flows.

(2)

As part of the Accu-Trade Acquisition, the Company may be required to pay additional consideration to the former owners based on achievement of certain financial targets. The Company has the option to pay consideration in cash or stock, which would result in a variable number of shares being issued. The amount to be paid will be determined by the acquired business’ future performance to be attained over a three-year performance period; based on certain tiered performance metrics the maximum amount to be paid is $63.0 million, with additional upside for performance that exceeds the tiered performance metrics. The contingent consideration is classified as Level 3 in the fair value hierarchy. The fair value is measured based on a Monte Carlo simulation based on the following significant inputs: volatility, discount rate and projected financial information. This amount represents the estimated fair value at the time of the acquisition. During the nine months ended September 30, ~~2017 and differed from the U.S. federal statutory rate primarily due to pre-Separation income generated by a flow-through entity not subject to federal, state or local income taxes.~~

With the implementation of the post-Separation legal entity structure, the Company was required to record deferred tax assets and liabilities for temporary differences between financial accounting and tax reporting. Accordingly,2022, the Company recorded ~~$267 million~~a remeasurement to the fair value of contingent consideration for Accu-Trade within the Other (expense) income, net ~~deferred tax liability associated~~line on the Consolidated Statements of (Loss) Income. For more information on the fair value of the Accu-Trade contingent consideration, see Note 4 (Fair Value Measurements).

(3)

Assets acquired primarily consist of accounts receivable.

(4)

Preliminary information regarding the identifiable intangible assets acquired is as follows:

Cars.com Inc.

Notes to the Consolidated Financial Statements (continued)

(Unaudited)

(5)

Total liabilities assumed primarily consist of accounts payable.

Goodwill. In connection with the ~~outside basis difference in the Cars.com, LLC flow-through entity with the offset recorded in TEGNA’s investment net. Separately,~~Accu-Trade Acquisition, the Company recorded $8goodwill in the amount of $77.0 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 and car shoppers with access to advanced digital financing technology across the CARS platform.

The Company expensed as incurred total acquisition costs of $1.4 million, of ~~net deferred tax asset associated with the DealerRater corporate entity~~which $0.2 million were recorded during ~~2017.~~

To achieve a tax qualified Employee Share Purchase Program (“ESPP”), participating employees of Cars.com, LLC must be employed by an entity taxed as a C corporation. Consequently, in October 2017, Cars.com, LLC prospectively changed its corporate structure to convert from being taxed as a partnership to being taxed as a C corporation. As a result of the change in corporate structure, Cars.com, LLC was also required to change its reporting of deferred tax assets and liabilities. This reporting change results in a $69 million non-cash write-off of the deferred tax liability associated with non-deductible goodwill which Cars.com, LLC will record through a credit to income tax expense in the fourth quarter of 2017.

~~NOTE 6~~

~~Long-term incentive plan~~

In June 2001, we established a long-term incentive plan (“LTIP”). Under the plan, at our discretion, we may designate employees to participate and may make annual contributions to the participants’ account. In the nine months ended September 30, ~~2017, we contributed $0.3 million. For full-year 2016, we contributed $0.6~~2022. These costs were recorded in General and administrative in the Consolidated Statements of (Loss) Income. In connection with the CIQ Acquisition, CreditIQ’s unvested equity awards were cash-settled for a total of $9.6 million. The ~~total amount contributed by us is marked to market quarterly and any unrealized gains (losses) are recognized in other income, net~~fair value of these awards was based on the ~~Consolidated~~price paid per common share to the owners of the acquired business and ~~Combined~~recognized immediately after the CIQ Acquisition in November 2021 as compensation expense in the Company’s Consolidated Statements of (Loss) Income. ~~Management will not make any new contributions~~

Preliminary Purchase Price Allocation. The fair values assigned to the ~~LTIP subsequent~~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 allocation is as follows (in thousands):


	Preliminary Acquisition-date Fair Value
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

(1)

A reconciliation of cash consideration to Payments for the CIQ Acquisition, net of cash acquired is as follows (in thousands):


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

(2)

As part of the CIQ Acquisition, the Company may be required to pay up to an additional $50.0 million in cash consideration to the ~~Separation.~~former owners based on two earn-out achievement objectives, including an earnings-related metric and lender market share. The

Cars.com Inc.

Notes to the Consolidated Financial Statements (continued)

(Unaudited)

~~Under this plan, deferred compensation expense was not material~~

actual amount to be paid will be based on the acquired business’ future performance to be attained over a three-year performance period with a mutually agreed-upon option for a fourth year. The contingent consideration is classified as Level 3 in the ~~three months ended September 30, 2017~~fair value hierarchy. The fair value is measured based on a Monte Carlo simulation or a scenario-based method based on the following significant inputs: volatility, discount rate and ~~$0.3 million in~~projected financial information. This amount represents the estimated fair value at the time of the acquisition. During the nine months ended September 30, ~~2017, and $0.2~~2022, the Company recorded a remeasurement to the fair value of contingent consideration for CreditIQ within the Other (expense) income, net line on the Consolidated Statements of (Loss) Income. For more information on the fair value of the CreditIQ contingent consideration, see Note 4 (Fair Value Measurements).

(3)

In connection with the CIQ Acquisition, CreditIQ’s unvested equity awards were cash-settled. The fair value of these awards was $9.6 million and ~~$0.7 million~~was based on the price paid per common share to the owners of the acquired business and recognized immediately after the CIQ Acquisition in November 2021 as compensation expense in General and administrative expense on the Company’s Consolidated Statements of (Loss) Income.

(4)

Assets acquired primarily consist of cash and cash equivalents and accounts receivable.

(5)

Preliminary information regarding the identifiable intangible assets acquired is as follows:

(6)

Total liabilities assumed includes accounts payable, deferred income tax liabilities, net and other liabilities.

Goodwill. In connection with the CIQ Acquisition, the Company recorded goodwill in the ~~three~~amount of $26.2 million, which is primarily attributable to sales growth from existing and ~~nine months ended September 30, 2016, respectively.~~ 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. Fair Value Measurements

The ~~deferred compensation liability was $2.0 million and $3.1 million at September 30, 2017 and December 31, 2016, respectively.~~

~~NOTE 7~~

~~Fair value measurement~~

~~We measure and record certain assets at fair value in the accompanying financial statements. U.S. GAAP establishes a fair value hierarchy for those instruments~~Company's liabilities measured ~~at fair value that distinguishes between assumptions based on market data (observable inputs) and our own assumptions (unobservable inputs). The hierarchy consists of three levels:~~

~~Level 1—~~	~~Quoted market prices in active markets for identical assets or liabilities;~~

~~Level 2—~~	~~Inputs other than Level 1 inputs that are either directly or indirectly observable; and~~

~~Level 3—~~	~~Unobservable inputs developed using our own estimates and assumptions, which reflect those that a market participant would use.~~

~~Financial assets that are carried~~ at fair value on a recurring basis consisted of the following (in thousands):


			Fair value measurement at reporting date
	Total as of September 30, 2022		Level 1		Level 2		Level 3
Contingent consideration	$	61,100	$	—	$	—	$	61,100
Total	$	61,100	$	—	$	—	$	61,100


			Fair value measurement at reporting date
	Total as of December 31, 2021		Level 1		Level 2		Level 3
Contingent consideration	$	23,805	$	—	$	—	$	23,805
Total	$	23,805	$	—	$	—	$	23,805

The rollforward of the Level 3 contingent consideration from December 31, 2021 is as follows (in thousands):


	As of December 31, 2021		Addition Related to Accu-Trade Acquisition		Fair Value Adjustment (1)		As of September 30, 2022
Contingent consideration	$	23,805	$	23,936	$	13,359	$	61,100

(1)

Fair value adjustments on contingent considerations are reflected within the Other (expense) income, net line on the Consolidated Statements of (Loss) Income.

For more information relating to contingent consideration, see Note 3 (Goodwill, Indefinite-lived Intangible Asset and Business Combinations).

Cars.com Inc.

Notes to the Consolidated Financial Statements (continued)

(Unaudited)

NOTE 5. Debt

As of September 30, 2022, the Company was in compliance with the ~~balance sheet consist~~covenants under its debt agreements.

Term Loan. As of ~~marketable securities held as LTIP investments.~~September 30, 2022, the outstanding principal amount under the Term Loan was $70.0 million and the interest rate in effect was 5.7%. During the nine months ended September 30, 2022, the Company made $7.5 million in Term Loan payments.

Revolving Loan. As of September 30, 2022, the outstanding borrowings under the Revolving Loan were $35.0 million and the interest rate in effect was 5.1%. As of September 30, 2022, $195.0 million was available to borrow under the Revolving Loan. During the nine months ended September 30, 2022, the Company paid down $10.0 million on the Revolving Loan. The ~~following table presents the LTIP investments carried at fair value~~Company’s borrowings are limited by its Senior Secured Leverage Ratio and Consolidated Interest Coverage Ratio, which are calculated in accordance with our Credit Agreement, and were 0.6x and 5.7x as of September 30, ~~2017~~2022, 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. The approximate fair value and related carrying value of the Company's outstanding indebtedness, as of September 30, 2022 and December 31, ~~2016, by category~~2021 were as follows (in millions):


	September 30, 2022		December 31, 2021
Fair value	$	439.0	$	502.7
Carrying value		505.0		477.5

NOTE 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 ~~Condensed~~hedge that was recorded in Accumulated other comprehensive loss at that time was amortized into Interest expense, net in the Consolidated ~~and Combined Balance Sheets in accordance with~~Statements of (Loss) Income ratably over the ~~valuation hierarchy defined above (in thousands):~~

Fair value measurement as of September 30, 2017

Level 1

Level 2

Level 3

Total

Assets:

Mutual funds

$
1,687

$
—

$
—

$
1,687

Fixed income fund

606

Total investments at fair value

$
2,293

Fair value measurement as of December 31, 2016

Level 1

Level 2

Level 3

Total

Assets:

Mutual funds

$
2,228

$
—

$
—

$
2,228

Fixed income fund

1,031

Total investments at fair value

$
3,259

Fair value for mutual funds is measured using Level 1 inputs and quoted market prices at the reporting date multiplied by the quantity held. Our fixed income fund investment consists of a commingled fund for which quoted market prices are not available. The fair valueremaining term of the ~~investment represents~~Swap.

The Swap expired on May 31, 2022 and, as such, is no longer recorded on the ~~net asset value as provided by the trustee.~~

In addition to the financial instruments listed in the table above, we hold other financial instruments, including cash and cash equivalents, receivables and accounts payable. The carrying amounts for these balances approximated their fair values.

Certain assets and liabilities are measured at fair value on a nonrecurring basis, and therefore, not included in the tables above. These assets include goodwill and intangible assets and result as acquisitions occur. The amounts assigned to intangible assets and goodwill as they relate to our acquisitions are based on our best estimateConsolidated Balance Sheets. As of ~~the fair value. We use an independent valuation specialist to assist in determining~~December 31, 2021, the fair value of the ~~identified intangible assets at acquisition. The fair value~~Swap was an unrealized loss of the significant identified intangible assets is generally estimated using a combination of an income approach using the discounted cash flow analysis and market approach using the guideline public company analysis,$3.5 million, which represents a Level 3 fair value measurement. The income approach includes a forecast of direct revenues and costs associated with the respective intangible assets and charges for economic returns on tangible and intangible assets utilized in cash flow generation. The market approach also uses forecasted revenue and earnings, as well as comparable public company trading values. Net cash flows attributable to the identified intangible assets are discounted to their present value at a rate commensurate with the perceived risk.

~~NOTE 8~~

~~Share appreciation rights plan~~

Effective as of January 1, 2012, we established a Share Appreciation Rights Plan (the "SAR Plan"). Eligible participants received a number of stock appreciation rights annually that entitle the employee to receive the appreciation in the fair market value of a share from the date of grant up to a specified date or dates plus an amount equal to the distributions per share. Awards granted in a given year vest to the participant over a three-year period. Benefits paid under the SAR Plan were made in cash, not common stock, at the end of the three-year vesting period from the original grant date. Expense related to the SAR Plan has beenwas recorded in ~~accordance with~~Other accrued liabilities on the ~~accounting standards for share-based payments. Due to~~Consolidated Balance Sheets. During the cash settlement at the end of the performance period, the awards were classified as a liability and remeasured each reporting period at fair value. Cars.com recorded a liability of $1.1 million and $10.8 million related to its SAR Plan on its Condensed Consolidated and Combined Balance Sheets at September 30, 2017 and December 31, 2016, respectively.

~~No stock appreciation rights were granted to employees during the three and~~ nine months ended September 30, ~~2017. Management does not expect to issue any new grants subsequent~~2022 and 2021, $2.4 million and $4.3 million was reclassified from Accumulated other comprehensive loss and recorded in Interest expense, net, respectively. During the nine months ended September 30, 2022, the Company made payments of $3.3 million related to the ~~Separation.~~Swap and $0.4 million was reclassified as a tax benefit from Accumulated other comprehensive loss into Income tax expense (benefit) on the Consolidated Statements of (Loss) Income.

NOTE 7. Commitments and Contingencies

~~NOTE 9~~

~~Commitments, contingent liabilities~~From time to time, the Company and ~~other matters~~

~~Commitments~~

In May 2016, we entered into a new lease of office space in Chicago, Illinois. The lease extends through June 2031 and monthly rental payments under the lease escalate by 2.5% each year throughout the lease. Total minimum payments throughout the remaining life of the lease are $56.8 million.

~~Litigation~~

~~We and our~~its subsidiaries are parties ~~from time to time~~ in legal and administrative proceedings involving matters incidental to ~~our~~its business. These matters, whether pending, threatened or unasserted, if decided adversely to ~~Cars.com~~the Company or settled, may result in liabilities material to ~~our consolidated~~its financial position, results of ~~operation~~operations or cash flows. ~~We record~~The Company records a liability when ~~we believe~~it believes that it is both probable that a loss will be incurred and the amount of loss can be reasonably estimated. ~~We evaluate,~~The Company evaluates, at least quarterly, developments in its legal matters that could affect the amount of liability that has been previously accrued and ~~make~~makes adjustments as appropriate. Significant judgment is required to determine both the probability and the estimated amount.

NOTE 8. Stockholders' Equity

~~NOTE 10~~

~~Debt – term loan~~In February 2022, the Company's 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

Cars.com Inc.

Notes to the Consolidated Financial Statements (continued)

(Unaudited)

negotiated transactions in accordance with applicable federal securities laws and ~~revolving credit facility~~

~~On May 31, 2017, we~~other applicable legal requirements, and ~~certain~~subject to the Company's blackout periods. The timing and amounts of ~~our domestic wholly-owned subsidiaries (the “Guarantors”) entered into a Credit Agreement (the “Credit Agreement”) with~~any purchases under the ~~lenders named therein.~~share repurchase program will be based on market conditions and other factors including price. The ~~Credit Agreement matures on May 31, 2022~~repurchase program may be suspended or discontinued at any time and ~~includes (a) revolving loan commitments in an aggregate principal~~does not obligate the Company to repurchase any dollar amount or particular amount of upshares. The Company funds the share repurchase program principally with cash from operations. During the nine months ended September 30, 2022, the Company repurchased and subsequently retired 3.5 million shares for $40.0 million at an average price paid per share of $11.47.

NOTE 9. Stock-Based Compensation

Restricted Share Units (“RSUs”). RSUs represent the right to ~~$450 million (of which up~~receive unrestricted shares of the Company’s common stock at the time of vesting, subject to ~~$25 million may be~~any restrictions as specified in the ~~form~~individual holder’s award agreement. RSUs are subject to graded vesting, generally ranging between one and four years and the fair value of ~~letters of credit at our request) and (b) term loans in an aggregate principal amount of $450 million. Interest~~the RSUs is equal to the Company’s common stock price on the ~~borrowings under~~date of grant. RSU activity for the ~~Credit Agreement~~nine months ended September 30, 2022 is ~~payable~~as follows (in thousands, except for weighted-average grant date fair value):


	Number of RSUs			Weighted-Average Grant Date Fair Value
Outstanding as of December 31, 2021		3,683		$	10.95
Granted		2,290			14.34
Vested and delivered		(1,572	)		10.63
Forfeited		(783	)		12.66
Outstanding as of September 30, 2022 (1)		3,618			12.86

(1)

Includes 63 RSUs that were vested, but not yet delivered.

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 range from 0% to 200% of the number of PSUs granted based on the ~~London Interbank Offered Rate or~~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 at the ~~alternate base rate,~~end of the respective performance period. PSU activity for the nine months ended September 30, 2022 is as ~~defined~~follows (in thousands, except for weighted-average grant date fair value):


	Number of PSUs			Weighted-Average Grant Date Fair Value
Outstanding as of December 31, 2021		142		$	23.98
Granted		275			15.07
Vested and delivered		(142	)		23.98
Forfeited		(59	)		15.07
Outstanding as of September 30, 2022		216			15.07

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 ~~Credit Agreement, in either case plus an applicable margin~~individual holder’s award agreement. Stock options are subject to three-year cliff vesting and fees which, after the second full fiscal quarter following the closing date, is based upon our total net leverage ratio. On May 31, 2017, we borrowed $675 million to fund a $650 million cash payment to TEGNA immediately priorexpire

Cars.com Inc.

Notes to the ~~distribution, to pay fees and expenses related to~~Consolidated Financial Statements (continued)

(Unaudited)

10 years from the ~~Separation and to fund working capital. The term loan requires quarterly amortization payments which commenced on~~grant date. Stock option activity for the nine months ended September 30, ~~2017. In~~2022 is as follows (in thousands, except for weighted-average grant date fair value and weighted-average remaining contractual term):


	Number of Options		Weighted-Average Grant Date Fair Value		Weighted-Average Remaining Contractual Term (in years)		Aggregate Intrinsic Value
Outstanding as of December 31, 2021		804	$	5.27		8.58	$	5,754
Granted		263		9.39
Vested and delivered		—		—
Forfeited		—		—
Outstanding as of September 30, 2022		1,067		6.28		8.23		3,131
Exercisable as of September 30, 2022		—		—		—		—

The fair value of the ~~third quarter of 2017, we made $5.6 million of term loan quarterly amortization payments~~stock options granted during the nine months ended September 30, 2022 and ~~voluntarily paid down $45 million~~September 30, 2021 are estimated on the ~~revolving loan. As of September 30, 2017,~~grant date using the ~~Company had $624.4 million of debt outstanding and $270 million available under~~Black-Scholes option pricing model, using the ~~revolving loan. Debt issuance costs were $5.7 million at September 30, 2017 and are being amortized over the term of the Credit Agreement.~~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

~~On October 31, 2017, we voluntarily paid down an additional $25 million on the revolving loan.~~

NOTE 10. Earnings Per Share

The obligations under the Credit Agreement are guaranteed by the Guarantors and the Company and the Guarantors secured their respective obligations under the Credit Agreement by granting liens in favor of the agent on substantially all of their assets. The terms of the Credit Agreement include representations and warranties, affirmative and negative covenants (including certain financial covenants) and events of default that are customary for credit facilities of this nature. A summary of the Credit Agreement can be found in our Registration Statement on Form 10.

~~NOTE 11~~

~~Earnings per share~~

Basic earnings per share is calculated by dividing ~~net~~Net (loss) income by the weighted-average number of shares of the Company's 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 ~~equity-based~~stock-based compensation plans, unless the inclusion of such shares would have an anti-dilutive ~~impact.~~

effect.The ~~total shares outstanding on May 31, 2017, the date~~computation of ~~Separation, was 71.6 million. The total number of shares outstanding at that date is being utilized for the calculation of both basic and diluted earnings~~Earnings per share ~~for the three and nine months ended September 30, 2016,~~is as ~~no equity-based awards were outstanding prior to the Separation date.~~

~~The computations of our basic and diluted earnings per share are set forth below~~follows (in thousands, except per share ~~amounts)~~data):

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Net income

$
20,988

$
51,845

$
72,685

$
127,564

Basic weighted-average shares outstanding

71,699

71,588

71,693

71,588

Effect of dilutive share-based compensation awards

68

—

70

—

Diluted weighted-average shares outstanding

71,767

71,588

71,763

71,588

Earnings per share, basic

$
0.29

$
0.72

$
1.01

$
1.78

Earnings per share, diluted

$
0.29

$
0.72

$
1.01

$
1.78


	Three Months Ended September 30,					Nine Months Ended September 30,
	2022			2021		2022		2021
Net (loss) income	$	(2,941	)	$	2,431	$	6,944	$	13,675
Basic weighted-average common shares outstanding		67,680			69,067		68,775		68,576
Effect of dilutive stock-based compensation awards (1)		—			1,878		1,248		2,489
Diluted weighted-average common shares outstanding		67,680			70,945		70,023		71,065
(Loss) earnings per share, basic	$	(0.04	)	$	0.04	$	0.10	$	0.20
(Loss) earnings per share, diluted		(0.04	)		0.03		0.10		0.19

~~NOTE 12~~

~~Share-based compensation plans~~

In May 2017, the Cars.com Board of Directors approved the Omnibus Plan. The Omnibus Plan provides for the granting of stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance

(1)

There were 3,581 and 1,369 potential common shares ~~and other equity-based and cash based awards of Cars.com.~~

~~Prior to the Separation and distribution~~excluded from ~~TEGNA, certain Cars.com employees received TEGNA RSUs based on TEGNA~~diluted weighted-average common ~~stock. Due to the spin-off from TEGNA, all~~shares outstanding TEGNA RSUs granted in 2016 or later held by certain Cars.com employees following the Separation or certain former employees of the Cars.com business, were converted into an award denominated in shares of Cars.com common stock, with the number of shares subject to the award adjusted in a manner intended to preserve the aggregate intrinsic value of the original TEGNA RSUs award as measured immediately before and immediately after the Separation.

The Company granted approximately 13,000 and 265,000 RSUs during the three and nine months ended September 30, 2017, respectively, at a weighted-average share price of $26.55 and $25.85, respectively.

~~The table below presents information related to share-based compensation (in thousands):~~

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Share-based compensation expense

$
1,012

$
—

$
1,493

$
—

September 30, 2017

December 31, 2016

Unrecognized share-based compensation

$
11,054

$
—

~~The unrecognized share-based compensation is expected to be recognized over a weighted-average period of 3.1 years.~~

~~NOTE 13~~

~~Related party transactions~~

We are party to a commercial agreement with TEGNA, who was considered a related party through the Separation date of May 31, 2017. Related party revenue earned from this agreement was $0 million and $3.4 million for the three and nine months ended September 30, 2017, respectively, and $2.1 million and $6.3 million for the three and nine months ended September 30, 2016, respectively. The commercial agreement with TEGNA is still effective after the Separation.

Prior to the Separation and distribution, TEGNA utilized a centralized approach to cash management and the financing of its operations, providing funds to its subsidiaries as needed. These transactions were recorded in “TEGNA’s investment, net” when advanced. Accordingly, none of TEGNA’s cash and cash equivalents were assigned to us in TEGNA’s financial statements. Cash and cash equivalents in our Condensed Consolidated and Combined Balance Sheets represent cash held locally by us.

Equity in the Condensed Consolidated and Combined Balance Sheets represents the accumulated balance of transactions between us and TEGNA, our paid-in-capital, and TEGNA’s interest in our cumulative retained earnings, and are presented within “TEGNA’s investment, net.” The amounts comprising the accumulated balance of transactions between us and TEGNA and TEGNA affiliates include (i) the cumulative net assets attributed to us by TEGNA and TEGNA affiliates and (ii) the cumulative net advances to TEGNA representing our cumulative funds swept (net of funding provided by TEGNA and TEGNA affiliates to us) as part of the centralized cash management program. See Note 1 of this report for additional information.

~~Item 2. Management’s Discussion and Analysis of~~ ~~Financial Condition and Results of Operations.~~

The following discussion and analysis of our financial condition and results of operations and quantitative and qualitative disclosures should be read in conjunction with our unaudited condensed consolidated and combined financial statements and related notes. The financial information discussed below and included elsewhere in this report may not necessarily reflect what our financial condition, results of operations and cash flow would have been had we been a stand-alone company during the applicable periods presented or what our financial condition, results of operations and cash flows may be in the future.

References in this discussion and analysis to “Cars.com,” the “Company,” “we,” “us,” “our” and similar terms refer to Cars.com Inc. and its subsidiaries, collectively, unless the context indicates otherwise.

~~Business Overview~~

Cars.com is a leading online destination that helps car shoppers and owners navigate every turn of car ownership. A pioneer in automotive classifieds, the Company has evolved into one of the largest digital automotive platforms, connecting consumers with local dealers across the country anytime, anywhere. Through trusted expert content, on-the-lot mobile app features, millions of new and used vehicle listings, a comprehensive set of research tools and the largest database of consumer reviews in the industry, Cars.com helps shoppers buy, sell and service their vehicles. Cars.com properties include DealerRater®, Auto.com™, PickupTrucks.com™ and NewCars.com®. The Company was founded in 1998 and is headquartered in Chicago, Illinois.

~~Overview of Results~~

~~The following table presents some of the Company’s key financial metrics for each of the periods indicated:~~

Three Months Ended September 30,

Nine Months Ended September 30,

In thousands (except % amounts)

2017

2016

2017

2016

Revenues

$
159,899

$
162,295

$
469,697

$
471,434

Net income

20,988

51,845

72,685

127,564

Retail revenue as % of total revenue

74
%

74
%

74
%

73
%
Wholesale revenue as % of total revenue

26
%

26
%

26
%

27
%

~~Separation from TEGNA~~

On September 7, 2016, TEGNA Inc. (“TEGNA”), our former parent company, announced its plan to separate its digital automotive marketplace business, including Cars.com, LLC, the principal entity through which TEGNA’s digital automotive marketplace business has historically been operated, and DMR Holdings, Inc. (“DealerRater”), a leading automotive dealer review website, from its other digital businesses (the “Separation”). The Separation occurred on May 31, 2017 by means of a spin-off of a newly formed company named Cars.com Inc., which now owns the digital automotive marketplace business. We filed a Registration Statement on Form 10 relating to the Separation with the U.S. Securities and Exchange Commission (the “SEC”) on May 5, 2017, that was declared effective by the SEC on May 15, 2017 (the “Registration Statement on Form 10”). On May 31, 2017, we made a $650 million cash payment to TEGNA, and TEGNA completed the Separation through a pro rata distribution to its stockholders of all of the outstanding shares of our common stock. Our common stock began trading “regular way” on the New York Stock Exchange on June 1, 2017. Each holder of TEGNA common stock received one share of our common stock for every three shares of TEGNA common stock held on May 18, 2017, the record date for the distribution. TEGNA structured the distribution to be tax-free to its U.S. stockholders for U.S. federal income tax purposes.

~~Company History~~

On August 1, 2016, TEGNA purchased 100% of DealerRater, a leading automotive dealer review website. DealerRater was included in the distribution to Cars.com, Inc. as part of the Separation. The accompanying financial statements combine the activity for the acquired business from the date of acquisition and reflect the application of push down accounting. The accompanying interim financial statements are derived from the historical accounting records of TEGNA and present our financial position, results of operations and cash flows as of the periods presented as if we were a separate entity. These interim financial statements are presented in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial statements. Accordingly, the interim financial statements do not include all information and footnotes normally included in annual financial statements prepared in accordance with U.S. GAAP.

Since TEGNA’s acquisition of Cars.com, LLC in 2014, Cars.com, LLC has primarily operated as a standalone entity within TEGNA’s broader corporate organization. The historical financial statements include allocations of certain TEGNA corporate expenses. Such costs primarily include insurance and other general corporate overhead expenses and were allocated based on either the actual costs incurred, or Cars.com, LLC’s headcount relative to TEGNA’s consolidated headcount. The historical allocated corporate costs, through the Separation, were $0 million and $2.5 million during the three and nine months ended September 30, 2017, respectively, and $0.3 million and $0.5 million during the three and nine months ended September 30, 2016, respectively. We believe that such allocations are reasonable. These allocated expenses relate to the various services that have historically been provided to Cars.com, LLC by TEGNA. However, such expenses may not be indicative of the actual level of expense that would have been incurred by Cars.com, LLC if it had operated as an independent, publicly-traded company or the costs expected to be incurred in the future.

All of our internal intercompany accounts have been eliminated. All significant intercompany transactions between either (i) us and TEGNA or (ii) us and TEGNA affiliates have been included within the financial statements and are considered to be effectively settled through equity contributions or distributions at the time the transactions were recorded. The accumulated net effect of intercompany transactions between either (i) us and TEGNA or (ii) us and TEGNA affiliates are included in “TEGNA’s investment, net.” The total net effect of these intercompany transactions is reflected in the Condensed Consolidated and Combined Statements of Cash Flows as financing activities.

~~Factors Affecting Our Performance~~

Our continued success will depend in part on our ability to address and successfully manage challenges, both specific to our business and in the digital advertising marketplace generally. In the near term, we may experience compressed margins as a result of the transition from a wholly-owned subsidiary of TEGNA to an independent publicly traded company. In particular, the transition requires us to build out our internal infrastructure and support functions, through recruiting and hiring managers and employees to strengthen our legal, treasury, accounting, tax, investor relations and other similar functions. Similarly, we will face ongoing public company costs, including those related to an independent board of directors, compliance with regulatory and stock exchange requirements, and increased auditing and insurance fees. Further, the indebtedness we incur in connection with the Separation will reduce our free cash flow and may limit our ability to make strategic acquisitions. We expect to manage these incremental costs and the associated increased risk by focusing on operating efficiency and continued growth in our business to drive profit margins and generate cash flow.

On August 1, 2016, TEGNA purchased 100% of DealerRater, a leading automotive dealer review website. DealerRater was included in the distribution to Cars.com, Inc. as part of the Separation. Cars.com’s financial results for the three and nine months ended September 30, 2017 include three and nine months of DealerRater activity, respectively. Cars.com’s financial results for both the three and nine months ended September 30, 2016 includes two months of DealerRater activity.

~~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 following table presents certain of these key metrics.

Three Months Ended September 30,

Nine Months Ended September 30,

2017

2016

2017

2016

Traffic (Visits)

101,698,000

102,723,000

311,612,000

321,577,000

Dealer Customers

21,307

21,743

21,307

21,743

Average Vehicle Listings

4,869,000

4,614,000

4,956,000

4,698,000

~~Traffic (Visits).~~ Traffic (Visits) and our ability to generate traffic are key to our business. Tracking our traffic performance is a critical measure. Traffic to the Cars.com 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 an internal metric representing the number of visits to Cars.com desktop and mobile properties (web browser and apps). Visits refer to the number of times visitors accessed Cars.com properties during the period, no matter how many visitors make up those visits. Traffic (Visits) numbers provide an indication of our consumer reach. Although our consumer reach does not directly result in revenue, we believe our ability to reach diverse demographic audiences is attractive to our dealers and national advertisers.

~~Dealer Customers~~. Our value to consumers tracks to our ability to showcase the inventory of our dealer and Original Equipment Manufacturer (“OEM”) customers. The larger the advertiser base, the more inventory and options that are available for

consumers to review. Dealer Customers represents the car dealerships using our products as of the end of each reporting period. Each 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.

~~Average Vehicle Listings.~~ Our value to consumers tracks to our ability to showcase the inventory of our dealer and OEM customers. The more vehicle listings that are available for consumers to review, the more traffic we attract and the higher the consumer engagement. Average Vehicle Listings represents the daily average of vehicles listed for sale on Cars.com properties. The daily average is calculated on a monthly basis and averaged for the reporting period.

~~Results of Operations~~

~~Third Quarter 2017 Compared to Third Quarter 2016~~

~~The following table sets forth our selected statement of operations for each of the periods indicated:~~

Three Months Ended September 30,

Increase

In thousands (except % amounts)

2017

2016

(Decrease)

% Change

Revenues:

Direct revenue

$
82,504

$
84,651

$
(2,147
)

(3
)%
National advertising revenue

32,002

31,214

788

3
%
Other revenue

4,319

3,963

356

9
%
Retail revenue

118,825

119,828

(1,003
)

(1
)%
Wholesale revenue

41,074

42,467

(1,393
)

(3
)%
Total revenues

159,899

162,295

(2,396
)

(1
)%
Operating expenses:

Product support, technology and operations

36,598

32,469

4,129

13
%
Marketing and sales

50,733

48,670

2,063

4
%
General and administrative

11,606

7,738

3,868

50
%
Affiliate revenue share

2,121

2,162

(41
)

(2
)%
Amortization of intangible assets

19,467

19,088

379

2
%
Total operating expenses

120,525

110,127

10,398

9
%
Operating income

39,374

52,168

(12,794
)

(25
)%
Nonoperating (expense) income:

Interest (expense) income, net

(5,431
)

41

(5,472
)

***%

Other income, net

64

88

(24
)

(27
)%
Total nonoperating (expense) income, net

(5,367
)

129

(5,496
)

***%

Income before income taxes

34,007

52,297

(18,290
)

(35
)%
Provision for income taxes

13,019

452

12,567

***%

Net income

$
20,988

$
51,845

$
(30,857
)

(60
)%

~~***~~

~~Not meaningful~~

~~Revenues~~

~~Retail Revenue—Direct~~. Direct revenue represents online subscription products sold by Cars.com sales teams to our local automotive dealer customers and includes DealerRater products which we acquired in August 2016. Automotive dealer customers purchase advertising packages to market their vehicle inventory and other aspects of the dealership, such as the service department. Direct revenue is our largest revenue stream, representing 52% of total revenue for the third quarter of 2017. Direct revenue for the third quarter of 2017 decreased 3% as compared to the year-ago period reflecting a decline in average revenue per dealer, partially offset by an increase in average dealer count.

~~Retail Revenue—National Advertising~~. National advertising revenue consists of display advertising sold to advertising agencies and OEMs as well as leads sold to OEMs. Banner display ads are placed throughout the Cars.com websites and apps. National advertising revenue represented 20% of total revenue for the third quarter of 2017. National advertising revenue for the third quarter of 2017 rose 3% as compared to the year-ago period mainly due to increased lead volume sold to OEMs.

~~Retail Revenue—Other~~. Other revenue includes revenue from (1) vehicle listing data sold to third-parties, (2) new-car leads sold to third-parties and (3) products such as Sell It Yourself/For Sale By Owner. Other revenue represented 2% of total revenue for

the third quarter of 2017. Other revenue for the third quarter of 2017 increased 9% as compared to the year-ago period mainly due to an increase in volume of data sales and higher lead volume sold to third-party lead resellers.

~~Wholesale Revenue~~. Wholesale revenue represents the wholesale fees paid to Cars.com for online subscription products sold by affiliates. Wholesale revenue represented 26% of total revenue for the third quarter of 2017. Wholesale revenues for the third quarter of 2017 decreased 3% as compared to the year-ago period reflecting a decline in average dealer count, partially offset by an increase in average revenue per dealer.

~~Expenses~~

~~Product support, technology and operations~~. The product support team creates and manages consumer and dealer-facing products and editorial content (i.e. vehicle reviews, “Best of Awards” and video content pertinent to consumers). Primary costs include compensation and content license fees for third-party content such as vehicle specifications. The technology team builds consumer and dealer products and supports the Cars.com website and apps. Technology expenses include compensation, staff augmentation and outsourced development, hardware/software maintenance, software licenses, data center and other infrastructure costs. Operations includes product fulfillment, customer service, traffic acquisition costs related to our pay-per-lead products and third-party costs such as inventory processing, photo/video maintenance and trackable phone numbers to support our customers. Product support, technology and operations expenses increased 13% in the third quarter of 2017 as compared to the year-ago period due to the higher volume of our pay-per-lead product sales and the acquisition of DealerRater in August 2016. Product support, technology and operations expense represents 23% of revenue for the third quarter of 2017 compared with 20% for the third quarter of 2016.

~~Marketing and sales~~. Marketing and sales expenses primarily consist of traffic and lead acquisition costs (including search engine management and other online marketing), TV advertising and production of ad creative, market research, sales events and compensation costs for our marketing, sales support and sales teams. Marketing and sales expenses increased 4% in the third quarter of 2017 as compared to the year-ago period due to higher spend in brand marketing, partially offset by savings resulting from elimination of third-quarter sales meetings. Marketing and sales expense represents 32% of revenue for the third quarter of 2017 compared with 30% for the third quarter of 2016.

~~General and administrative~~. General and administrative expenses primarily consist of salaries, benefits and incentive compensation for our executive, finance, legal, human resources, facilities and other administrative employees. In addition, depreciation, legal and accounting services, other professional services, share-based compensation for all other eligible Company employees, transaction related costs, restructuring costs, costs related to the corporate headquarters office relocation and write-off and loss on assets are included in general and administrative expenses. General and administrative expenses increased $3.9 million, or 50%, in the third quarter of 2017 as compared to the year-ago period mainly due to $0.5 million in non-recurring items which is composed of $0.3 million related to the Separation from TEGNA and $0.2 million related to the corporate headquarters office relocation. In addition, $2.5 million of the increase in general and administrative costs is related to the incremental cost of being a public company, $0.6 million of the increase is due to share-based and deferred compensation awards and $0.4 million of the increase is due to additional depreciation expense in the third quarter of 2017 as compared to the year-ago period.

~~Amortization of intangibles~~. As a result of TEGNA’s acquisition of Cars.com, LLC in October 2014 and the acquisition of DealerRater in August 2016, we recorded amortizable intangible assets for customer relationships, acquired software, trade-names, non-compete agreements and a content library. This expense category reflects the amortization of these assets.

~~Interest (expense) income, net~~. During the three months ended September 30, 2017, interest expense was $5.5 million related to our new Credit Agreement (the “Credit Agreement”) entered into in connection with the Separation. The Company did not have any interest expense for the three months ended September 30, ~~2016.~~

~~Provision for income taxes.~~ ~~During the three months ended~~2022 and September 30, 2017, the tax provision was $13.0 million, or an effective rate of 38.3%. Effective with the Separation, the Company established a corporate legal entity structure that is subject to U.S. corporate income tax on a stand-alone basis post-Separation. The Company recorded $0.5 million of income tax expense for the three months ended September 30, 2016. See Note 5 to the financial statements included in Part I, Item 1 of this report for additional information related to income taxes.

~~First Nine Months 2017 Compared to First Nine Months 2016~~

~~The following table sets forth our selected statement of operations for each of the periods indicated:~~

Nine Months Ended September 30,

Increase

In thousands (except % amounts)

2017

2016

(Decrease)

Change

Revenues:

Direct revenue

$
249,412

$
248,579

$
833

0
%
National advertising revenue

85,379

83,221

2,158

3
%
Other revenue

11,989

11,213

776

7
%
Retail revenue

346,780

343,013

3,767

1
%
Wholesale revenue

122,917

128,421

(5,504
)

(4
)%
Total revenues

469,697

471,434

(1,737
)

(0
)%
Operating expenses:

Product support, technology and operations

106,479

98,381

8,098

8
%
Marketing and sales

160,246

160,275

(29
)

(0
)%
General and administrative

42,305

23,277

19,028

82
%
Affiliate revenue share

6,837

6,264

573

9
%
Amortization of intangible assets

58,402

55,416

2,986

5
%
Total operating expenses

374,269

343,613

30,656

9
%
Operating income

95,428

127,821

(32,393
)

(25
)%
Nonoperating (expense) income:

Interest (expense) income, net

(7,160
)

53

(7,213
)

***%

Other income, net

199

142

57

40
%
Total nonoperating (expense) income, net

(6,961
)

195

(7,156
)

***%

Income before income taxes

88,467

128,016

(39,549
)

(31
)%
Provision for income taxes

15,782

452

15,330

***%

Net income

$
72,685

$
127,564

$
(54,879
)

(43
)%

~~***~~

~~Not meaningful~~

~~Revenues~~

~~Retail Revenues—Direct. Direct revenue is our largest revenue stream, representing 53% of total revenue for the first nine months of 2017. Direct revenue~~2021, respectively, and 2,027 and 1,376 potential common shares excluded from diluted weighted-average common shares outstanding for the nine months ended September 30, ~~2017 was flat~~2022 and September 30, 2021, respectively, as ~~compared~~their inclusion would have had an anti-dilutive effect.

NOTE 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 September 30, 2022. 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 ~~year-ago period primarily reflecting an increase~~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 September 30, 2022 to the amount that is more likely than not to be realized in ~~average dealer count, partially offset~~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.

Cars.com Inc.

Notes to the Consolidated Financial Statements (continued)

(Unaudited)

Effective Tax Rate. The effective income tax rate, expressed by calculating the income tax expense (benefit) as a ~~decrease in average revenue per dealer.~~

~~Retail Revenues—National Advertising. National advertising revenue represented 18%~~percentage of ~~total revenue for the first nine months of 2017. National advertising revenue~~(Loss) income before income tax, was (13.6)% for the nine months ended September 30, ~~2017 increased 3% as compared to~~2022, which varied from the ~~year-ago period mainly due to increased lead volume sold to OEMs.~~

~~Retail Revenues—Other~~. Other revenue represented 3% of total revenue for the first nine months of 2017. Other revenue for the nine months ended September 30, 2017 increased 7%, as compared to the year-ago period mainly due to increased lead volume sold to third-party lead resellers and higher volume of data sales.

~~Wholesale Revenues~~. Wholesale revenue represented 26% of total revenue for the first nine months of 2017. Wholesale revenues for the nine months ended September 30, 2017 decreased 4% as compared to the year-ago period reflecting a decline in average dealer count, partially offset by an increase in average revenue per dealer.

~~Expenses~~

~~Product support, technology and operations~~. Product support, technology and operations expenses increased 8% in the first nine months of 2017 as compared to the year-ago period due to the higher volume of our pay-per-lead product sales and the

acquisition of DealerRater in August 2016. Product support, technology and operations expense represents 23% of revenue for the nine months ended September 30, 2017 compared with 21% for the nine months ended September 30, 2016.

~~Marketing and sales~~. Marketing and sales expenses remained flat in the first nine months of 2017 as compared to the year-ago period driven by an increase in brand marketing, offset by a decline in sales expense. Marketing and sales expense represents 34% of revenue for the nine months ended September 30, 2017 compared with 34% for the nine months ended September 30, 2016.

~~General and administrative~~. General and administrative expenses increased $19 million, or 82%, in the first nine months of 2017 as compared to the year-ago period mainly due to $11.7 million in non-recurring items which is composed of $5 million related to the Separation from TEGNA, $3.6 million related to the corporate headquarters office relocation, $1.7 million related to costs associated with the separation of certain employees and $1.4 million due to the write-off or loss on certain assets disposed of in the first nine months of 2017. In addition, $5.3 million of the increase in general and administrative costs is related to the incremental cost of being a public company, $1.8 million of the increase is due to additional depreciation expense in the first nine months of 2017 as compared to the year-ago period primarily related to the acceleration of depreciation of assets in our former corporate headquarters location and $0.4 million of the increase is due to share-based and deferred compensation awards.

~~Affiliate revenue share. Affiliate revenue share costs increased 9% in the first nine months of 2017 as compared to the year-ago period primarily due to more dealer customers subject to revenue share.~~

~~Interest (expense)~~statutory federal income ~~net~~. During the nine months ended September 30, 2017, interest expense was $7.3 million related to our new Credit Agreement entered into in connection with the Separation. The Company did not have any interest expense for the nine months ended September 30, 2016.

~~Provision for income taxes.~~ ~~During the nine months ended September 30, 2017, the~~ tax ~~provision was $15.8 million, or an effective~~ rate of 17.8%. Effective with the Separation, the Company established a corporate legal entity structure that is subject to U.S. corporate income tax on a stand-alone basis post-Separation. Tax expense for the period is based upon four months of Cars.com, LLC information and nine months of DealerRater information. The Company recorded $0.5 million of income tax expense for the nine months ended September 30, 2016. See Note 5 to the financial statements included in Part I, Item 1 of this report for additional information related to income taxes.

~~Liquidity and Capital Resources~~

Prior to the Separation, we had access to TEGNA’s program of maintaining bank revolving credit availability as a component of our liquidity. Following the Separation, we will no longer participate in capital management with TEGNA and our ability to fund our future cash needs will depend on our ongoing ability to generate and raise cash in the future.

Our operations have historically generated strong positive cash flow which, along with our term loan and credit facility described below, we believe provide adequate liquidity to meet our requirements, including those for investments, and strategic acquisitions.

On May 31, 2017, we and certain of our domestic wholly-owned subsidiaries (the “Guarantors”) entered into a Credit Agreement with the lenders named therein. The Credit Agreement matures on May 31, 2022 and includes (a) revolving loan commitments in an aggregate principal amount of up to $450 million (of which up to $25 million may be in the form of letters of credit at the request of the Company) and (b) term loans in an aggregate principal amount of $450 million. Interest on the borrowings under the Credit Agreement is payable based on the London Interbank Offered Rate (“LIBOR”) or the alternate base rate, as defined in the Credit Agreement, in either case plus an applicable margin and fees which, after the second full fiscal quarter following the closing date, is based upon our total net leverage ratio. Borrowings under the Credit Agreement were used to fund the payment of a cash payment to TEGNA immediately prior to the distribution, to pay fees and expenses related to the Separation and distribution and related transactions. The term loan requires quarterly amortization payments which commenced on September 30, 2017. In the third quarter of 2017, we made $5.6 million of term loan quarterly amortization payments and voluntarily paid down $45 million on the revolving loan. As of September 30, 2017, the Company had $624.4 million of debt outstanding and $270 million available under the revolving loan. Debt issuance costs were $5.7 million at September 30, 2017 and are being amortized over the term of the Credit Agreement.

~~On October 31, 2017, we voluntarily paid down an additional $25 million on the revolving loan.~~

The tax matters agreement that TEGNA and Cars.com entered into prior to the distribution included restrictions that may limit our ability to pursue certain strategic transactions or other transactions that we may believe to be in the best interests of our stockholders or that might increase the value of our business. Under the tax matters agreement, for the two-year period following the distribution, Cars.com is prohibited, except in certain circumstances, from: entering into any transaction resulting in the acquisition of all or a portion of its stock or assets, whether by merger or otherwise; merging, consolidating or liquidating; issuing equity securities beyond certain thresholds; repurchasing its capital stock beyond certain thresholds; and ceasing to actively conduct its business. See Part II, Item 1A, “Risk Factors” of this report for additional information.

~~Details of our cash flows are included in the table below:~~

Nine Months Ended September 30,

In thousands of dollars

2017

2016

Net cash provided by operating activities

$
147,196

$
140,436

Net cash used in investing activities

(27,631
)

(124,533
)
Net cash used in financing activities

(101,033
)

(11,283
)
Net change in cash and cash equivalents

$
18,532

$
4,620

~~Net cash flow from operating activities was $147.2 million in the first nine months of 2017 as compared to the year-ago period of $140.4 million. This increase is due to changes in working capital,~~21%, primarily due to the ~~timing of the settlement of costs in accrued liabilities~~tax benefits realized on stock-based compensation and the ~~collection~~impact of accounts receivable, as well as cash received from tenant improvement allowances. These increases were mostly offset by lower net income in the first nine months of 2017 as compared to the year-ago period.uncertain tax positions.


(In thousands, except percentages)	Three Months Ended September 30, 2022					Nine Months Ended September 30, 2022
Income tax provision at statutory rate	$	(417	)	21.0	%	$	1,284		21.0	%
State income taxes, net of federal income tax benefit		523		(26.3	)		1,069		17.5
Stock-based compensation		29		(1.5	)		(1,182	)	(19.3	)
Uncertain tax positions		52		(2.6	)		(963	)	(15.8	)
Valuation allowance		2,482		(124.8	)		35		0.6
Other, net		(1,717	)	86.3			(1,073	)	(17.6	)
Income tax expense (benefit)	$	952		(47.9	)%	$	(830	)	(13.6	)%

Net cash used in investing activities was $27.6 million in the first nine months of 2017 as compared to the year-ago period of $124.5 million. 2017 investing activities were all capital expenditures, of which $19.8 million related to the corporate headquarters office relocation. Net cash used in investing activities in 2016 were primarily due to $114.9 million of cash used to acquire DealerRater.15

Net cash used for financing activities was $101.0 million in the first nine months of 2017 as compared to the year-ago period of $11.3 million. Prior to the Separation, cash used for financing activities was related to transactions with TEGNA. TEGNA utilized a centralized approach to cash management and the financing of its operations. Under this centralized cash management program, we provided funds to TEGNA and vice versa until the distribution. Accordingly, the net cash flow between us and TEGNA is presented as a financing activity and resulted in a $69.2 million cash outflow in 2017. In the third quarter of 2017, we made $5.6 million of term loan quarterly amortization payments and voluntarily paid down $45 million of revolving loan commitments. In addition, during 2017 we made a $650 million cash transfer to TEGNA, and TEGNA completed the Separation through a pro rata distribution to its stockholders of all of the outstanding shares of our common stock. We borrowed $675 million to fund the cash transfer to TEGNA and provide additional working capital.

~~Off-Balance Sheet Arrangements~~

~~We do not have any material off-balance sheet arrangements.~~

~~Effects of Inflation and Changing Prices and Other Matters~~

~~Our results of operations and financial condition have not been significantly affected by inflation.~~

~~Critical Accounting Policies~~

~~See Part I, Item 1, “Management’s Discussion and Analysis of Financial Condition and Results of Operations-Critical Accounting Policies and Estimates” in our Registration Statement on Form 10.~~

Note About Forward-Looking ~~Information~~Statements

This report contains ~~certain~~“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 ~~regarding business strategies, market potential, future financial performance and other matters. The~~often include words such as “believe,” “expect,” “project,” “anticipate,” “outlook,” “intend,” “strategy,” “plan,” “estimate,” “target,” “seek,” “will,” “may,” “would,” “should,” “could,” ~~“should,~~“forecasts,” ~~“intend,~~“mission,” ~~“may,~~“strive,” ~~“plan,~~“more,” ~~“seek,” “anticipate,” “project” and~~“goal” or similar expressions, among others, generally identify “forward-looking statements.” The matters discussed in these forward-looking statements are subject to risks, uncertainties and other factors that could causeexpressions. As a result, our actual financial results, toperformance, achievements, strategic actions, or prospects may differ materially from those ~~projected, anticipated~~expressed or implied by these forward-looking 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, the prolonged effects of the COVID-19 pandemic, global supply chain shortages, rising fuel prices and other factors we think are appropriate. Such forward-looking ~~statements. Where, in any forward-looking statement, an expectation or belief as to future results or events is expressed, such expectation or belief is~~statements are necessarily based upon estimates and assumptions that, while considered reasonable by us and our management based on our knowledge and understanding of the ~~current plans~~business and ~~expectations of Cars.com management and is~~industry, including the supply chain, are inherently uncertain. These statements are expressed in good faith and ~~believed to have a reasonable basis, but there can~~we believe these judgments are reasonable; however, you should understand that these statements are not guarantees of strategic action, performance or results. Our actual results and strategic actions could differ materially from those expressed in the forward-looking statements. Given these uncertainties, forward-looking statements should not be ~~no assurance that the expectation or belief will result or be achieved or accomplished.~~relied on in making investment decisions. Comparisons of results between current and prior periods are not intended to express any future trends, or indications of future performance, unless expressed as such, and should only be viewed as historical data. Whether or not any such forward-looking statement is in fact achieved will depend on future events, some of which are beyond ~~Cars.com’s~~our control.

Important factors that could cause actual results or events to differ materially from those anticipated include, among ~~others, those set forth~~others:

•

The COVID-19 pandemic and related restrictions have materially and adversely affected, and could continue to materially and adversely affect, our business, financial condition, liquidity and results of operations.

•

Market acceptance of and influence over certain of our products and services is concentrated with a limited number of automobile OEMs and dealership associations, and we may not be able to maintain or grow these relationships.

•

Dealer closures or consolidation among dealers or OEMs could reduce demand for, and negatively affect the pricing of, our marketing and solutions offerings, thereby leading to decreased earnings.

•

Our business is subject to risks related to the larger automotive ecosystem, including consumer demand and other macroeconomic issues.

•

Our business depends on our strong brand recognition, and any failure to maintain, protect and enhance our brands could hurt our ability to retain or expand our base of consumers, dealers and advertisers, and our ability to increase the frequency with which consumers, dealers and advertisers use our services.

•

We rely in part on Internet search engines and mobile application stores to drive traffic to the CARS sites and increase downloads of our mobile applications. If the CARS sites and mobile applications fail to appear prominently in these search results, traffic to the CARS sites and mobile applications would decline and our business, results of operations or financial condition may be materially and adversely affected.

•

We rely on in-house content creation and development to drive organic traffic to the CARS sites and mobile applications. If we are unable to continue to develop our in-house content, we may be required to rely more heavily on third-party content providers, which could lead to less distinctive content on our sites and increased operating costs, including increased traffic acquisition costs.

•

We participate in a highly competitive market, and pressure from existing and new competitors may materially and adversely affect our business, results of operations or financial condition.

•

We compete with other consumer automotive websites and mobile applications and other digital content providers for share of automotive-related digital display advertising spending and may be unable to maintain or grow our base of advertising customers or increase our revenue from existing advertisers.

•

If we do not adapt to automated buying strategies quickly, our display advertising revenue could be adversely affected.

•

We may face difficulties in developing and launching new solution offerings or growing our complementary offerings that help automotive brands and dealers create enduring customer relationships.

•

Strategic acquisitions, investments and partnerships could pose various risks, including integration risks, increase our leverage, dilute existing stockholders and significantly impact our ability to expand our overall profitability.

•

The value of our assets or operations may be diminished if our information technology systems fail to perform adequately.

•

Our business is dependent on keeping pace with advances in technology. If we are unable to keep pace with advances in technology, consumers may stop using our services and our revenue may decrease.

•

We rely on third-party service providers for many aspects of our business, including inventory information and sales of our product through social media, and interruptions in the services or data they provide or any failure to maintain these relationships could harm our business.

•

We rely on third-party services to track and calculate certain of our key metrics, including unique visitors and traffic and any errors or interruptions in the services or data they provide or any failure to maintain these relationships could harm our business.

•

We rely on technology systems’ availability and ability to prevent unauthorized access. If our security and resiliency measures fail to prevent incidents, it could result in damage to our reputation, incur costs and create liabilities.

•

Our ability to attract and retain customers depends on our ability to collect and use data and develop tools to enable us to effectively deliver and accurately measure advertisements on our platform.

•

Uncertainty exists in the application and interpretation of various laws and regulations related to our business, including privacy laws such as the California Consumer Privacy Act and the upcoming California Privacy Rights Act. New privacy concerns or laws or regulations applicable to our business, or the expansion or interpretation of existing laws and regulations that apply to our business, could reduce the effectiveness of our offerings or subject us to use restrictions, licensing requirements, claims, judgments and remedies including sales and use taxes, other monetary liabilities and limitations on our business practices, and could increase administrative costs.

•

Misappropriation or infringement of our intellectual property and proprietary rights, enforcement actions to protect our intellectual property and claims from third parties relating to intellectual property could materially and adversely affect our business, results of operations or financial condition.

•

Our ability to operate effectively could be impaired if we fail to attract and retain our key employees.

•

Adverse results from litigation or governmental investigations could impact our business practices and operating results.

•

The value of our existing intangible assets may become impaired depending upon future operating results.

•

We do not expect to pay any cash dividends for the foreseeable future.

•

Your percentage of ownership in the Company may be diluted in the future.

•

Certain provisions of our Amended and Restated Certificate of Incorporation, By-laws, and Delaware law may discourage takeovers and limit our ability to use, acquire, or develop certain competing businesses.

•

Our Amended and Restated Certificate of Incorporation designates the state courts of the State of Delaware, or, if no state court located in the State of Delaware has jurisdiction, the federal court for the District of Delaware, as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could discourage lawsuits against us and our directors and officers.

•

Our business could be negatively affected as a result of actions of activist stockholders, and such activism could impact the trading value of our common stock.

•

Our debt agreements contain restrictions that may limit our flexibility in operating our business.

•

Increases in interest rates could increase interest payable under ~~Part~~our variable rate indebtedness.

For a detailed discussion of many of these risks and uncertainties, see “Part I, Item ~~1A,~~1A., Risk ~~Factors,”~~Factors” and ~~Part I,~~“Part II, Item ~~2, “Management’s~~7., Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations,”~~Operations” in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission (“SEC”) on February 25, 2022, our Current Reports on Form 8-K and our other filings filed with the ~~following:~~

~~competitive pressures in the markets in which Cars.com operates~~SEC and ~~innovation by Cars.com’s competitors;~~

~~increased closures~~available on our website at investor.cars.com or ~~consolidation among automobile dealers or other events which may adversely affect business operations of major customers and/or depress their level of advertising;~~

~~macroeconomic trends and conditions;~~

~~economic downturns leading to a weak automotive market or a decrease in online and mobile advertising or consumer demand for new and used cars;~~

~~the ability of Cars.com to anticipate market needs and develop new and enhanced products and services to meet those needs, and its ability to successfully monetize them;~~

~~potential disruption or interruption of Cars.com’s operations due to accidents, extraordinary weather events, civil unrest, political events, terrorism or cyber security attacks;~~

~~an inability to realize benefits or synergies from acquisitions of new businesses or dispositions of existing businesses or to operate businesses effectively following acquisitions or divestitures;~~

~~the ability to attract and retain employees;~~

~~the ability to adequately protect intellectual property;~~

~~reliance on third-party service providers;~~

~~rapid technological changes and frequent new product introductions prevalent in the markets in which Cars.com competes;~~

volatility in financial and credit markets which could affect Cars.com’s ability to raise funds through debt or equity issuances and otherwise affect Cars.com’s ability to access the credit and capital marketsvia EDGAR at ~~the times and in the amounts needed and on acceptable terms;~~

~~reliance on the performance of counterparties to affiliation agreements to generate wholesale advertising revenues, and the potential underperformance of these counterparties;~~

~~the ability to stay abreast of new or modified laws and regulations that currently apply or become applicable to Cars.com’s business;~~

~~adverse outcomes in proceedings with governmental authorities or administrative agencies;~~

~~any other than temporary decline in operating results and enterprise value that could lead to non-cash goodwill, other intangible asset, investment or property, plant and equipment impairment charges;~~

~~Cars.com’s expectations regarding the time during which it will be an “emerging growth company” under the Jumpstart Our Business Startups Act of 2012;~~

~~Cars.com’s inability to engage in certain corporate transactions following the Separation;~~

~~any failure to realize expected benefits from the Separation; and~~

~~other uncertainties relating to general economic, political, business, industry, regulatory and market conditions.~~

~~There may be other factors, some of which are beyond Cars.com’s control, that may cause our actual results to differ materially from the~~www.sec.gov. All forward-looking statements contained in this ~~report.~~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. ~~Except~~We undertake no obligation, other than as may be required by law, ~~Cars.com undertakes no obligation~~ to ~~modify~~update or revise any forward-looking ~~statement~~or cautionary statements in this report to reflect changes in assumptions, the occurrence of events, unanticipated or otherwise, or changes in future operating results 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.

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. In a rapidly changing market, we enable dealerships 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™, our brands include Dealer Inspire®, a website and digital solutions provider enabling dealerships 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™, digital financing technology 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 September 30,					Nine Months Ended September 30,
(in thousands)	2022			2021		2022		2021
Revenue	$	164,595		$	156,553	$	485,675	$	465,378
Net (loss) income		(2,941	)		2,431		6,944		13,675

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 vehicle 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 provide dealers and consumers 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 nine months ended September 30, 2022, we repurchased and subsequently retired 3.5 million shares for $40.0 million at an average price paid per share of $11.47.

Key Operating Metrics


	Three Months Ended September 30,							Nine Months Ended September 30,
(in thousands)	2022		2021		% Change			2022		2021		% Change
Traffic		150,449		142,418		6	%		446,949		457,460		(2	)%
Average Monthly Unique Visitors		27,309		24,341		12	%		26,983		25,563		6	%



	September 30, 2022		September 30, 2021		% Change			June 30, 2022		QoQ % Change
Dealer Customers		19,585		19,029		3	%		19,517		0	%
Monthly Average Revenue Per Dealer	$	2,334	$	2,332		0	%	$	2,326		0	%

Traffic ("Visits"). Traffic is 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 indication of our consumer reach. Although our consumer reach does not directly result in revenue, we believe our ability to reach in-market car shoppers is attractive to our dealer customers and national advertisers.

The increase in traffic for the three months ended September 30, 2022 was primarily driven by efficiencies in performance media and optimization of our user acquisition strategy.

The decline in traffic for the nine months ended September 30, 2022 was primarily due to elevated traffic in the prior year period related to an increase in consumer confidence and heightened consumer demand from the federal economic stimulus program that ran during the first half of 2021, and a decrease in mobile app and SEO traffic following our technology transformation. This was partially offset by efficiencies gained and user acquisition strategy shifts in 2022.

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. UVs do not include UVs associated with Dealer Inspire hosted websites. We measure UVs using Adobe Analytics.

The growth in UVs for the three months ended September 30, 2022 was primarily driven by efficiencies in performance media and optimization of our user acquisition strategy.

The growth in UVs for the nine months ended September 30, 2022 as compared to the decline in Traffic can be attributed to changes in our Traffic mix and the continued lower vehicle inventory levels, which we believe are resulting in users purchasing cars with fewer visits. In addition, browser and data privacy policies may make it more difficult to resolve users across sessions. This growth was partially offset by a decrease in SEO and mobile app traffic.

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. Beginning 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 3% from September 30, 2021, driven by sustained high retention rates, new sales to Dealer Customers, as well as the inclusion of Accu-Trade only dealers. Dealer Customers slightly increased by 68 from June 30, 2022.

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. Beginning with 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 September 30, 2022, ARPD was essentially flat compared to the three months ended September 30, 2021 and for the three months ended June 30, 2022.

Factors Affecting Our Performance. Our business is impacted by changes in the larger automotive ecosystem, including inventory supply and supply-chain disruptions, which continue to be under pressure due to key material and labor shortages, and changes related to automotive advertising as well as other macroeconomic factors including inflation, rising interest rates and a potential recession. 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 evolve our business toward a multi-faceted suite of digital solutions that complement our online marketplace offerings. We believe our core strategic strengths, including our strong brand portfolio, 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 and digital advertising products targeting in-market buyers. The foundation of our continued success is the value we deliver to customers, and we believe that our large audience of in-market car shoppers and innovative solutions deliver significant value to our customers.

The prolonged effects of the COVID-19 pandemic continue to be unknown and depend on factors outside of our control. However, we believe our marketplace, advertising and digital solutions remain critical in helping our customers navigate a new way of shopping as a result 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.

Results of Operations

Three Months Ended September 30, 2022 Compared to Three Months Ended September 30, 2021


	Three Months Ended September 30,
(In thousands, except percentages)	2022			2021			$ Change			% Change
Revenue:
Dealer	$	145,395		$	139,321		$	6,074			4	%
OEM and National		14,909			15,273			(364	)		(2	)%
Other		4,291			1,959			2,332			119	%
Total revenue		164,595			156,553			8,042			5	%
Operating expenses:
Cost of revenue and operations		28,828			28,928			(100	)		0	%
Product and technology		21,425			20,132			1,293			6	%
Marketing and sales		53,615			51,948			1,667			3	%
General and administrative		17,694			17,919			(225	)		(1	)%
Depreciation and amortization		23,134			25,552			(2,418	)		(9	)%
Total operating expenses		144,696			144,479			217			0	%
Operating income		19,899			12,074			7,825			65	%
Nonoperating expense:
Interest expense, net		(8,501	)		(9,522	)		1,021			(11	)%
Other (expense) income, net		(13,387	)		19			(13,406	)	***%
Total nonoperating expense, net		(21,888	)		(9,503	)		(12,385	)	***%
(Loss) income before income taxes		(1,989	)		2,571			(4,560	)	***%
Income tax expense		952			140			812		***%
Net (loss) income	$	(2,941	)	$	2,431		$	(5,372	)	***%

*** Not meaningful

Dealer revenue. Dealer revenue consists of marketplace and digital solutions sold to dealer customers, which includes Accu-Trade revenue except for the Accu-Trade license included in Other revenue. Dealer revenue is our largest revenue stream, representing 88%

and 89% of total revenue for the three months ended September 30, 2022 and 2021, respectively. Dealer revenue increased $6.1 million or 4% compared to the three months ended September 30, 2021, driven primarily by a 3% increase in Dealer Customers from September 30, 2021.

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. OEM and National revenue represents 9% and 10% of total revenue for the three months ended September 30, 2022 and 2021, respectively. OEM and National revenue decreased 2%, primarily due to pullbacks in certain OEM spending associated with production delays and shortages, both driven by supply-chain disruptions.

Other revenue. Other revenue consists of revenue related to the Accu-Trade license agreement and vehicle listing data sold to third parties and pay-per lead and peer-to-peer vehicle advertising. Other revenue represents 3% and 1% of total revenue for the three months ended September 30, 2022 and 2021, respectively. Other revenue increased $2.3 million or 119%, primarily due to the Accu-Trade license agreement. For more information, see Note 3 (Goodwill, Indefinite-Lived Intangible Asset, and 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 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 September 30, 2022 and 2021. Cost of revenue and operations expense was essentially flat.

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 costs, hardware and software maintenance, software licenses, data center and other infrastructure costs. Product and technology expense represents 13% of total revenue for the three months ended September 30, 2022 and 2021. Product and technology expense increased, primarily due to incremental costs related to Accu-Trade and CreditIQ and higher compensation, including stock-based compensation.

Marketing and sales. Marketing and sales expense primarily consists of traffic and lead acquisition costs (including search engine and other online marketing), TV and digital display and video advertising and creative production, market research, trade events, ~~or circumstances occurring after~~compensation costs and travel for the ~~date~~marketing, sales and sales support teams, as well as bad debt expense related to the allowance for doubtful accounts. Marketing and sales expense represents 33% of total revenue for the three months ended September 30, 2022 and 2021. Marketing and sales expense increased, primarily due to higher compensation, partially offset by reduced spend related to traffic generation.

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 on assets. General and administrative expense represents 11% of total revenue for the three months ended September 30, 2022 and 2021. General and administrative expense was essentially flat, down 1% from the prior year.

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 $1.0 million compared to the prior year period due to the maturity of the interest rate swap and a reduction in total indebtedness, partially offset by slightly higher interest rates in 2022. For information related to our debt, see Note 5 (Debt) and Note 6 (Interest Rate Swap) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements (unaudited)” of this ~~report.~~Quarterly Report on Form 10-Q.

Other (expense) income, net. Other (expense) 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 Note 3 (Goodwill, Indefinite-lived Intangible Asset and Business Combinations) and Note 4 (Fair Value Measurements).

Income tax expense. The effective income tax rate, expressed by calculating the Income tax expense as a percentage of (Loss) income before income taxes, was (47.9)% for the three months ended September 30, 2022, and the Income tax expense was $1.0 million. The effective income tax rate was different from the statutory federal income tax rate of 21%, primarily due to the change in the valuation allowance and an aggregate of other individually insignificant items.

Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021


	Nine Months Ended September 30,
(In thousands, except percentages)	2022			2021			$ Change			% Change
Revenue:
Dealer	$	429,798		$	409,145		$	20,653			5	%
OEM and National		44,227			49,671			(5,444	)		(11	)%
Other		11,650			6,562			5,088			78	%
Total revenue		485,675			465,378			20,297			4	%
Operating expenses:
Cost of revenue and operations		86,084			84,978			1,106			1	%
Product and technology		65,849			56,326			9,523			17	%
Marketing and sales		165,364			156,468			8,896			6	%
General and administrative		51,465			46,800			4,665			10	%
Depreciation and amortization		70,688			76,530			(5,842	)		(8	)%
Total operating expenses		439,450			421,102			18,348			4	%
Operating income		46,225			44,276			1,949			4	%
Nonoperating expense:
Interest expense, net		(26,878	)		(29,362	)		2,484			(8	)%
Other (expense) income, net		(13,233	)		18			(13,251	)	***
Total nonoperating expense, net		(40,111	)		(29,344	)		(10,767	)		37	%
Income before income taxes		6,114			14,932			(8,818	)		(59	)%
Income tax (benefit) expense		(830	)		1,257			(2,087	)	***
Net income	$	6,944		$	13,675		$	(6,731	)		(49	)%

*** Not meaningful

Dealer revenue. Dealer revenue is our largest revenue stream, representing 88% of total revenue for the nine months ended September 30, 2022 and 2021. Dealer revenue increased $20.7 million or 5% compared to the nine months ended September 30, 2021, driven by a 3% increase in Dealer Customers from September 30, 2021.

OEM and National revenue. OEM and National revenue represents 9% and 11% of total revenue for the nine months ended September 30, 2022 and 2021, respectively. OEM and National revenue decreased 11%, primarily due to pullbacks in certain OEM spending associated with continued production delays and shortages, both driven by supply-chain disruptions.

Other revenue. Other revenue represents 3% and 1% of total revenue for the nine months ended September 30, 2022 and 2021, respectively. Other revenue increased $5.1 million or 78%, primarily due to the Accu-Trade license agreement. For more information, see Note 3 (Goodwill, Indefinite-Lived Intangible Asset, and Business Combinations).

Cost of revenue and operations. Cost of revenue and operations expense represents 18% of total revenue for the nine months ended September 30, 2022 and 2021. Cost of revenue and operations expense increased, primarily due to higher compensation costs, partially offset by lower third-party costs associated with certain products.

Product and technology.Product and technology expense represents 14% and 12% of total revenue for the nine months ended September 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 34% of total revenue for the nine months ended September 30, 2022 and 2021. 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, as well as higher compensation costs.

General and administrative. General and administrative expense represents 11% and 10% of total revenue for the nine months ended September 30, 2022 and 2021, respectively. General and administrative expense increased, primarily due to professional fees and transaction-related costs related to the Accu-Trade Acquisition, as well as higher compensation costs, including stock-based compensation.

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 $2.5 million compared to the prior year period due to the maturity of the interest rate swap and a reduction in total indebtedness, partially offset by slightly higher interest rates in 2022. For information related to our debt, see Note 5 (Debt) and Note 6 (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.

Income tax (benefit) expense. The effective income tax rate, expressed by calculating the Income tax (benefit) expense as a percentage of (Loss) Income before income taxes, was (13.6)% for the nine months ended September 30, 2022, and the Income tax benefit was $0.8 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 stock-based compensation and the impact of uncertain tax positions.

Liquidity and Capital Resources

Overview. Our primary sources of liquidity are cash flows from operations, available cash reserves and borrowing 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, 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 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 7 (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, 2021 as filed with the SEC on February 25, 2022.

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 September 30, 2022, Cash and cash equivalents were $31.9 million and including our undrawn Revolving Loan, our total liquidity was $226.9 million.

Indebtedness. As of September 30, 2022, the outstanding aggregate principal amount of our debt was $505.0 million, with an interest rate of 6.2%, including $70.0 million of outstanding principal under our Term Loan, with an interest rate of 5.7%, $35.0 million of outstanding borrowings on our Revolving Loan, with an interest rate of 5.1% and outstanding Senior Unsecured Notes of $400.0 million, with an interest rate of 6.375%. During the nine months ended September 30, 2022, we made $7.5 million in mandatory Term Loan payments. During the nine months ended September 30, 2022 we borrowed $45.0 million on our Revolving Loan and repaid $10.0 million. As of September 30, 2022, we had $195.0 million available to borrow under our 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, and were 0.6x and 5.7x as of September 30, 2022, respectively.

Contingent Consideration. The fair value as of September 30, 2022 for the contingent consideration related to the CreditIQ and Accu-Trade acquisitions was $61.1 million. Within the next twelve months, we expect to pay $10.0 million of 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 certain financial targets. For the Accu-Trade contingent consideration we have the option to pay consideration in cash or stock, which may result in a variable number of shares being issued. The actual amount to be paid will be based on the acquired business’ future performance to be attained over a three-year performance period.

As part of the CreditIQ Acquisition, we may be required to pay up to an additional $50.0 million in 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 with a mutually agreed-upon option for a fourth year. For information related to the contingent consideration, see Note 3 (Goodwill, Indefinite-lived Intangible Asset and Business Combinations) and Note 4 (Fair Value Measurements).

Cash Flows. Details of our cash flows are as follows (in thousands):


	Nine Months Ended September 30,
	2022			2021			Change
Net cash provided by (used in):
Operating activities	$	91,291		$	116,226		$	(24,935	)
Investing activities		(79,169	)		(17,879	)		(61,290	)
Financing activities		(19,271	)		(114,559	)		95,288
Net change in cash and cash equivalents	$	(7,149	)	$	(16,212	)	$	9,063

Operating Activities.The decrease in cash provided by operating activities was primarily related to changes in operating assets and liabilities, including fluctuations in working capital during the nine months ended September 30, 2022 in addition to the receipt of 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 during the nine months ended September 30, 2021.

Investing Activities. The increase in cash used in investing activities was primarily related to the Accu-Trade Acquisition in 2022, partially offset by lower capital expenditures in the current year period.

Financing Activities. During the nine months ended September 30, 2022, cash used in financing activities was primarily related to repurchases of common stock and payments on our Term Loan and Revolving Loan, partially offset by $45.0 million of proceeds from Revolving Loan borrowings related to the Accu-Trade Acquisition. During the nine months ended September 30, 2021, cash used in financing activities was primarily related to $107.5 million of debt repayments, of which $100.0 million were voluntary pre-payments. For information related to our debt and repurchases of common stock, see Note 5 (Debt) and Note 8 (Stockholders' Equity) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements (unaudited)” of this Quarterly Report on Form 10-Q.

Commitments and Contingencies. For information related to commitments and contingencies, see Note 7 (Commitments and Contingencies) to the accompanying Consolidated Financial Statements included in Part I, Item 1., “Financial Statements (unaudited)” 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, 2021 as filed with the SEC on February 25, 2022 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)” of this Quarterly Report on Form 10-Q. During the nine months ended September 30, 2022, 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.

Item 3. Quantitative and ~~Qualitative~~Qualitative Disclosures about Market Risk

For quantitative and qualitative disclosures about market risk, see “Quantitative and Qualitative Disclosures About Market ~~risk represents~~Risk,” in Part II, Item 7A., of our Annual Report on Form 10-K for the ~~risk of loss that may affect our financial position due to adverse changes in financial market prices~~year ended December 31, 2021, as filed with the Securities and ~~rates. We are exposed~~Exchange Commission (“SEC”) on February 25, 2022. Our exposures to market ~~risks related to changes in interest rates.~~

~~Interest Rate Risk~~

A substantial portion of our debt facilities bear interest at floating rates, based on LIBOR or the alternate base rate, as defined in the Credit Agreement. Accordingly, we are exposed to fluctuations in interest rates. We manage our interest rate exposure by monitoring the effects of market changes in interest rates. Based on the value of our indebtedness at September 30, 2017, a 100-basis point increase in interest rates would result in a corresponding increase in our interest expense of $6.2 million annually.

~~Foreign Currency Exchange Risk~~

~~Historically, as our operations and sales have been primarily in the United States, we~~risk have not faced any significant foreign currency risk. With the acquisition of DealerRater in August 2016, Cars.com acquired a limited number of Canadian customers, some of which are billed in Canadian dollars. Any foreign currency exchange rate fluctuations have been and are anticipated to be immaterial. If we plan for additional international expansion, our risks associated with fluctuation in currency rates will become greater, and we will continue to reassess our approach to managing this risk.changed materially since December 31, 2021.

Item 4. Controls and Procedures

Disclosure Controls and ~~Procedures~~

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 ~~report.~~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.~~To assist management, we have established an internal audit function to verify and monitor our internal controls and procedures.~~ ~~Our internal control system is supported by written policies and procedures, contains self-monitoring mechanisms and is audited by the internal audit function.~~

Changes in Internal Control Over Financial ~~Reporting~~

Reporting. During the period covered by this ~~report,~~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 ~~Exchange Act~~ Rules 13a-15(f) and 15d-15(f) under the ~~Securities~~ Exchange ~~Act of 1934)~~Act).

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

For ~~a description of our material pending~~information relating to legal proceedings, ~~please refer to~~see Note ~~9, “Commitments, contingent liabilities~~7 (Commitments and ~~other matters” of the Notes~~Contingencies) to the ~~Unaudited Condensed~~accompanying Consolidated ~~and Combined~~ Financial Statements included in Part I, Item 11., “Financial Statements (unaudited)” of this ~~report, which is incorporated herein by reference.~~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,~~1A., “Risk Factors” in our ~~Registration Statement~~Annual Report on Form ~~10,~~10-K for the year ended December 31, 2021 as filed with the Securities and Exchange Commission (“SEC”) on February 25, 2022, which could materially affect our business, financial condition, results of operations ~~financial condition~~ and future results. There have been no material changes from the risk factors described in our ~~Registration Statement~~Annual Report on Form ~~10.~~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 September 30, 2022 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)
July 1 through July 31, 2022		479,836	$	10.41		479,836	$	171,697
August 1 through August 31, 2022		432,819		13.09		432,819		166,033
September 1 through September 30, 2022		519,995		11.58		519,995		160,012
		1,432,650				1,432,650

(1)

The total number of shares purchased and subsequently retired and the average price paid per share reflects shares purchased pursuant to the share repurchase program. Our stock repurchases may occur through open market purchases or pursuant to a Rule 10b5-1 trading plan.

(2)

In February 2022, the Company's 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 dollar amount or particular amount of shares.

(3)

The amounts presented represent the remaining Board of Directors’ authorized value to be spent after each month's repurchases.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.

Item 6. Exhibits

Exhibit Index


Exhibit Number		Description
10.1**		Letter Agreement, dated September 7, 2022, between Cars.com LLC and Sonia Jain (incorporated by reference to Exhibit 10.1 to Cars.com Inc.’s Form 8-K filed on October 4, 2022, File No. 001-37869).
31.1*		Certification of Principal Executive Officer Pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934, as ~~Adopted Pursuant~~adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*		Certification of Principal Financial Officer Pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934, as ~~Adopted Pursuant~~adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*		Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as ~~Adopted Pursuant~~adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*		Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as ~~Adopted Pursuant~~adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		Inline XBRL Instance ~~Document.~~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 September 30, 2022, formatted with Inline XBRL (included with Exhibit 101 attachments)

*	~~Filed herewith.~~

~~SIGNATURES~~

* Filed herewith.

** Previously filed.

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.


	~~Company Name~~Cars.com Inc.

Date: November ~~8, 2017~~3, 2022	By:	/s/ T. Alex Vetter
		T. Alex Vetter
		~~President and~~ Chief Executive Officer

Date: November ~~8, 2017~~3, 2022	By:	/s/ ~~Becky A. Sheehan~~Sonia Jain
		~~Becky A. Sheehan~~Sonia Jain
		Chief Financial Officer

	September 30, 2017			December 31, 2016
	(unaudited)
Assets
Current assets
Cash and cash equivalents	$	27,428		$	8,896
Accounts receivable, less allowance of $3,437 and $3,527, respectively		93,077			98,303
Prepaid expenses and other current assets		18,298			12,342
Total current assets		138,803			119,541
Property and equipment
Cost		61,783			37,190
Less accumulated depreciation		(20,908	)		(16,729	)
Net property and equipment		40,875			20,461
Intangible and other assets
Goodwill		788,107			788,107
Intangible assets, less accumulated amortization of $224,053 and $165,651, respectively		1,548,967			1,607,369
Investments and other assets		11,172			11,788
Total assets	$	2,527,924		$	2,547,266
Liabilities and equity
Current liabilities
Accounts payable	$	6,787		$	7,844
Current portion of long-term debt		21,162			—
Accrued liabilities		69,137			64,140
Total current liabilities		97,086			71,984
Noncurrent liabilities
Deferred incentive plans		1,677			3,913
Unfavorable contracts liability		25,185			44,085
Long-term debt		597,468			—
Deferred tax liability		282,504			8,325
Other noncurrent liabilities		17,532			1,674
Total noncurrent liabilities		924,366			57,997
Total liabilities		1,021,452			129,981
Commitments and contingent liabilities
Stockholders' equity
TEGNA's investment, net		—			2,417,285
Common Stock at par, $0.01 par value; authorized 300,000,000 shares; issued and outstanding 71,625,405 shares at September 30, 2017; no shares authorized, issued and outstanding at December 31, 2016		716			—
Additional paid-in capital		1,480,932			—
Retained earnings		24,824			—
Total stockholders' equity		1,506,472			2,417,285
Total liabilities and stockholders' equity	$	2,527,924		$	2,547,266

	Three Months Ended September 30,					Nine Months Ended September 30,
	2017			2016		2017			2016
Revenues:
Retail	$	118,825		$	119,828	$	346,780		$	343,013
Wholesale^(a)		41,074			42,467		122,917			128,421
Total		159,899			162,295		469,697			471,434
Operating expenses:
Product support, technology and operations		36,598			32,469		106,479			98,381
Marketing and sales		50,733			48,670		160,246			160,275
General and administrative		11,606			7,738		42,305			23,277
Affiliate revenue share		2,121			2,162		6,837			6,264
Amortization of intangible assets		19,467			19,088		58,402			55,416
Total		120,525			110,127		374,269			343,613
Operating income		39,374			52,168		95,428			127,821
Nonoperating (expense) income:
Interest (expense) income, net		(5,431	)		41		(7,160	)		53
Other income, net		64			88		199			142
Total nonoperating (expense) income, net		(5,367	)		129		(6,961	)		195
Income before income taxes		34,007			52,297		88,467			128,016
Provision for income taxes		13,019			452		15,782			452
Net income	$	20,988		$	51,845	$	72,685		$	127,564
Earnings per share, basic	$	0.29		$	0.72	$	1.01		$	1.78
Weighted-average common shares outstanding, basic		71,699			71,588		71,693			71,588
Earnings per share, diluted	$	0.29		$	0.72	$	1.01		$	1.78
Weighted-average common shares outstanding, diluted		71,767			71,588		71,763			71,588

	Gross		Accumulated Amortization			Net
September 30, 2017
Goodwill	$	788,107	$	—		$	788,107
Indefinite-lived intangibles:
Trade name		872,320		—			872,320
Amortizable intangible assets:
Customer relationships		814,240		(189,090	)		625,150
Acquired software		71,700		(31,069	)		40,631
Trade name		9,800		(953	)		8,847
Non-compete agreements		2,860		(1,716	)		1,144
Content library		2,100		(1,225	)		875
Total amortizable intangible assets		900,700		(224,053	)		676,647
Total	$	2,561,127	$	(224,053	)	$	2,337,074
December 31, 2016
Goodwill	$	788,107	$	—		$	788,107
Indefinite-lived intangibles:
Trade name		872,320		—			872,320
Amortizable intangible assets:
Customer relationships		814,240		(140,788	)		673,452
Acquired software		71,700		(22,798	)		48,902
Trade name		9,800		(340	)		9,460
Non-compete agreements		2,860		(1,287	)		1,573
Content library		2,100		(438	)		1,662
Total amortizable intangible assets		900,700		(165,651	)		735,049
Total	$	2,561,127	$	(165,651	)	$	2,395,476

	Three Months Ended September 30,						Nine Months Ended September 30,
In thousands (except % amounts)	2017			2016			2017			2016
Revenues	$	159,899		$	162,295		$	469,697		$	471,434
Net income		20,988			51,845			72,685			127,564
Retail revenue as % of total revenue		74	%		74	%		74	%		73	%
Wholesale revenue as % of total revenue		26	%		26	%		26	%		27	%

	Three Months Ended September 30,					Increase
In thousands (except % amounts)	2017			2016		(Decrease)			% Change
Revenues:
Direct revenue	$	82,504		$	84,651	$	(2,147	)		(3	)%
National advertising revenue		32,002			31,214		788			3	%
Other revenue		4,319			3,963		356			9	%
Retail revenue		118,825			119,828		(1,003	)		(1	)%
Wholesale revenue		41,074			42,467		(1,393	)		(3	)%
Total revenues		159,899			162,295		(2,396	)		(1	)%
Operating expenses:
Product support, technology and operations		36,598			32,469		4,129			13	%
Marketing and sales		50,733			48,670		2,063			4	%
General and administrative		11,606			7,738		3,868			50	%
Affiliate revenue share		2,121			2,162		(41	)		(2	)%
Amortization of intangible assets		19,467			19,088		379			2	%
Total operating expenses		120,525			110,127		10,398			9	%
Operating income		39,374			52,168		(12,794	)		(25	)%
Nonoperating (expense) income:
Interest (expense) income, net		(5,431	)		41		(5,472	)	***%
Other income, net		64			88		(24	)		(27	)%
Total nonoperating (expense) income, net		(5,367	)		129		(5,496	)	***%
Income before income taxes		34,007			52,297		(18,290	)		(35	)%
Provision for income taxes		13,019			452		12,567		***%
Net income	$	20,988		$	51,845	$	(30,857	)		(60	)%

	Nine Months Ended September 30,
In thousands of dollars	2017			2016
Net cash provided by operating activities	$	147,196		$	140,436
Net cash used in investing activities		(27,631	)		(124,533	)
Net cash used in financing activities		(101,033	)		(11,283	)
Net change in cash and cash equivalents	$	18,532		$	4,620

Acquisition-Date
Fair Value
(in thousands)

Amortization Period
(in years)

Acquired software

Trade name

Customer relationships